Bitcoin has a maximum supply of 21 million coins, although not all those coins are in circulation yet. Since its inception over a decade ago, Bitcoin has seen its circulating supply grow consistently through mining rewards.
Decred co-founder and project lead Jake Yocom-Piatt predicts that the coming reduction in Bitcoin’s (BTC) mining payout will have miners upping prices.
«Since the Bitcoin halving means that miners will receive half as many Bitcoins for the same amount of work, this doubles the unforgeable costliness of creating Bitcoin,» Yocom-Piatt told Cointelegraph in a May 1 email, adding:
«Miners’ costs are effectively fixed, so to maintain the same profit margins, they are incentivized to double the price at which they sell their Bitcoin. I expect this supply shock will drive the Bitcoin price up by moving offers from miners up substantially.»
Bitcoin approaches its third halving
Approximately every four years, Bitcoin completes a halving event based on parameters built into its code. Each halving cuts Bitcoin’s mining block reward in half.
At current rates of roughly every 10 minutes, a miner somewhere in the world finds a block on Bitcoin’s network, receiving a reward of 12.5 BTC. Essentially, this means 12.5 new Bitcoins hit the market every 10 minutes.
On May 11, that reward drops down to 6.25, paying miners less for the same amount of work.
Bitcoin’s price could double in the coming days
Due to this fundamental market dynamic shift, Yocom-Piatt sees higher prices for Bitcoin. «In the short term, I expect the price to roughly double, but longer term predictions are difficult to make in the context of the boom-bust pattern of cryptocurrency markets,» he said.
«The stock-to-flow ratio is increasing substantially as a result of the halving, so that is good for the longer term price of Bitcoin,» Yocom-Piatt added.
Bitcoin’s stock-to-flow model, a product of Twitter crypto analyst PlanB, compares Bitcoin’s supply with its value, taking halvings into consideration. The analyst recently published an updated stock-to-flow chart for Bitcoin, including gold and silver in the mix.
Bitfinex Now Has a Derivatives Contract Offering Exposure to Bitcoin Dominance
The Seychelles-based crypto exchange said Wednesday the BTCDOM contract would allow investors to bet on bitcoin’s dominance rate – a metric for determining the market’s bitcoin value versus the value of other cryptocurrencies.
The first of its kind, BTCDOM is a perpetual swap – a future without expiry date – that relies on a proprietary Bitcoin Dominance Index, comprised of seven of bitcoin’s most liquid trading pairs, including those with large-cap coins, such as ether, EOS, litecoin and XRP.
Bitfinex says the contract provides investors with a less-volatile form of exposure compared to a plain-vanilla bitcoin contract because it references bitcoin to a broader basket of digital assets. That means that while the value of the contract obviously changes on the bitcoin price, it takes into consideration the broader performance of the whole asset-class, which remains highly correlated.
The BTCDOM contract, which is settled in USDT, began trading Wednesday.
Aggregated open-interest – a metric for trading activity – for bitcoin futures soared to an all-time high of over $5 billion before the pandemic triggered a mass-liquidation. As the graph below shows, open-interest has already regained much ground since «Black Thursday.»
That might be because many market participants are already trying to hedge against the possible outcomes of the upcoming halving event. Provider GSR told CoinDesk in March, just before the lockdown began, that it had seen record demand for customized options contracts from miners who wanted to lock-in a price ahead of the halving.