ANALYSIS - Bitcoin May Surge Driven By Both 'Halving,' Resilience To COVID-19 Crisis

MOSCOW (Pakistan Point News / Sputnik - 08th May, 2020) The entire cryptocurrency market capitalization and value of its main currency, Bitcoin (BTC), will continue to rally supporters by the upcoming "halving" event and also after proving its immunity to economic fluctuations caused by panic and an assault on the global economy amid a new COVID-19 virus pandemic, international experts told Sputnik.

The price of Bitcoin rose to more than $10,000 on Friday for the first time since February 19, according to CoinMarketCap data. With the Bitcoin halving on the horizon on 12 May, the crypto community and experts are currently engaged in a heated debate about how the ongoing pandemic and the upcoming event could affect the price of the cryptocurrency.

"The upcoming Bitcoin halving event now has more attention than previous years, therefore, making it very interesting to see just how the market responds. In my opinion, I see Bitcoin making huge leaps and bounds in the coming year following the next halving. This is a very significant event for Bitcoin and will create a much higher demand than previously experienced or anticipated. We will see a surge in the price for some time to come but what that price will be is anyone's guess," Instant Crypto exchange Changelly CEO Eric Benz said.

The term "halving" means that in less than 3 days, bitcoin miners will receive only half the reward going forward. This cuts in half the rate at which new Bitcoin is released into circulation and used as a synthetic form of inflation that halves every four years until all BTC are released and are in circulation. It is expected that this mechanism will continue until around 2140.

According to another trader expert in crypto, Lukasz Radawiec from Poland, the 'halving' is a long awaited and timed event and any existing business should be prepared for the outcome a long time before it occurs to mitigate its negative effects. He questioned whether there would be enough buying pressure after all the halving euphoria is finished, reminding that the price of bitcoin has just fully recovered from the price crash in March.

He said in an interview to Sputnik that he remained skeptical about dramatic boost in BTC price in a short term, pointing that the world is facing economic recession while bitcoin is still a high-risk asset class.

"A lot of professional investors are closing their positions before summer season starts and that can also decrease buying pressure. Thus, miners [who can put buying pressure and boost the price] are not the only players or reason to be taken in consideration when analysing price," he said, adding that in short-term the economic fluctuations would cause huge price volatility.

"We have already seen bitcoin's price crashing along with USA stock market in March and its recovery right after. These are definitely the one of most risky times to invest but at the same time can be very profitable," the expert stressed.

His long term prognosis, however, is more optimistic. He explained that the way the bitcoin was designed was to increase in price in the long term. However, that should absolutely not determine anybody's investment decision, Radawiec said.

"Investing during wrong moment of market cycle or simply 'when the price is close to historical highs' is always very bad decision and can financially ruin anybody. A person not familiar with the way financial markets are operating may be caught in this long term price increase narrative and buy the bitcoin at a price that will be not be seen for another 60 years, if ever," he said.

It is obvious that an abrupt slowdown of economic activity due to the COVID-19 pandemic, often referred as the most dramatic event since World War II, will effect all markets.

The crypto community, however, remains optimistic, pointing that this is the situation where bitcoin comes in with its underlying technology and monetary system that make it one of the few investable assets that is to some extent immune to the economic fluctuations.

"Bitcoin has been designed to avoid regulatory oversight and by its very nature removes the need for counter-party authorities. Covid-19 has been a real test for the global economy and the cracks that appeared during the financial crisis are becoming even bigger, exposing many instabilities," Benz noted.

According to the expert, the "wonderful thing" about technology like Bitcoin is that whether there is a crash in oil or a global virus it remains consistent with its original design and operates independently without any influence from other markets. "We have seen for the past decade Bitcoin become the best performing asset and this trend will only continue," he said.

Blockchain technology is a system of organization of distributed databases. It allows for various transactions to be registered and labeled with a time stamp, with the relevant information kept in a distributed database available to all network users. In other words, it is basically a collection of computers around the world that all have Bitcoin's code downloaded on them. Each of these computers have all of Bitcoin's blockchain stored on them. This means that Bitcoin is entirely transparent and no one can make a transaction without everyone seeing it happen, therefore, no one can cheat the system.

"One of the positive things to come as a result of this lockdown has been the fact that many more people have been at home, therefore, giving them the time to understand Bitcoin and see its resilience in action. Whilst global markets crashed before people's very eyes Bitcoin stayed strong and continues to grow both in price and demand," Changelly's CEO added.

In his turn, Radawiec highlighted that from his perspective, no asset was fully immune to the economic fluctuations and could be considered a 'save haven'.

"In 2007 we had a huge global financial crisis caused by subprime mortgages market. Before it there was a common conception that price of the real estate can only grow up and they are extremely safe investment. Bitcoin is still in its infancy as an asset. The overall low market capitalization, liquidity or extreme price fluctuations are associated with rather high-risk then 'risk-off' asset. As a result, it shares characteristics with other risk assets, like stocks and venture capital investments," he stated.

The expert, however, said he saw a 'silver lining' in BTC's underlying technology and invests confidence that it can become a store of value when the market matures.

The immaturity and the budding interest of many governments in digital currencies adds to the confusion around the market: some, like China, banned initial coin offerings. Financial institutions in this country are strictly banned from facilitating transactions involving Bitcoin.

The US administration also does not favor Bitcoin. US President Donald Trump's treasury secretary, Steven Munchin, referred to it as a "national security threat," while Facebook, Google, and Twitter have banned cryptocurrency ads on their platforms.

Belarus, for example, went in the completely opposite direction issuing a decree that legalized mining and ICOs in 2018.

Some other states, like South Korea, are pushing for the government to establish a legal status for cryptocurrencies in order for the country to stay competitive globally. Indian cryptocurrency exchanges are bringing back banking support after the Supreme Court of India passed a judgment on Wednesday striking down the banking ban on the crypto industry.

According to the experts, the most Bitcoin adoption currently is in the emerging markets where the use of remittance is a key part of daily life.

"The Middle East has seen a surge in adoption of Bitcoin for the very reason that it allows workers to send money home instantly and for a much smaller transaction fee than they would pay the likes of Western Union. Bitcoin has no borders, therefore, has no one sitting in the middle of the payment controlling who sends or who receives the money," Benz said.

According to him, the Middle East is also more advanced than other markets when it comes to technology and infrastructure as it is newer and not constrained as much as more developed nations are.

BITCOIN EVOLUTION: FROM ILLICIT ACTIVITIES TO MAINSTREAM ACCEPTANCE

Both experts expressed hope that with time, the crypto market would gain more mainstream acceptance worldwide as it matures, leaving behind times when cryptocurrencies were frequently associated with illicit activities.

"Early technology always goes through its teething process and no matter what the industry, we have seen our fair share of illicit activities take place. As the technology matures and more use cases become a reality, those small illicit activities quickly become overshadowed by everyday utilities," Benz said.

According to Radawiec, forcing the narrative that bitcoin is used for illicit activities is convenient, especially for governments. "In reality the most used Currency in illicit transactions world-wide is the US Dollar," he pointed.

In Radawiec's opinion, it is just a matter of time before more and more people understand that they do not control their money unless its design is "permissionless, censor-resistant, unfreezable & unseizable."