Demand for bitcoin surges as 'halving' countdown approaches

Yahoo Finance UK
Bitcoin's value has fluctuated wildly in recent weeks. (Getty)
Bitcoin's value has fluctuated wildly in recent weeks. (Getty)

Demand for bitcoin has surged in recent weeks as the halving countdown of the virtual currency draws closer.

The cryptocurrency has seen a sharp rise in interest from investors prior to the halving which will take place on Tuesday.

Scroll to continue with content
Ad

Halving is a technical process which cuts the number of new coins awarded per block to miners, reducing the bitcoin supply and keeping a lid on inflation.

Mining is a process of validating blocks of transaction by competing to solve mathematical puzzles every 10 minutes. The first miner to solve the puzzle is rewarded new bitcoins.

But every four years the mining reward is halved and on 12 May this will drop from 12.5 bitcoins per block mined to 6.25.

Bitcoin has not been immune to the coronavirus pandemic, as its value collapsed in mid-March to under $5,000 (£4,030) a coin, having previously sat at $10,000, just one month earlier.

READ MORE: Forget Bitcoin! I think the FTSE 250 is the better buy right now

But as the halving approached it rebounded to nearly $10,000, in sharp contrast to other physical financial assets struggling during the current pandemic.

Analysts are divided over whether the halving will see the price of bitcoin go up as supply runs down or if it will have a limited impact. Coin Corner chief executive Danny Scott said bitcoin could potentially reach $1m within half a decade.

Jake Yocom-Piatt, co-founder and project lead at cryptocurrency Decred, told Forbes halving would be a positive event for bitcoin and cryptocurrencies.

“A pandemic is very much a deflationary type event. Economic activity is going to take a real nosedive. The halving of bitcoin is a necessarily deflationary action,” he said.

This will be the third halving of the cryptocurrency since its launch in 2009 and previous events have triggered price rises of 81 times and 30 times in the 18 month period following the 2012 and 2016 halvings respectively.

READ MORE: Bitcoin to Rally after Halving?

But some experts are urging caution over the expectation of a bitcoin bull run.

Glen Goodman, author of The Crypto Trader, told This is Money the halving was driving prices higher because it got a lot of people excited.

"But in a fundamental sense, it doesn't have as big an impact as many people seem to believe. The swings in demand for bitcoin are so huge that they swamp any price-effect the halving may have on the supply side," he added.

What to read next