The whistle for “halve-time” is set to blow, with May 2020 creeping ever closer.
For those operating in the crypto-verse “halving/halvening” is the talk of the office, with speculation as to what new heights the price of bitcoin will surge to, taking centre stage. This interest in 2020’s most anticipated crypto-event is seemingly mirrored by the volume of searches for “bitcoin halving” on Google Trends. The increase in searches is indicative of the excitement and pull bitcoin has across the globe. But what is the “halving” and what/who may be driving this surge in searches?
Bitcoin Halving - a Brief Overview
For those not in the industry, the bitcoin halving is an event that occurs every four years. This is where the bitcoin rewards generated for mining blocks on the bitcoin blockchain are halved. This means that the quantity of bitcoins that can be mined by miners (those responsible for the computational power needed to unscramble the block hash’s and thus validate the transaction), will be cut from 12.5 to 6.25 bitcoin. The halving is a deflationary mechanism that ensures the scarcity of bitcoins in circulation. Similar to gold, a finite resource, there will only be 21 million bitcoins in existence. Conversely, regular fiat currency e.g. USD, EUR, CHF are not finite, as central banks can simply print more at will, making such currency void of any intrinsic value. Thus, due to this ‘inbuilt scarcity mechanism’ in bitcoin, bitcoin holders are hoping for the increased scarcity to fuel a bull-run. The next halving will be in May 2020.
Google Trends “Bitcoin Halving”
The sources behind the surge
“The bitcoin halving is gaining more traction. There is now a clear indication that awareness of the concept is spreading to new people”. - Arcane Research
The reason they provide for this greater “awareness of the concept” is that more and more people see bitcoin as a “cheap p2p payment network, anonymous currency, store of value, uncorrelated asset and digital gold.” However, questions must be asked around what and who may be behind this surge in interest? The following section will look at the roles that geopolitical risk, millennials and profit play as possible reasons for this uptake in interest.
1. Geopolitical Risk
According to SIX Swiss Exchange, 80% of participants in their digital asset survey are expecting the demand for digital assets and crypto products to grow. Interestingly, their survey found that much of this new type of trading behaviour and interest in digital assets was influenced by foreign affairs. 74% of those surveyed believed that the US 2020 election would drive the demand for a change in trading activities, while 66% believed that a trade war would be the main cause for a change in trading.
Such findings mirror other cases where geopolitical risk was a main factor, with Iran and Venezuela being prime examples. CVJ pointed out that the nature of bitcoin related searches are very much tied to price fluctuations — emphasizing bitcoin’s short-term and volatile nature. Thus, following the killing of the Iranian extremist Qassem Soleimani, an effective 100% increase in searches for “bitcoin Iran” emerged.
Another excellent example of the interest in bitcoin in a crisis-stricken country can be observed in Venezuela. Early last year, CNBC wrote a piece on the volume of bitcoin traded in Venezuela hitting an all-time high. During the first weeks of February 2019, the amount of bitcoin traded increased by 30% to 2,487 bitcoins — equating to $8.95 million per week. At the time the article was written, forecasts suggested that the country's hyperinflation would reach 10million percent. This indicated an interest borne during a search for a “stable” currency. At present, the volume of bitcoin traded has subsided to 563 bitcoins this week.
In countries like Iran or Venezuela, where state-incompetence has poisoned the population's belief in their own monetary system, bitcoin is of interest. For clients of retail brokers and financial institutions, in the light of looming geopolitical risk, digital currencies seem to be an ever-more considered asset when constructing one’s portfolio. Thus, such occurrences strongly point to the notion that people in countries burdened by geopolitical risk are looking to bitcoin as a store of value, with bitcoin’s anonymous and transfer-easy nature to move funds an additional incentive.
2. Millennials
Another key motivator in this surge of interest in bitcoin and the halving may also be driven by demographics with millennials in particular. Millennials are generally classified as people born between 1981 and 1996 and are often said to be the first generation to be brought up with the internet but not defined by it. They are seen as a generation wedged between the old and the new; this is no clear pattern when reviewing millennial economic and financial power. In a survey conducted by the US Federal Reserve, millennial's make up nearly one quarter of the U.S. population yet hold a mere 3% of the country’s wealth and a disproportionate 16% of debt. In comparison, baby boomers held 21% of U.S. wealth when they were the same age as millennials are today.
