Bitcoin is set for a comeback as halving nears

The cryptocurrency has added more than $1.3bn in value over a month in anticipation for the event that occurs every four years

Post-halving rallies have averaged 446 days; should history repeat itself, Bitcoin could peak around August 2021. AFP

It has been left for dead more than once, written off as nothing but a bubble and denounced as rat poison by Warren Buffett.

Yet Bitcoin is once again staging a comeback reminiscent of the token's glory days, with its supporters pegging their hopes on a technical event as the new catalyst.

True believers say the gains are driven by Bitcoin's coming halving, when the rewards miners receive for processing transactions will be cut in half as soon as May 12. The internet is flooded with second-by-second countdown clocks and the mania is even spurring an increase in hiring by cryptocurrency companies worldwide.

Bitcoin has rallied to near $9,000 (Dh33,057) in anticipation, from around $6,000 just a month ago, adding more than $1.3 billion in value.

"Narratives in the world of blockchain act like the 'Force' in Star Wars – they mysteriously move and shape the market," says George McDonaugh, co-founder of cryptocurrency and blockchain investment company KR1.

“You couldn’t be blamed for getting a little excited about what’s to come.”

Bitcoin halvings, which slow down the rate at which new tokens are created, happen once every four years or so. The third such event is set to occur sometime next week when the number of blocks hits 630,000.

Sceptics argue that cryptocurrency prices are notoriously volatile and often difficult to pin explanations to, positing that any appreciation should be priced in ahead of time. But cryptocurrency fans cite precedent.

Bitcoin has already undergone two halvings – or halvenings, as they're sometimes called – that caused its price to appreciate.

The world's largest token rose from around $12 to over $1,000 in the year after its 2012 cut in rewards, and advanced about 1,000 per cent after the 2016 halving, though that reduction happened at a time when the coin was gaining greater mainstream recognition.

The frenzy around digital currencies took it to near $20,000 the following year before it crashed, with the coin still trading at about 50 per cent below 2017's highs.

But Bitcoin has historically bottomed 459 days before the halving, risen in the run-up to the event and exploded to the upside afterward, according to research from Pantera Capital.

Post-halving rallies have averaged 446 days; should history repeat itself, Bitcoin could peak around August 2021.

Wallet growth has also spiked, rising 2 per cent in April, the largest monthly increase since at least November.

To Nicholas Colas at DataTrek Research, there are two possible explanations: bored, locked-down gamblers and sports betters are finding their way into cryptocurrencies amid the coronavirus shutdown, while many are also getting excited about Bitcoin's halving, he said in a recent note.

To be sure, many cryptocurrency fans also point to unprecedented monetary and fiscal stimulus packages introduced by central banks around the world as a catalyst for prices to advance.

Whatever the reason, the recent bull-run hype has ushered in the return of sky-high price targets.

Global Macro Investor's Raoul Pal projects Bitcoin could reach $1 million in the next three to five years. Though the halving isn't the crucial driver behind his prediction, it could be a potential accelerant.

“It is already the best-performing asset in all recorded history,” Mr Pal wrote in a recent presentation.

“It was born out of the financial crisis for exactly what is about to come in this crisis. This is literally what Bitcoin was invented for.”

Jefferies analyst Christopher Wood in his weekly Greed & Fear newsletter recommended investors – including institutions – buy Bitcoin before the halving, citing the token's earlier price surges around the event.

“To invest in Bitcoin it is necessary to believe the system has integrity in the sense that the supply is truly limited,” he wrote.

The digital token should be a source of diversification “precisely because of its truly decentralised nature”, he said.

Venture capitalist Tim Draper predicts Bitcoin could hit $250,000 by 2022 or the first quarter of 2023.

“Bitcoin adoption will spread because Bitcoin is simply a better currency than any of the political currencies that are tied to governments and political whims,” he says, citing fiscal and monetary stimulus packages as possible accelerators for adoption.

To Antoni Trenchev, co-founder and managing director of crypto-lender Nexo, Bitcoin could reach $50,000 by the end of the year, implying a 470 per cent surge from current levels.

Though the halving may already be priced in, it will lead to huge appreciation over time, he says.

“Critics can disparage Bitcoin as much as they like, but it’s by far the best-performing asset of the past decade,” he says. “We’re bullish about its future.”

Mr Trenchev is seeing "huge" demand for his company's products before the coin's halving.

“We’re not hiring because of the halving per se. We’re hiring because the halving has been lifting Bitcoin and will continue to do so,” he says.

A number of cryptocurrency exchanges have also embarked on hiring sprees. Kraken and Binance Holdings are expanding their workforces, as are OkEx and Coinbase.

David Janczewski, the chief executive and founder of Coincover in Cardiff, Wales, says any market event that affects adoption is a positive for his business.

"That's part of what we see – when the last spike happened, we know that an awful lot of people moved into the market because they felt they ought to get in on the action," says Mr Janczewski, whose companyoffers insurance against cryptocurrency thefts and fraud.

“Ultimately, anything that causes the market to be aware, or wider investment markets to be aware of crypto, tends to be a good thing from our perspective.”