Coronavirus Compels Bitcoiners to Take a Realistic Look at the Halvening
A halving or halvening in the crypto world is a reduction of Bitcoin’s block subsidy by half, and it occurs approximately every four years. Bitcoin advocates say that the long-anticipated 2020 halvening will increase the price of the token by more than ten times. But instead of multiplying their fortunes, they are forced to watch the global pandemic challenge Bitcoin as a concept.
Having spread across countries and continents, COVID-19 has led to global economic stagnation and resulted in trillions of dollars spent on coping with the crisis. This event turned out to be a good opportunity to resume the battle between the traditional financial system and cryptocurrencies. Against the backdrop of upcoming inflation, the latter was expected to experience a new rise as a safe-haven asset.
Surprisingly, the estimates proved to be far from accurate. In the last several weeks, the price of Bitcoin price was stuck hovering around $9,000, which threw many crypto analysts off balance. Bitcoin bulls will have to shift their sentiments if prices start to decline again — and there is a distinct possibility that that is what will happen.
This opinion is shared by The TIE, a leading cryptocurrency information-services platform. According to joint research by The TIE and the trading platform eToro, the effects of the pandemic concern the citizens of crypto town much more than the quadrennial reduction in the supply of the cryptocurrency and the associated price increase. Over the last few months, the publications about digital assets were much more likely to contain the word “coronavirus” than “halving” or “halvening.” The gold narrative is also making a comeback in crypto-related articles. The effect the pandemic is having on crypto-assets is unprecedented, and it can make us more aware of Bitcoin’s strengths and weaknesses.
The vision of Bitcoin as an inflation-resistant asset was promoted by its anonymous creator or creators, who functioned under the alias of Satoshi Nakamoto. One of the core ideas was that the restricted maximum number of tokens issued (in the case of Bitcoin, 21 million) would ensure that the currency cannot lose its inherent value. Inflation is a common occurrence with national currencies when money is increased through measures imposed by governments. Even the supply of gold does not have pre-determined limits. Thus, cryptocurrencies have immense potential as a new type of safe-haven asset — the ultimate one.
As the world struggles with the coronavirus crisis, the global financial system is not immune. The International Monetary Fund has estimated that the attempts to address the impact of the disease on economies will cost a total of $8 trillion spent by governments around the world. Central banks will resort to quantitative easing by purchasing longer-term securities from the open market to increase the money supply and encourage lending and investment. The measure was made popular during the aftermath of the 2008 financial crisis.
This is the scenario that makes safe-haven assets with low volatility, such as gold, seem like an especially secure investment.
An increase in the monetary base does not reduce the value of hard assets, and Bitcoin was supposed to follow the same trend. In practice, however, the price charts are far from being synchronous. While the prices for gold steadily grew over the last month, Bitcoin suffered a quick fall preceded by a surge. As a result, Bitcoin returns are only half of their peak level of 2019, while gold has increased its value by 13%. Trading volumes are also at a low when Bitcoin bulls prefer to HODL (stick with the coins they already own because they believe that the halvening is coming, and they hope to make a profit soon), and others are unwilling to invest in tokens and skeptical of the halvening. Both parties have something to rationalize their sentiments, but the abundance of bearish bets in the options market suggests that Bitcoin will struggle to make it higher than $10,000, not to mention bolder speculations.
The halvening will not be able to conceal the devastating effects the coronavirus has had on the global economy and all types of assets. Bitcoin investors cannot stand aside and try to forecast the influence of such an environment on the token. Some believe that Bitcoin is too distinct to follow the decline in equity. Others bring up the fundamental mistakes made by state monetary systems (such as bailouts for industries suffering the most from the crisis) as the key reason to promote cryptocurrency as a stable and secure alternative. It seems like nothing can make them abandon the idea of a better crypto future.
There are more factors to keep in mind in the present circumstances. According to an analysis published by the Federal Reserve, the decline in demand amidst the pandemic was followed by a reduction in prices for services and goods. Despite increased spending and debt, the dollar has not lost its value and purchasing power. Thus, the national currency has turned out to be a safer investment than the fintech breakthrough — at least at this point.
World leaders are taking the first steps toward gradually reviving their economies, and major indicators are starting to grow. The price of Bitcoin is on the rise too, but we cannot have bullish talk until the token gains a firm foothold above $9,000. Only then will the halvening have the same effect as anticipated by Bitcoin holders and advocates. Keeping up may look like an easy job, but the ever-present pessimism and unemployment have the potential to undermine the crypto market.
UPD: The halving has happened, so now we have to keep an eye on BTC to see who was actually right!
