With the climate of banking stress as a result of rising interest rates and inflation simmering, many investors are looking at assets that may perform better in the coming years. One of them is Bitcoin, which from just over $15,000 has managed to double its price in 2023 to reach a peak of over $30,000. Is it an asset to take into account in terms of investment?
Some experts point in that direction. According to a recent report by Standard Chartered, Bitcoin (BTC) has the potential to hit $100,000 by the end of 2024. This analysis identifies factors that could contribute to this rise in value. Some already exist, while others are somewhat further away, but they should be kept in mind when setting clear goals.
“One of the factors that has helped restore bitcoin’s core use case is the recent crisis in the banking sector,” as Standard Chartered puts it. For the analysis firm, this crisis has helped Bitcoin to be seen as a decentralized, reliable and scarce digital asset. “In addition, the problems faced by stablecoins, which are defeated digital assets, have helped BTC regain its reputation as ‘digital gold’,” they say.
For example, these analysts say that USD Coin (USDC) was temporarily stuck because its issuer, Circle, had $3.3 billion in Silicon Valley Bank (SVB); this followed the Terra/Luna crash in May 2022 and the Tether (USDT) de-peg. “In this context, Bitcoin has benefited from its safe haven status due to its branding, perceived relative store of value, and a means of sending remittances,” he describes.
As a result, Standard Chartered expects Bitcoin’s share of total digital asset capitalization to continue to rise, most likely back to the 50-60% range (from 40% before the SVB collapse and 45% today). “The price increase associated with BTC, from less than $20,000 before the SVB issuances to more than $30,000, has increased the profitability of Bitcoin mining companies. With the price of Bitcoin now well above the estimate of $15,000 direct costs, it is unlikely that miners will sell many coins.
In addition, the more dynamic macroeconomic backdrop for risk assets would also gradually abate as the Fed nears the end of its resistance cycle, according to these experts. “Although BTC can trade well when risk assets suffer, correlations with the Nasdaq suggest it should trade better if risk assets generally improve,” they specify.
But they would not be the only elements to take into account. In the analysts’ view, regulatory developments should not provide a tailwind for crypto. The EU’s Active European Crypto Markets (MiCA) regulation has been approved by Parliament, and the regulation could have constructive implications for investor interest and volatility. Other positive regulatory actions are also likely in the United States and the United Kingdom. “It is possible that regulation can help increase investor confidence in the cryptocurrency market, which in turn could benefit from a Bitcoin,” they highlight.
The focus on the halving
Also, while the halving of new Bitcoin creation could have a positive impact on prices, it is also important to note that prices have declined after previous supply reductions. Therefore, it cannot be guaranteed that the Bitcoin halving will have a positive impact on the price of the cryptocurrency.
According to the report, the cyclical impact of halvings on Bitcoin prices is due to two factors: “The impact on the inflation rate of the asset and the impact on mining behavior before and after the halving.” Bitcoin’s inflation rate has fallen to around 1.8% currently from 4.2% before the May 2020 halving. “The halving of the reward also has the effect of reducing the amount of computing power in the network. , or the hash rate, since some miners will leave the market due to lack of profitability”, they comment.
Although halving cycles are less important to Bitcoin prices than before, the halving itself is likely to continue to be a positive factor in prices, as analysts explain in the text. In fact, the report highlights that, in the first and second cycles, prices peaked 17 and 13 months, respectively, after the reductions. “In the third cycle, the maximum price of BTC to date -69,000 dollarswas reached 18 months after the May 2020 halving”, he exemplifies.
The analysis also delves into the hash rate mechanism in the Bitcoin network. When the reward for mining activity is halved, miners take longer to form each block, which means that the supply of newly minted crypto assets falls even more than the halving of the reward implies, at least For a time.
The algorithm then adjusts the difficulty of the calculations required to verify new blocks every two weeks to ensure that the average processing time for each block remains approximately 10 minutes. “If that time exceeds 10 minutes, the algorithm reduces the computational difficulty in the next review period, reduces the amount of processing power needed to produce each block,” they comment.
Standard Chartered report predicts a path to $100,000 for Bitcoin by the end of 2024 due to several positive factors such as banking sector crisis, Bitcoin halving, increasing profitability of Bitcoin mining companies and regulatory developments. However, it is also noted that there are still risks and sources of uncertainty in the cryptocurrency market that could have a significant impact on cryptocurrency prices. Time will pass sentence.
