By FVP Trade on The Capital
Positive signs for Bitcoin (BTC) are increasing in several spaces, and therefore the bullish trend seems to be more and more realistic.
BTC Halving.
This is not the first occasion we’ve seen an event called halving on the BTC network. The first occasion happened back in 2012; the second occasion happened back in 2016. Now, the third occasion is expected, and just like the previous ones, it’ll halve the reward for the calculated BTC block. Previously, the reward for the block was 50 BTC. Since then, the reward has been dropping to 25 and then 12.5 BTC — and is close to being reduced to 6.75 BTC.
The upcoming halving, however, differs from the previous occasions as there are far more people involved within the crypto industry these days. New opportunities have materialized, including ones for larger players to control the value of BTC. Among the financial instruments available to the larger players, there’s also stock options and futures on BTC. There has also been a big increase in people’s awareness of what cryptocurrencies are. Even those that stayed away from digital currency have learned about what’s expected within the BTC network now.
In the future, an occasion like the halving will only affect the value of the digital currency by increasing its hash rate. The hash rate and BTC prices have a correlation between one another. The higher the hash rate, the harder it makes it to calculate new blocks, and therefore the less Bitcoin enters the market. On the contrary, a decrease within the hash rate is useful for miners, because it allows them to earn more BTC. Although they perform one task, all miners compete with each other.
In the short term, the BTC network hash rate will fall. this is thanks to miners disconnecting their old equipment, which, at the price of electricity currently has made it not profitable to operate. We saw this happen with the first and second halving of the BTC network. At first, the BTC hash rate, along with the BTC rate, decreased, and then increased significantly. As we’ve already seen from the previous halvings, a strong bullish movement started a year after the halving and continued for several months.
It is about the time of the year when miners need to refresh their equipment. By purchasing new, more powerful equipment, BTC miners greatly improve the network as a whole. The offer of more BTC’s on the market is simultaneously reduced with the growth of the hash rate. Seeing the start of the growth, miners begin to retain their digital currency awaiting the opportunity to sell at the best possible price. This is often how the peaks within the BTC price chart occur.
The expected halving also features a psychological aspect as well. Since both the cryptocurrencies and the traditional markets correlate with one another, the drop in the traditional markets following the Coronavirus pandemic outbreak has also led to a drop in the cryptocurrency market as well. However, BTC has shown a stronger recovery dynamic than S&P 500, SSE Index, Nikkei, and even gold. The Coronavirus news stories are still topping the headlines across news outlets. Due to this, the halving event at first partially went into the shadows. However, it is now attracting more and more interest. Google Trends indicates that people are actively searching for information about what the BTC halving. The event is undoubtedly a positive move for the BTC network, and if not in the short term, but in the long term it will promote positive purchasing by investors.
There are increasing trends showing that BTC is being chosen as an alternative to traditional currencies. As we see more and more financial institutions investing in cryptocurrencies. Grayscale, which manages the Grayscale Bitcoin Trust, reported that 88% of investments in quarter 1 of 2020 were from institutional investors.
In terms of technical analysis, BTC is doing well with three key resistance levels having been already exceeded — the 200-day simple moving average, the 200-day exponential moving average, and the 0.618 Fibonacci retracement level. A stable price above the 10,500 USD level may see the start of a bullish trend.
James Stewart
Fundamental Analyst for Global Markets
James has over 20 years of experience trading FX, cryptocurrencies and investments products for a range of investment banks and brokers.
He spent the last 10 years analysing and writing about foreign exchange, crypto-currencies and the global financial markets
He has also spoken at a range of conferences around the globe on various financial topics.
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Bitcoin Halving is nearly Here: Will Bitcoin Fly? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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