Market analysts speculate that bitcoin has the potential to rocket to a thousand percent after the digital coin enters the halving procedure
by AFIQ AZIZ/ pic by BLOOMBERG
DESPITE not being legitimised by central financial authorities in many countries, cryptocurrencies are attracting savvy digital currency traders by storm.
The digital coin powered by decentralised blockchain technology is valued at billions of dollars to date. According to Coinmarketcap.com, there are 3,341 digital currencies as of today, valued at US$281.52 billion (RM1.17 trillion), of which 63.45% are dominated by bitcoin, denoted as BTC.
Some currency market analysts speculate that bitcoin has the potential to rocket to a thousand percent after the digital coin enters a procedure called “halving” in May 2020. It’s a computer-generated rule and programmed by its creator Satoshi Nakamoto where cryptocurrency production will be automatically halved by 50%.
According to the one and only fully approved digital coin exchange (DCE) in Malaysia, Luno Malaysia Sdn Bhd, halving is a key component of the bitcoin protocol.
Luno Malaysia country manager Aaron Tang said this protocol occurs roughly every four years when the block reward given to bitcoin miners for verifying and adding blocks to the bitcoin blockchain is cut in half.
“The current block reward is 12.5 BTC, while the new reward (in May onwards) will be 6.25 BTC.
“It is an important event because it determines supply inflation every four years that is programmed into the protocol, something no other asset in the world has,” Tang told The Malaysian Reserve in an email recently.
Right now, each new block adds 12.5 BTC into circulation every 10 minutes. On average, there are 144 blocks to be mined every single day. In total, there are about 1,800 BTC being mined for the last four years.
Why is Bitcoin Designed in Such a Way?
Tang said the bitcoin protocol was designed to have a fixed total supply of 21 million BTC being released according to a designated schedule, estimated to be mined holistically within the next 140 years.
This, he said, has given bitcoin a bigger value since its inception in 2009.
“Those 21 million BTC would not be minted all at once. Instead, they will be minted via block rewards according to a fixed schedule, culminating in the year of 2140,” Aaron said.
Additionally, he said halving also helps bitcoin control inflation and avoid unpredictable increases and decreases in money supply, commonly associated with fiat currencies.
“The supply of BTC is fixed, so it cannot be manipulated by central authorities,” he added.
As of now, the circulation supply of bitcoin is recorded at 18.22 million BTC.
In the last halving session in July 2016, bitcoin price surged from US$678.47 to about US$20,000 in December 2017 — 2,800% in just 18 months after the protocol took off, as per data collected by Coinmarketcap.com.
There is no data recorded in 2012 by the data house, but according to its figures, from May 2013, bitcoin price hiked from only US$114 to a high of US$1,146 in November same year — a 900% increase, before settling at around US$420 in December 2015.
Are Other Cryptos Also Designed with Halving?
Different cryptocurrencies were designed for a different purpose and principle, hence, generated in different ways.
“Cryptocurrencies that are developed based on the bitcoin codebase (or platform) like bitcoin Cash, also implement halving.
“Other popular cryptocurrencies, like ethereum and ripple, do not,” Tang said.
Like bitcoin, ethereum uses mining and gives block rewards. But, Tang said, the supply of ethereum is not currently limited.
“Ripple, on the other hand, does not use mining, but does have a fixed total supply of one billion XRP,” he added.
Currently, only bitcoin, ethereum and ripple are regulated crypto-currencies approved for trading in Malaysia. So far, Luno facilitates bitcoin and ethereum on its trading platform. Ethereum dominates 9.77% of the total market, priced at US$249 with a market capitalisation of US$27.4 billion.
Ripple — the third-ranked strongest coin — is trading at 28 US cents with a market capitalisation of US$12.7 billion. The circulation supply has currently reached US$43.71 billion since the coin was released in the market in 2012.
Will the 3rd Bitcoin Halving Fuel a Rally?
While there is still three more months before the halving process takes place, it is arguable if the bitcoin “halving” trend will continue.
Bitcoin price rallied to US$20,000 in mid-December 2017 from a low of US$900 in January 2017 after the halving in 2016.
The trends may be encouraging and play into the narrative that bitcoin should rally to a certain level based on a 50% cut in incoming circulation.
However, the asset is one that is yet to be truly figured out by analysts and could well cut a brand new path of its own.
Tang said halving events have historically resulted in a rapid increase in bitcoin price as when the supply is cut in half, the demand continues to increase, resulting in great price appreciation.
“It’s noteworthy that bitcoin started 2020 with some of the strongest green candles we have seen in over six months, recently clearing the US$10,000 price point, resulting in monthly returns of over 30%.
“Many investors have high hopes for the upcoming halving since we’re currently in a bullish market and this event has historically led to a massive run-up in bitcoin price,” he noted.
Miners will Adjust
For bitcoin miners, the halving looks more like a doubling of costs. In a report released by crypto- focused research firm, TradeBlock, it is estimated the average cost to mine a single bitcoin could jump to US$12,425 — doubled the US$6,851 now — due to the halving.
Essentially, miners will have to run twice the number of computations, with a corresponding increase in electricity usage to get the same amount of bitcoin they are getting now.
The report stated that this is beyond the above mining market price, which is US$10,300. It assumes the rate could go up to six cents from the current two cents per kWh generated by the US local grid.
The report assumes that 30% of mining computers will experience “transition” to the latest technology in accommodating the changes, while 70% will “remain on older devices”.
Major mining activities are popular among four-season countries, or those with a low temperature environment. This allows better electricity efficiency.
In Malaysia, only the DCE subsector has been fully recognised as a legit crypto-related activity so far, which is currently dominated by Luno Malaysia.
Market estimates that only 2% of about 30 million people in Malaysia have knowledge, hence, involvement in cryptocurrencies trading.
Bitcoin averaged at US$,9,848 at the time of writing yesterday, dipping 1.81% in the last 24 hours.