Something big is about to happen to the bitcoin price, and it could send bitcoin prices through the roof.
You see, this digital currency has a unique monetary policy. Bitcoins are created roughly every 10 minutes, but there can only ever be 21 million of them. The rate at which bitcoins are created will drop by half every four years until all 21 million bitcoins are in circulation.
Last time the halving event happened was in November 2012, when the price of a bitcoin was around $12.00.
Since then, the bitcoin price has skyrocketed. At $473.80 apiece, the price of a bitcoin has increased by 3,950%!
The next halving event is expected to happen in less than two months. This could spark a new rally in bitcoin prices.
However, there is a major concern about the event. For the bitcoin system to function, it relies on a group known as “miners” to keep processing the transactions. What is the incentive for miners? They get the new bitcoins created every 10 minutes.
Now, if the number of newly created bitcoins drops by half, miners would get fewer rewards unless the price of bitcoins doubled immediately.
Should you worry about the miners who are responsible for keeping the network running?
Well, several insiders are saying that the industry will be fine. For instance, Valery Vavilov, chief executive officer of bitcoin infrastructure provider Bitfury, said that “the profit margins will be less temporarily but we are ready for this.” (Source: “Bitcoin Production Will Drop by Half in July, How Will That Affect the Price?,” Forbes, May 24, 2016.)
Also, note that just like farmers who hedge their risk using commodity futures, bitcoin miners can do the same. According to Bobby Lee, chief executive officer of bitcoin mining pool and exchange BTCC, miners “know how many Bitcoins they’re going to make over the next six months, so they pre-sell the Bitcoins at today’s price so they don’t have to worry.” (Source: Ibid.)
Recently, investment bank and asset management firm Needham & Company initiated coverage on Bitcoin Investment Trust with a “Buy” rating and a price target of $62.00. The firm values bitcoins at $655.00 apiece, representing an upside of 38.2%. (Source: “Bitcoin Undervalued by over $200, Investment Bank Reports Finds,” CoinDesk, March 29, 2016.)