Investors and traders continue to hope that the price of Bitcoin, which has experienced some retracement in recent weeks, will continue its rally. But the halving is approaching fast, and the price seems to be losing its momentum.
In terms of the bitcoin price action, it is down nearly 7% during the past seven days, but it is still up approximately 58% YTD. Bitcoin made a high of $73,777 on March 14, and it started to lose momentum after that as the price recorded three consecutive days of losses and continued to move lower since then. The low since the high was $60,775, ahead of the Fed's meeting.
Before we go further deep into the fundamentals of the Fed's monetary policy and its influence on Bitcoin's price action, the main reason that the bitcoin price has been moving to the upside is mainly based on hopes around the bitcoin halving event, which is taking place in mid-April.
Halving events are designed to reduce the rate at which new bitcoins are created, thus slowing down the overall supply of bitcoin. This scarcity mechanism is built into Bitcoin's protocol and is intended to mimic the scarcity of precious metals like gold. The reduction in the rate of new bitcoin creation affects the supply side of the bitcoin market. If demand remains constant or increases, the reduced supply could potentially lead to an increase in the price of Bitcoin due to the basic economic principle of supply and demand.
Some investors anticipate that the reduction in the rate of new supply issuance will lead to a rise in the price of Bitcoin, while others believe that the market may have already priced in the event prior to its occurrence. Major holders of Bitcoin, such as Michael Saylor, predict the price of Bitcoin rising to $10 million in a few years.
The CEO of Unicoin, an assets-backed, publicly reporting, audited, and regulation-compliant cryptocurrency, Alex Konanykhin, instead argues that Saylor’s prediction is dead wrong. Konanykhin points out that Saylor’s “scarcity of bitcoins” argument would be correct only if there could be only one cryptocurrency: bitcoin. But while there can only be 21 million bitcoins, there can be an unlimited number of bitcoin-like cryptocurrencies.
For example, Unicoin is ready to serve as an energy- and cost-efficient alternative to Bitcoin. This week, Unicoin launched its first ICO at INX.co, an SEC-approved crypto trading platform.
Historically speaking, Bitcoin's dominance in the cryptocurrency space experiences significant influence around the halving time. The next halving is only 30 days away, and currently, bitcoin's dominance is at 52.04%. Looking at the previous halving events, which brought more interest in the other cryptocurrencies, this dominance number does fall to below 50%, which makes many re-think their view of Bitcoin as the top asset.
Konanykhin predicts that Bitcoin’s market share will shrink to less than 10% by the end of this decade, while the crypto market will likely exceed $9T by that time.
Nonetheless, the halving is just one of the direct fundamentals that is associated with bitcoin's price; there are other factors that play a role in overall supply. The massive surge experienced in May 2020 during the previous halving period was also due to the fact that the Fed was on ultra-loose monetary policy, which provided serious tailwinds.
Currently, I do not see the Fed going into that mode anytime soon, as the Fed first has to lower their interest rate from its current level, and there are significant odds stacked against them for them to bring it anywhere close enough to the previous normal level. So the chances of the Fed doing another quantitative easing are highly remote, which actually favors the bitcoin price.
To conclude, historical precedent does suggest that the halving event, which makes the hype of bitcoin scarcity more popular and brings more interest to the crypto, could have a positive influence on the bitcoin price prior to and after halving, but investors should be wary of the interest in other cryptocurrencies among investors, which significantly influences its dominance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Naeem Aslam
I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading. I specialize in Blockchain technologies (cryptocurrencies and digital assets) and Sustainable Investments. In my career thus far, I have also extensively covered Equities, Commodities and Forex.
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