Unique macro conditions strengthen Bitcoin’s position in runup to halving

By Ryan Rabaglia, OSL Global Head of Trading

Bitcoin’s third halving is less than two weeks away, but it has already divided opinion.

While some expect the event to be the catalyst for an exponential price rise, others point out that the world is in a very different place to where it was in 2012 and 2016.

That much is true. But to be sure, Bitcoin has a life of its own and is not subject to the same forces that govern mainstream finance. Last month, as the COVID-19 pandemic wrought chaos across global markets, the digital asset crashed only to soar again by 20% within the space of 24 hours.

After the last halving, Bitcoin’s price shot up 300%. It was the 2017 rally, where Bitcoin’s price leapt from $1,000 to $20,000 within 12 months, that propelled digital assets into the public consciousness. Such drama is also one of the reasons that more adventurous investors have traditionally been drawn to the asset class.

While a number of Bitcoin holders worry that a centralization of mining will damage the market, some analysts anticipate a tenfold price increase within two years of this halving. They could both yet be proved right. But we might also have reached the point where Bitcoin exchanges theatrics for steady growth.

As we have noted before, the entry of mainstream and institutional investors into digital assets and the emergence of the derivatives market for Bitcoin points to a state of maturity for the asset class. The market today arguably operates more efficiently than ever thanks to the availability of information and a higher level of general understanding.

The combination of greater stability and scarcity will enhance the position of Bitcoin as a truly reliable store of value.

As the halving approaches, some observers have cited an increase in put options among Bitcoin holders as a warning sign. A different view is that this tactic is simply reflective of a mature attitude. 

There are also signs that interest in Bitcoin is growing thanks to central banks’ attempts to offset the economic chaos that COVID-19 has caused. As unlimited quantitative easing looms, investors are more likely to see Bitcoin as an inflation hedge.

We don’t know if Bitcoin will be trading at $30,000 by the end of the year as PlanB has suggested. But mainstream investor fears concerning the macroeconomic picture combined with the halving could be very good news indeed for Bitcoin and the wider digital asset market.

OSL is Asia’s most comprehensive digital asset platform providing brokerage, exchange, software-as-a-service and insured custody solutions to professional investors.

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