Photo by Chesnot
Bitcoin is in a bull market and is not having a bear market rally. Next stop is $11,000. Two things are driving this:
1) Coronavirus. Bitcoin (BTC) is flight/safe haven capital and the global fear of this outbreak is creating demand for BTC. For me it is the indicator of the spread or otherwise of this worrying disease.
2) The Halvening. Coming in May, likely the 12th, this will drop the mining reward to 6.25 BTC from 12.5. The idea is that this will make bitcoin worth twice what it is now. Maybe it will, maybe it won’t but it certainly won’t make BTC cheaper and if demand for new coins is constant, it will drive the price up over time.
So here is the chart of what we can expect with no shocks cropping up:
How the Bitcoin price should move if nothing unexpected happens
It’s hard not to imagine a moonshot happens next but there is nothing to mandate it. When coronavirus is controlled we can expect a pull back but as I keep reminding myself, the future of the world is full of such events to try our patience and pump “fiat” into flight capital.
Much above $11,000 and BTC will look very exciting indeed.
If Bitcoin goes over $11,000 things will look exciting
Now something interesting struck me this morning that I hadn’t recognized. Inflation is the same in the U.S., Europe and the U.K: U.S. 1.9%; EU 1.93%; U.K. 1.94%.
That’s a lightbulb moment for me because it shows that this block is synced up in monetary policy at the hip. This has all sorts of consequences I’ll have to noodle on for weeks and many investing implications and opportunities, but the interesting thing for bitcoin is after the halvening the BTC inflation rate will be: 1.83%
This should mean on its own, that bitcoin’s value should rise in terms of a basket of these currencies as its inflation will be below theirs and provide a hedge and carry. This is only marginal but it won’t take much of a rise in inflation to start to make a significant widening. There are many forces driving asset price inflation but the best returns are to be had on assets that are in finite supply. Bitcoin has a finite supply and the consequent upward price pressure is gong to be enhanced by new supply being less than inflation and significantly less than real global growth of 3%.
Clem Chambers is the CEO of private investors website ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide. He won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.