Bitcoin watchers have told investors who expect its price to boom on the back of its recent halving to be patient and not expect instant returns – despite the cryptocurrency rising more than 14 per cent in a month.
There was a surge in demand for it ahead of the event in early May, which has cut the reward for digitally mining bitcoin in half, making it harder to obtain in future, making it scarcer and potentially making existing coins more valuable.
Since 11 May, the price has steadily increased from just under £7,000, and hit a new post-halving high of £8,010 at the start of June.
It has slid a little since then but that rise still represents a healthy return of 14.7 per cent since the halving, compared to a 4.2 per cent rise in the US S&P 500 index over the same period.
Golden ticket? Bitcoin went up 14% between its May halving and the start of June but some think it could take a while before the price really takes off
Danny Scott, the chief executive of Isle of Man-based cryptocurrency exchange Coin Corner, who previously made the eye-catching prediction to This is Money that bitcoin could reach $1million within five years, said the halving was ‘not usually an instant impact event’.
He said: ‘It takes time for the supply and demand curve to take shape.
‘Looking back, we’ve typically seen bitcoin take between three to nine months after a halving event to reach the previous all-time high, which means, if history repeats itself, we can expect to see $20,000 – or £15,839 – anytime between August 2020 and February 2021.’
Investors who took a punt on bitcoin when it collapsed in price along with other assets in the big coronavirus-fuelled market crash in late February and March have already cashed in.
It hit a low of £3,900 a coin on 16 March and has since rebounded strongly. Scott added: ‘The second quarter has previously proved to be a strong quarter during bitcoin’s life, with only one of the last six years, 2018, resulting in a negative movement.
‘We are currently up around 53 per cent for the second three months 2020, and this is looking to be potentially one of the strongest of the last six years.’
While always unstable, Bitcoin has seen a steady increase in its price since 11 May
While last month saw bitcoin’s third halving since its inception, it is the first time it has taken place since the cryptocurrency has become a household name, with the two previous times occurring in 2012 and 2016.
These halvings take place every time 210,000 blocks are mined, and this year will cut the reward for mining blocks from 12.5 to 6.25.
Bitcoin is mined as specialised computers add transaction records to bitcoin’s public ledger of past transactions.
Bitcoin can be mined in 10 minutes, but the process is energy-intensive, supposedly matching the energy usage of the population of Switzerland.
Bitcoin hit all-time highs in 2016 and 2012 when it previously underwent halvings, but those were both before it became well-known
While the price hit all-time highs in both 2012 and 2016 according to Coin Corner, both these were dwarfed by the subsequent boom in bitcoin which took place in the run-up to Christmas in 2017.
In June 2016, the price sat at £610 a coin, by the following December it hit £14,000.
And although the increased name recognition of and demand for bitcoin likely complicates a like-for-like comparison, Scott is still confident we are set for another bull run on the back of this latest halving.
He said: ’22 days after previous halving events, we saw an increase of 0.7 per cent in 2012 and 8.5 per cent in 2016, which shows that we are currently outpacing history at a significant rate.’
If you do buy into bitcoin
Find out how bitcoin and the blockchain works, so that you have some understanding of the system, the ledger, the major players and the public and private key elements.
Remember bitcoin yields nothing and its main source of value is scarcity. Most bitcoin activity is trading not investing.
Research coin wallets, the digital vaults where cryptocurrency is held, and consider security carefully. Bitcoins have been stolen before, understand how this happened.
Be prepared for extreme volatility. The price can move by 20 per cent in one day and you could easily lose half of your cash in a far quicker time that investing in the stock market.
Consider how you would cash in any gains. There are reports that this has proved hard for some people. A time of market stress could lead to people being locked in and unable to trade.
Read our guide to How to be a successful investor, which looks at the far less high octane world of long-term investing and how to make it a success.
What is bitcoin?
The digital currency that most will be familiar with is free from government interference and can be shared instantly online. It doesn’t rely on trusting one central monetary authority.
The underlying technology is blockchain, a financial ledger maintained by a network of computers that can track the movement of any asset without the need for a central regulator.