by Nuno Menezes
2015 has been a turnaround year for bitcoin. It started with the bitcoin price testing its bottom, followed by a slow recovery with a bumpy ride along the way. The last quarter alone has seen bitcoin almost double in price. Last month, bitcoin hit $502 for the first time since August 2014, and now 2016 is expected to bring a new price surge again.
The reasons why many leading experts believe in such claim is that bitcoin’s price is most likely to be driven by the age-old principles of supply and demand. While bitcoin was designed by Satoshi Nakamoto to have a finite supply of 21 million bitcoins, which will be mined until 2140, he also designed it so that the reward would be halved once every four years.
What Does “Halving” Mean?
Each Bitcoin is defined by its own creation and the subsequent record of its entire history of signed transactions. Miners are the ones who sign these transactions making a constant valid record of all bitcoins created since its genesis block. Miners compete to find a complete chain of transactions called a block, and every time a block is added to the blockchain, the miner who found the block is awarded a fixed number of coins. This is called mining. The Bitcoin protocol includes a mechanism to incentivize miners to issue the coins: Mining is the process by which bitcoins are discovered and is an essential part of the bitcoin protocol, as it ensures the security and integrity of the Bitcoin network.
The bitcoin protocol was designed so that the reward given to the miners could be automatically adjusted every four years. This is widely known by the Bitcoin community as the “halving,” and Satoshi implemented it as the key to developing a non-inflationary system.
The last time the halving happened was on November 28, 2012, and the rewards were adjusted from 50 to 25 BTC. The next halving is expected to happen between late April and the end of July 2016, when the rewards will be adjusted from 25 to 12.5 BTC.
Back in 2012, the stakes were much lower and one bitcoin could be bought for around $12, Amazingly, the price more than tripled during the seven months preceding the halving. This could be a fairly accurate forecast for what will happen to the price of bitcoin over the next year.
According to various reports, several influential Bitcoin personalities believe that the halving is bound to drive a new bitcoin price surge in 2016:
Erik Voorhees, the CEO and co-founder of ShapeShift, has projected a price of $1,800 in 2016, while the CEO of Chinese bitcoin exchange BTCC, Bobby Lee, hopes to see a bitcoin price of around $3,500. Daniel Masters, co-founder of Jersey-based Global Advisors, believes the price of bitcoin could go above $1,100 next year and up to $4,400 by the end of 2017.
This might sound a bit far-fetched, even coming from these well-known industry gurus, but as far as we know, theoretically it is entirely possible. And that would be because bitcoin is gaining significant momentum: Big investments are being made in blockchain technology, and many big companies, merchants, and even authorities are starting to accept bitcoin at an increasing rate.
Within this scenario alone we can see price surges going up to 50% of the current price; but taking the economic principles of the halving in consideration, we might see it go a lot further. However, despite the fact that the halving of the mining reward will drop dramatically (from 25 to 12.5 BTC) the demand for bitcoin is most likely to continue to increase.
There are still some difficulties encompassing scalability and security that bitcoin and blockchain technology will still have to face before it can go mainstream. But these issues are also the primary reasons motivating new development and innovation, and driving huge investments. Bitcoin and the blockchain technology is increasingly influencing the way that money moves around the world, and now big corporations are seriously interested in what this new technology can offer to actually streamline and develop both old and new financial services.
Before this scenario and the inevitability of the coin supply halving, the price should react within the principles of economic reasoning. As such, it is probably safe to assume that a new rally in the bitcoin price is destined to happen during 2016.