According to a research report by Berenberg, Bitcoin (BTC) could finally emerge from the crypto winter and overshadow the market in the coming months.
Such a possibility could stem from “a combination of circumstances, development and timing,” the Hamburg-based multinational investment bank reported.
Specifically, analysts write that Bitcoin is virtually the only digital asset to be classified by the US Securities and Exchange Commission (SEC) as a commodity rather than a security, the decentralized nature of its blockchain protocol, as well as Bitcoin’s upcoming halving that do so will see the rate at which new coins are produced and put into circulation halved, according to report author Mark Palmer.
Halving halves miner rewards. Currently, miners receive a reward of 6.25 bitcoin; by next spring there will be 3,125.
Historically, Bitcoin halving events have been associated with a significant surge in the asset’s value, and Berenberg sees the next one as no different. Additionally, the next halving could also “serve as a catalyst… more broadly” for stock MicroStrategy, the largest corporate holder of bitcoin reserves at around 140,000 BTC.
“If history is any guide, we believe Bitcoin’s price could rise before and after this much-anticipated halving, with MSTR stock providing a leveraged vehicle through which investors can benefit from this event,” it said in the report.
While Bitcoin’s price is up about 65% since the beginning of the year, MSTR is up almost 120% over the period.
MicroStrategy stock closed Thursday’s trading session at $318.64, with Berenberg covering MSTR with a buy rating and a price target of $430.
What is Bitcoin Halving?
The Bitcoin halving is an event that occurs roughly every four years, with the protocol stating that there will only ever be 21 million bitcoins. The halving is designed to gradually slow the creation of new coins until the last one is mined in 2140.
The first Bitcoin halving took place in November 2012 when the mining reward was reduced from 50 BTC to 25 BTC per block. The second halving took place in July 2016 and reduced the reward to 12.5 BTC per block, and the third halving took place in May 2020 and reduced the reward to 6.25 BTC per block.
The next bitcoin halving is scheduled to take place at block 840,000, which is expected to happen around April 2024, with the mining reward cut in half again.
The halving has important implications for Bitcoin supply and demand dynamics. The slowdown in the rate at which new bitcoins are created makes the asset a little scarcer.
On the other hand, the halving makes mining less profitable for miners since they get fewer bitcoins for the same amount of work. This can lead to a reduction in the network hashrate and increased competition among miners.
What other factors can push up the price of bitcoin?
Berenberg also argues that Bitcoin’s recent appreciation “can be taken as an indication that more investors are recognizing it as a viable alternative not only among crypto tokens but also in the global financial context.”
The banking crisis earlier this year, the report says, has also had a “lasting impact” on traditional finance, even arguing that investors have lost confidence in the Federal Reserve “because of its perceived mishandling of the interest rate cycle.”
The bank said these macro factors have raised concerns about de-dollarization — the process of reducing or eliminating the use of the U.S. dollar in international trade and financial transactions — and could potentially highlight bitcoin’s value proposition as an alternative currency.
MSTR stock could also benefit from this “if investors increasingly turn to Bitcoin as an alternative currency,” the report states.
“As such, we believe Bitcoin has emerged as a safe haven asset relative to other crypto tokens, and this advantageous position could spur demand for it,” the report reads.
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