With Halvening, Bitcoin shows resilience, impact as an established asset class

By Dave Chapman, BC Group Executive Director

At approximately 3:30 am HKT today, Bitcoin experienced a halving (also referred to by the digital asset community as “The Halvening”). This is the third such event in the 12-year history of Bitcoin. This means that the number of new bitcoins (BTC) entering circulation every 10 minutes (known as block rewards) will drop by half, to 6.25 from 12.5.  As of this writing, the price of Bitcoin was USD8,608.

As the world has grappled with the severe economic fallout from the Covid-19 pandemic, the price of  Bitcoin has been on an astonishing bull run – surging about 100% since recent lows in March. This resilience and outperformance demonstrates that it is here to stay, has a life of its own and is not subject to the same forces that govern mainstream finance.

The effect of today’s halvening will slash profitability for some Bitcoin miners, potentially resulting in consolidation and a sizeable number of them disappearing. While this could weigh on the price of Bitcoin in the near-term, the combination of greater stability and scarcity will likely enhance the position of Bitcoin as a reliable store of value. Bitcoin’s increasing maturity couldn’t be better timed as investors navigate unprecedented market volatility, governments over the world are unleashing the fiat currency printing presses and asset managers search for alternative ways to diversify their portfolios.

Bitcoin already holds the distinction of being the best performing investment of 2020 and of the past decade. Increasing appetite for risk hedging combined with the normalization of cryptocurrencies as an investment vehicle, with involvement from ETFs and the like, means that we are likely to see the price of Bitcoin continue to rise, albeit it’s yet to be seen whether it will match the bull runs that followed the last two halvenings in 2012 and 2016. 

The unique macro conditions we are experiencing have strengthened Bitcoin’s position and prospects.  Covid-19 is accelerating the erosion of trust in fiat currencies, and is hastening the interest and institutional adoption of digital currencies. Seemingly unlimited quantitative easing from central banks is also driving many investors to see Bitcoin as an inflation hedge.

The increased demand that halvening brings coupled with the impact of Covid-19, is likely to catalyse the wider digitisation of currencies, markets and societies.  In recent weeks central banks have stepped up digital currency trials. Digital assets regulation is a race to the moon for governments. And payment tokens and security tokens are poised to take-off. What has become abundantly clear is that cash is no longer king.