Marcus Swanepoel, CEO of Luno, has uncharacteristically predicted that the price of bitcoin will return to record highs it saw three years ago in about 12 to 18 months.
The prediction is coming on the eve of the most anticipated event in the history of the cryptocurrency. Bitcoin Halving describes a process of reducing the rate at which new cryptocurrency units are generated. For instance, the halving on Tuesday would see the block reward fall from 12.5 to 6.25 bitcoins.
Halving is built into the bitcoin protocol and therefore fundamental to bitcoin’s principles. Essentially, halving ensures that miners have to spend more time to mine each bitcoin. Invariably, the miners would likely push up the price of the cryptocurrency to compensate for the extra effort.
There is a finite number of bitcoin that will ever be in circulation (21 million) and there is no way of producing more. As such, halvings are a unique protocol which controls the supply. Money issued by governments can be created by simply printing more notes, which means it loses value to inflation if too much is printed.
“I believe we’re currently at the beginning of a long upward trend, one that, considering the broader economic environment, is set to experience increased volatility, especially in the next few weeks,” Swanepoel said.
Luno which has nearly 4 million users buying and selling 5 top cryptocurrencies on its exchange has a policy of not predicting prices.
A poll that the global exchange conducted recently found that about 75 percent of Luno users have expectations of price bump by the end of 2020.
Less than 5 percent of users have plans to sell their bitcoin over the next six months, with more than 90 percent expecting to buy more, increase trading or hold on to their crypto over the same period of time.
Although the poll reflects nearly the entire market sentiment as Tuesday approaches, Mariuz Reitz, General Manager, Luno Africa, said the current economic landscape would play a major role in the outcomes of the halving.
Important to note are the growth in adoption and use cases for bitcoin. For instance, when the first halving took place in 2012, there were only 43,000 wallets or accounts. By the second halving in 2016, there were around seven million. Presently there are over 48 million wallets, but this is still a relatively small number.
Bullish price expectations are driven by previous halving outcomes. The first halving took place on 28 November 2012, when one bitcoin was worth around $11. Less than a year after the halving, bitcoin’s price rose to $1,100. A similar thing happened during the second halving which took place in July 2016. Prior to the event, bitcoin was at $600 to $700. After the halving, the price surged to a record $20,000. Notwithstanding, the two data points are still limited to make generalisations, Reitz said the market would certainly undergo a transition.
“If you drop supply of anything by 50 percent, usually it drives demand and therefore prices increase. Many have upped their holdings in anticipation of a bull run,” Reitz said. “Countries with unstable currencies like South Africa have seen bitcoin as a safe haven and good store of value and with governments printing money all over the world, inflation is likely to be higher than in the past. The COVID-19 situation may reduce the purchasing power of fiat currency, prompting more people to consider bitcoin.”
Reitz also said transaction fees may not be affected by the halving event because they do not make up a large percentage of income for miners, whose primary goal is achieving the block reward. This is why it is a race to see who decodes the block first. Miners joined forces and formed large mining pools, increasing the chances of getting a block which is then shared equally along with the transaction fees.
The company noted that it has seen good growth in Nigeria over the last quarter in terms of new account openings and monthly active customers. Nigeria has surpassed South Africa on both metrics although the market is still much smaller than that of South Africa in terms of bitcoin traded.