However, according to Pew Research, willingness and ability to adopt technology is where millennials seem to have the upper hand. Effectively, 93% of millennials own smartphones, 86% of millennials have said they use social media and almost 100% of millennials surveyed said they use the internet.
This technological proficiency coupled with comparatively worse financial and economic standing is seemingly extremely key to an interest in bitcoin and crypto’s in general. Studies on millennials by the Harvard Kennedy School found that 68% of millennials would consider ending their relationship with the traditional banking system and opt for a digital bank run by a tech company. The reason for this distaste of the traditional banking system stems from the havoc wreaked by the 2008 financial crisis, and the resulting inability to participate in traditional markets. Blockchain Capital, found that 18% of millennials hold bitcoin and that 27% of millennials prefer bitcoin to traditional stocks (both the largest group by demographic). Furthermore, 50% of millennials believe that bitcoin is here to stay.
3. Profits
Naturally, one of the greatest motivators for getting involved in bitcoin and delving into crypto’s is linked to the large sums of profit that can potentially be made. In essence, if one had invested $50 in 2009, they would have been worth $100 million at bitcoins all-time high in 2017. However, as mentioned above, the bitcoin halving in May 2020 is this year’s most anticipated event in the crypto-industry, for good reason.
According to CVJ, in the past two halving events that occurred in 2012 and 2016, the event was seemingly a key component in the rise in bitcoin price; with a bull-run occurring around a year after the event. The first halving occurred in November 2012 and within 513 days bitcoin hit a bull-run that saw the price of bitcoin increased 13,000% from $2.01 to $270.94. In July 2016, the second halving took place and in 1068 days, the price of bitcoin increases from $174.01 to $20,074 — indicating a 12,000% increase.
Current price predictions are generally positive, however, they clearly range from ‘realistic’ to ‘absurd’. According to the German bank BayernLB, the halving has the potential to set a new price record for bitcoin at $90’000. Other predictions from crypto analyst RektCapital suggest that the price of bitcoin could hit $400,000, while Bloomberg’s January crypto-report suggested the price of bitcoin would rise to $14,000 this month, as a result of growing political uncertainty. Lastly, BitcoinEconomics.io published a graph detailing multiple prediction models detailing bitcoins price from 2013 to 2041, with the general trend-line suggesting that the price of bitcoin could rise to around $600,000 by 2030 (not directly dependent on halving events).
As mentioned above, the halving event is a scarcity and deflationary mechanism, ensuring that, like gold, an intrinsic value is apparent. Like many forms of assets, the price of bitcoin is subject to the laws of supply and demand, and the halving event works similarly to a price shortage (scarcity drives value). Furthermore, as the miners will halve the rewards earned for their computational power, less supply will be available on the market. Thus, if demand remains a constant, price should increase. However, although the event is known, the effect of these various forces e.g. amount sold by miners, fees earned by miners, market demand and alterations in liquidity etc. are not priced in.
Overview
Over the course of this article, we have looked into the surge in searches for “bitcoin halving”, detailing what the halving was and looked into three factors that may be behind this increase in interest. Geopolitical risk seems to be a factor that is perhaps of the greatest interest. For decades the US dollar or the Swiss franc have been the safe-haven currencies throughout the world. However, as uncertainty grows and trust in traditional authorities’ wanes, bitcoin may be an asset worth looking into. Millennials are perhaps the real-life example of this growing distrust — the canaries in the coal mine who are already looking to a new means of finance. A hyper-competitive job-market, distrust in central authorities, marginal holding of traditional assets and technological proficiency are strong incentives to delve into bitcoin. Lastly, the lust for profits will always be a driving factor for most investments and there are few assets that have the growth potential that bitcoin has. With predictions surpassing the wildest of dreams and with the crypto-industry becoming more understood and accessible, potential profits will be a key motivator behind the searches. Currently, the price of bitcoin has been on a rapid incline, with the bull-run pushing the price of bitcoin skyward seemingly very much underway.
Citations
“2019 Year in Review.” BlockchainCapital, Jan. 2020, blockchain.capital/2019-year-in-review/.
