Bitcoin is on the cusp of a supply squeeze, known as a halving—something that happens roughly once every four years.
But what will the bitcoin halving mean for the bitcoin price and should investors buy bitcoin now?
Later today, expected around 5pm EDT, the number of bitcoin rewarded to those that maintain the bitcoin network, called miners, will be cut by half—dropping from 12.5 bitcoin to 6.25.
The effects of 2020 bitcoin halving, the first since bitcoin exploded onto the global stage as a result of its massive 2017 bull run, have been debated for years.
No one knows how the bitcoin price will react to the supply squeeze, though many in the bitcoin and cryptocurrency community are confident the bitcoin price will climb eventually.
But in the short term, the bitcoin market is widely-expected to be highly volatile.
“Through today we are likely to see increased volatility and tactical trading ahead of the halving,” Marcus Swanepoel, the chief executive of London-based bitcoin and crypto exchange Luno, said in a note.
Bitcoin has already seen an uptick in volatility in the run up to the halving over the last week.
“The move back down to $8,000 wasn’t a big surprise,” said Rich Rosenblum, co-head of trading at Hong Kong-based crypto market maker GSR, adding, “it’s likely that we’re going to see increased volatility through May, with the pandemic, ongoing stimulus measures and the halving.”
Bitcoin has been one of the best performing assets since the broad coronavirus market crash in March, with the bitcoin price more than doubling from lows of around $4,000.
Many bitcoin and cryptocurrency exchanges have reported surging user numbers and trading volume.
“Bitcoin has risen over 100% over the last few months and we believe most of that rise was driven by continued retail demand,” said Scott Freeman, co-founder of New Jersey-based bitcoin and crypto-focused institutional trading firm JST Capital.
“We expect continued volatility but expect to see good long term risk reward in bitcoin and also expect it to behave in an uncorrelated manner to traditional financial assets.”
Meanwhile, the bitcoin and crypto community was rocked last week by news legendary macro investor Paul Tudor Jones is buying bitcoin as a hedge against the inflation he sees coming as a result of unprecedented coronavirus and lockdown-induced central bank money-printing.
In a letter to clients, Jones said it reminded him of the role gold played in the 1970s.
“We think this could be a seminal moment for bitcoin,” Freeman said in reaction to Jones’ letter, which can be read in full here.
“Given the COVID-19 crisis and the easy money policies of major central banks, real money and macro investors are increasingly concerned about the value of traditional financial assets,” Freeman said, adding, “we received several calls over the past week from institutional investors who now see bitcoin as a great hedge against the easy money policies and the looming global recession.”