After a long period of stability, Bitcoin, along with some other cryptocurrencies, is suddenly seeing a significant rise in value. This sudden increase is good news for those who buy and sell Bitcoin, and who have been holding fast, hoping for the winds of change to blow more favorably across their crypto assets. The exact cause for this sudden increase in the value of Bitcoin is unclear, although some believe a massive order of Bitcoin placed anonymously may have driven a sudden uplift.
According to some experts, Bitcoin investors who held their nerve throughout the recent benign period could potentially stand to reap further significant rewards in the not too distant future, due to the impending ‘halving’ event that is set to occur in May 2020.
The halving occurs when a certain amount of Bitcoin available has been mined, every 210,000 blocks. Miners of Bitcoin reap a ‘proof of work’ reward in Bitcoin each time they add a new block to the blockchain platform Bitcoin sits on. This reward (paid in Bitcoin) is halved each time 210,000 blocks are added to the blockchain. The amount of Bitcoin that can be mined is also halved at the same time, so the supply of Bitcoin is reduced by half.
Bitcoin founder, Satoshi Nakamoto, designed the currency to have a finite number of 21 million Bitcoins, meaning that once this limit is reached, no more Bitcoin will be mined. The reason it was designed this way was to control the supply of Bitcoin, making demand rise as its scarcity increases, which in turn should push its value up higher.
Historically, Bitcoin had jumped up in value in the months following the halving event. The first halving, in November 2012, saw the Bitcoin’s value grow by 82%, and after the second one in July 2016 the value of Bitcoin tripled over a year. The next halving event is expected to reduce Bitcoin production from 1,800 a day to only 900 a day and cut the ‘proof of work’ reward from 12.5 BTC to just 6.25.
Experts are therefore anticipating another bull run, which could be profitable for those who are willing to take a risk to gain potentially significant rewards. Some predict the value of Bitcoin could rise as high as $55,000, as the scarcity valuation model takes effect.
As Bitcoin supply drops following the next halving event, demand is expected to increase. The Stock to Flow Ratio (SF) will therefore increase. The current SF ratio for Bitcoin is 25, a little over that of silver, but after the next halving, it could rise closer to gold, which has an SF ratio of 62.
Since it was first launched, Bitcoin has become the fastest rising asset ever, growing 20,000,000% over 9 years. Dr. Sairdean Ammous, author of “The Bitcoin Standard” predicts that one day Bitcoin will become the global currency of the internet. Although there have been bubbles along the way which have burst, over time Bitcoin has delivered. As it is so new it is not directly comparable to other stocks or currencies on the market, however, it has been referred to as the best performer of the past ten years by some investors.
If you are looking to invest in cryptocurrency, historical trends may suggest Bitcoin is worth considering for potentially significant gains.