Arcane Research. “The Weekly Update.” Arcane Research, Jan. 2020, research.arcane.no/the-weekly-update-1.
BayernLB. “Megatrend Digitalisation Is Bitcoin Outshining Gold?” Megatrends, BayernLB, Sept. 2019, www.bayernlb.com/internet/media/ir/downloads_1/bayernlb_research/megatrend_publikationen/megatrend_bitcoins2f_20190930_EN.pdf.
BitcoinEconomics.io. “BitcoinEconomics.io.” Bitcoin Economics, 2019, www.bitcoineconomics.io/.
Bloomberg. “Bloomberg Crypto Outlook — January 2020 Edition .” Bloomberg Indices Outlook_Cryptos_Jan-20, Jan. 2020, data.bloomberglp.com/professional/sites/10/Bloomberg-Crypto-Outlook-January-2020-edition.pdf.
Bogart, Spencer. “Bitcoin Is a Demographic Mega-Trend: Data Analysis.” Medium, Blockchain Capital Blog, 14 May 2019, medium.com/blockchain-capital-blog/bitcoin-is-a-demographic-mega-trend-data-analysis-160d2f7731e5.
Coin Dance. “Coin Dance.” LocalBitcoins Volume (Venezuela), Jan. 2020, coin.dance/volume/localbitcoins/VES.
Crypto Valley Journal. “The Bitcoin Halving — Previous Effects on Share Price.” MachinaTradercom, CVJ, Dec. 2019, www.machinatrader.com/the-bitcoin-halving-previous-effects-on-share-price/.
CVJ. “Der Bitcoinpreis Und Die Google Suchanfragen.” Crypto Valley Journal, 17 Jan. 2020, cvj.ch/fokus/hintergrund/der-btcpreis-und-die-google-suchanfragen/.
Federal Reserve. “Board of Governors of the Federal Reserve System.” The Fed — Table: Distribution of Household Wealth in the U.S. since 1989, US Board of Governors of the Federal Reserve System, Dec. 2019, www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:119;series:Net%20worth;demographic:generation;population:all;units:shares.
FinSMEs. “Why Millennials Trust Cryptocurrency More Than The Stock Market.” FinSMEs, 18 Nov. 2019, www.finsmes.com/2019/11/why-millennials-trust-cryptocurrency-more-than-the-stock-market.html.
Gamm, Scott. “Why Millennials Don’t Trust Wall Street or Investing in Stocks.” TheStreet, Harvard Kennedy School, 2 May 2015, www.thestreet.com/investing/why-millennials-dont-trust-wall-street-or-investing-in-stocks-13135109.
Hauxley, R R. “Should I Buy Bitcoin? 10 Reasons Why Bitcoin Is a Good Investment [2020].” Cryptomaniaks, 2018, cryptomaniaks.com/should-i-buy-bitcoin-good-investment.
Keoun, Bradley. “Bitcoin’s Halving Captures Growing Interest — Among Google Searchers.” CoinDesk, CoinDesk, 27 Jan. 2020, www.coindesk.com/bitcoins-halving-captures-growing-interest-among-google-searchers?utm_source=hootsuite&utm_medium=facebook&utm_term=Events&utm_content=Register&utm_campaign=FATF.
Meredith, Sam. “Bitcoin Trading in Crisis-Stricken Venezuela Has Just Hit an All-Time High.” CNBC, CNBC, 14 Feb. 2019, www.cnbc.com/2019/02/14/venezuela-crisis-bitcoin-trading-volumes-hit-an-all-time-high-.html.
Six. “Traders Predict Digital Assets and AI Are Poised to Reshape the Trading Industry.” SIX, SIX, 23 Jan. 2020, www.six-group.com/en/newsroom/media-releases/2020/20200115-trader-survey.html.
Thomas, Julian. “Bitcoin Will Reach $400,000 After Halving, History Dictates.” BeInCrypto, 19 Jan. 2020, beincrypto.com/bitcoin-will-reach-400000-after-halving-history-dictates/.
Vogels, Emily A. “Millennials Stand out for Their Technology Use, but Older Generations Also Embrace Digital Life.” Pew Research Center, Pew Research Center, 9 Sept. 2019, www.pewresearch.org/fact-tank/2019/09/09/us-generations-technology-use/.
