The digital currency Bitcoin is actually not for the faint of heart. At the moment, however, the owners of the oldest and largest cryptocurrency are looking more relaxed into their digital wallets, as the price is constantly at record levels. Since the beginning of the year alone, Bitcoin has gained around 50 percent, making memories of the dramatic price decline after November 2021 fade.
However, in the past few days, Iran’s attack on Israel and profit-taking have cooled the overheated Bitcoin business again – and pushed the price from around $71,000 to temporarily below $61,000. On Thursday, Bitcoin was back at just under $63,000.
Bitcoin boom through ETF
Experts blame the boom since the beginning of the year primarily on the high demand from several ETF providers, who have been allowed to offer new Bitcoin funds in the USA since January. This makes it possible for investors to invest in the digital currency without having to buy and store it themselves. But the rally is also being driven by the prospect of slower Bitcoin growth as the reward for verifying Bitcoin transactions is halved later this week.
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According to Bitcoin’s technical protocol, the fourth so-called halving will be implemented on Saturday morning. Satoshi Nakamoto, the mysterious pseudonymous founder of Bitcoin, had stipulated that the total amount of all Bitcoins was limited to 21 million. According to his concept, the Bitcoins should not be distributed in one fell swoop. Therefore, the Bitcoin holdings are gradually made available by solving complex calculation problems.
For each new block in the public Bitcoin database (blockchain), the miner who calculated it receives a reward. The so-called block subsidy is intended to encourage miners to secure the network. At the same time, new Bitcoins are issued.
At the beginning of the Bitcoin era in 2009, the reward was 50 Bitcoin per new block. According to Satoshi Nakamoto’s rules, the reward was then halved every 210,000 blocks, approximately every four years. With the first halving in 2012, 50 Bitcoin became 25 digital coins, four years later the reward was only 12.5 Bitcoin. Since May 2020, 6.25 Bitcoin has been distributed per block. Now the next halving is coming up.
Reward halved
“Cutting the miner reward to 3,125 Bitcoin will again halve the amount of tokens introduced into the system,” explains Eric Demuth, co-founder and CEO of crypto trading platform Bitpanda. “According to the principle of supply and demand, this could lead to an increase in the price of Bitcoin if demand continues to exceed the now decreasing supply expansion.”
Crypto entrepreneur Peter Grosskopf from the Berlin fintech Unstoppable Finance also points out that in the past there has always been an increase before and after the halving. “We have already observed the increase before the halving in the last few months. Markets are psychology. Therefore, history may repeat itself here again. But I’m not a fortune teller and I usually hold back on predictions and speculation.”
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Many consumers are skeptical
Despite the record prices, many traditional investors are not in a bullish mood. They do not expect the Bitcoin price to move towards $100,000 or higher. According to a survey by Deutsche Bank, at least consumers in the USA are divided about the performance of Bitcoin: around a third expect the cryptocurrency to fall below $20,000 by the end of the year. That would be a discount of about $50,000 from the current price and would take the Bitcoin token back to bear market levels in 2022.
Only one in ten of the more than 3,600 respondents sees Bitcoin exceeding $75,000 by the end of the year. 40 percent think Bitcoin will flourish in the coming years, while 38 percent expect it to disappear.
Because of the great uncertainty, German consumer advice centers do not see Bitcoin as a suitable investment for consumers. They point out the risks: “The massive price fluctuations up to and including total losses and the lack of security systems should be mentioned here.”
Will miners continue mining?
Just as it is difficult to predict the Bitcoin price, the consequences of the halving for the miners, who keep the Bitcoin shop running with their special computers and the use of large amounts of energy, remain unclear. If the reward for mining new Bitcoin is halved, this could put many market participants in trouble. “In fact, the halving could lead to less efficient or costly miners leaving the market, especially those that rely on outdated or less efficient processes and hardware – or simply have energy costs that are too high,” says Bitpanda boss Demuth.
According to Demuth’s assessment, a sharp increase in prices could also follow, which in turn would mean that mining would remain profitable for most market participants. “However, this is all very speculative. What is certain is that the professional miners have been able to and have been preparing for the halving for a long time and will continue to be able to work profitably afterwards.” Demuth believes that the mining landscape will change. “However, I don’t think this will have much of an impact on the network.”
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