Last week, bitcoin halved for the third time, a move that has previously made prices of the world’s most prominent cryptocurrency surge. Some experts think this could happen again, convincing some that it’s time to invest.
Halving is when the number of bitcoins awarded to miners, or those who maintain the bitcoin network, is cut by half, creating less supply of the cryptocurrency. This occurs every four years and is done to slow the creation of new bitcoin.
Google searches for the term ‘halving’ have skyrocketed, hitting much higher levels than the previous July 2016 halving, according to data by Crypto Compare, a cryptocurrency market data provider.
“Search data indicates unprecedented interest in the event and bitcoin’s blockchain data shows it to be in good health,” said Charles Hayter, CEO of Crypto Compare. “With the halving taking place at such a significant juncture in financial history, Bitcoin has never been in a better place to shine.”
The probability of increasing demand and limited supply might make this a good time for new investors to enter the market, some experts said. Here’s what you should know.
Does halving mean higher prices?
Previous halvings in 2012 and 2016 significantly increased prices — while not immediately — but six months to a year following the event. But experts said the market in 2020 is different for a few reasons.
“With a broader, more sophisticated array of market participants, larger exchanges and a more developed derivatives market, changes to supply and demand are less felt in such a market,” Hayter said.
Additionally, forces, such as the impacts of Covid-19 on financial markets, may be a stronger determinant for bitcoin’s price, according to Hayter.
In the first two weeks of March, when the effect of the coronavirus pandemic was starting to unfold in the U.S., bitcoin crashed along with the stock market, but has since risen 97% while the S&P 500 is up 24%.
The first days after the halving, prices went up. But prices are expected to be in “substantial volatility in the months to come,” according to Hayter.
Long or short term?
For those who want to start investing in bitcoin, a long-term investment may be a better strategy, Hayter said.
“If you're a short-term trader, you’ve got to be very knowledgeable about what you're doing,” he said. “Most people recommend that long-term, Buffett-style methodology.”
When deciding how much to allocate to your first investment in the crypto market, keep in mind the risks when choosing how much funds to invest.
“Always be mindful of only investing capital that you're comfortable putting at risk,” said Zac Prince, CEO of BlockFi, a crypto-asset service provider. “People should be mindful of their personal situation and only invest amounts that make sense for them.”
Hedging against inflation
Some famed investors are also joining the bitcoin market. Billionaire investor Paul Tudor Jones recently said he’s buying bitcoin as a hedge against inflation during the coronavirus pandemic.
“The best profit-maximizing strategy is to own the fastest horse,” Jones said in a market outlook note, according to Bloomberg News. “If I am forced to forecast, my bet is it will be bitcoin.”
He compared bitcoin to the role gold played in the 1970s when inflation was rampant. In the current climate, interest in bitcoin comes against a backdrop of a high level of money printing from central banks.
“We could find ourselves in an inflationary period,” Prince said. “In inflationary periods, investors have historically been well served to own assets that are stores of value, or inflation-resistant assets.”
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