Bitcoin (BTC), cryptocurrency prices are rising as halving approaches

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A rally in bitcoin led the cryptocurrency market higher ahead of a major technical event for the digital coin and as industry participants reported growing interest from institutional investors.

Bitcoin crossed $ 10,000 Singapore morning Friday time, the first time it has hit that price since February, according to data from CoinDesk. The cryptocurrency matched some of those earnings and was trading around $ 9,900.75 at a time of 1:39 in Singapore, still representing a rise of more than 6.4% from the day before.

The entire market capitalization or value of the cryptocurrency market had jumped more than $ 13 billion from the previous day, from around 1:39 pm Singapore time. That move was largely driven by bitcoin that makes up most of that figure. The total market value was $ 268.07 billion.

Industry participants said a number of factors – from central bank supportive monetary policy to increased interest from institutional investors – had taken into account the bitcoin rally.

Bitcoin suffered two bouts of intense sales in March sending it to a minimum of about $ 3,867, a price not seen since March 2019. Since then, the price has increased by over 150%.

Meanwhile, stock markets, which also saw sharp falls in March, have recovered. The Dow Jones Industrial Average is up 28.4% since its March low.

“General markets have been bullish since the March lows and this is across asset classes, including crypto,” Vijay Ayyar, head of business development at Luno’s cryptocurrency exchange, told CNBC. “Printing money from the Fed and other central banks globally has given investors a lot of confidence that the economy will be supported no matter what.”

The US Federal Reserve has announced a number of unprecedented measures to help cushion the economic blow from the coronavirus outbreak. Other central banks around the world, including the European Central Bank (ECB), have unveiled their own stimulus packages. Central bank policies are seen as supportive of risky assets like stocks.

The ‘halving’

Part of the rise in the price of bitcoin since the low of March has been the anticipation of a technical event called “halving.”

Bitcoin is not issued by a central authority as is fiat currency. This is why it is often called “decentralized” cryptocurrency. Instead it is governed by code and underpinned by a technology called blockchain.

In the world of bitcoin, so-called miners with high-powered computers compete with each other to solve complex math problems to validate bitcoin transactions. Whoever “wins” this race is rewarded in newly minted bitcoin. This “mining” activity takes place in blocks, which is essentially a group of merged transactions.

These miners currently receive 12.5 bitcoin per block mined. The awards are halved every few years to keep a lid on inflation. On May 12, the reward per miner will be cut in half again, to 6.25 new bitcoin.

The effect is that the supply of bitcoin entering the market is reduced. Previous halving events, which occur every four years, have preceded major price rises in bitcoin.

“For the past few weeks, we have seen additional players enter the BTC market as prices rise upwards in anticipation of the halving event as bulls see this as an opportunity to buy BTC ahead of price and what many expect it will be a significant price. an appreciation, “Matthew Dibb, co-founder of Stack, a bitcoin index fund provider, told CNBC. BTC refers to bitcoin currency code as USD for US dollars.

“This has undoubtedly continued into this week and may even carry over the weekend as the halving approaches.”

Institutional purchasing?

Dibb said there are other factors at play, too, including more institutional money flowing into bitcoin.

Paul Tudor Jones, Wall Street’s high-profile hedge fund manager, revealed in a message that one of his funds holds a low single-digit future percentage on the cryptocurrency, Bloomberg News reported.

“The news that celebrity investor Paul Tudor Jones has backed bitcoin – publicly praising the asset for its property as a store of value has almost certainly helped catalyze BTC’s sudden move to the US $ 10,000 zone,” he said Dibb.

“With the recent unveiling of monetary easing policies and ‘unlimited’ economic stimuli worldwide, fiat currency appears to be weakening significantly. This, in turn, has led to bitcoin’s narrative as a ‘repository’ of value ‘to gain extra traction among investors seeking to hedge against volatility in traditional markets. “

Bitcoin has often been compared to gold as a so-called safe haven asset during turbulent times for other risky assets like stock markets. However, recently, bitcoin has collapsed and risen when stock markets have done.

Flashbacks up to 2017?

Bitcoin has always been called a highly volatile asset subject to huge price changes. In 2017, bitcoin saw some frenzy that sent its price below $ 1,000 at the start of the year to an all-time high of over $ 19,700 in December of that year.

However, in 2018 the price of bitcoin came down to just over $ 3,000 by mid-December.

Dibb believes the recent rally is different from what we saw in 2017.

“This market is not moving completely on the back of retail speculation – and it is primarily Bitcoin that is experiencing earnings, not the altcoin market,” Dibb said referring to smaller digital coins. “It is only now that we are really starting to see institutionalized and accredited investors operating within the Bitcoin space, bringing a level of market maturity and financial understanding that was virtually absent from the cryptocurrency sector as late as 2017 and 2018 . “

However, the risk of a significant fall remains.

“We’ve gone from 3K to 10K in 2 months, too fast, too soon. There will be downside, and that will determine what kind of accident it is,” Ayyar Luno said.

“We could pull back to 8K, hold, and they move higher to 15K. Or we could go right back down to 3K too. At this point though, one has to be bullish, unless we see a violent downward think the current running period is part of a larger upward movement, so don’t think we’ll see 3K again anytime soon. But if we run up to 15-20K, then the likelihood of a big down move and a larger correction is higher. ”