Kitco on Lightning Capital's Bitcoin Halving & Digital Gold Research

(Kitco News) Whether you love, hate, or totally ignore bitcoin, the cryptocurrency is looking to become more mainstream and less volatile in the new year and the new decade to come, according to analysts.

This year has built a solid foundation for prices, which began the year just below $4,000 and then peaked just below $14,000 in June. Since then, bitcoin has somewhat stabilized around the $7,000 level. At the time of writing, bitcoin was trading at $6,942.00.

Going forward, regulation and mass adoption will be the key drivers keeping bitcoin prices supported, analysts said.

Bitcoin has been winning the crypto race of mass-adoption, which is a sign that prices will head higher, said Bloomberg Intelligence senior commodity strategist Mike McGlone.

“Plenty can go wrong with a nascent asset, but unless the basic premises reverse -- mass adoption and fixed supply -- there's a higher probability to sustain price appreciation vs. depreciation,” McGlone noted.

The latest move above $6,500 signaled an end to the bear market, many analysts pointed out. This could be a major shift for the cryptocurrency, which has been struggling after hitting its record-highs of nearly $20,000 back in December 2017.

“Bitcoin has become a shadow of its former self thanks to regulations and crackdown fears. The second half of 2019 reflects the negative sentiment towards bitcoin which tumbled from a 2019 high of around $14,000 to as low as $6,250 in November,” FXTM senior research analyst Lukman Otunuga told Kitco News.

Main risk events: Halving, regulation

The main risk events surrounding the cryptocurrency in 2020 are the halving, scheduled for May, and more regulation. Both could really boost prices higher, according to analysts.

“The halving that takes place in May will set the tone for the new year,” U.S. Global Investors CEO Frank Holmes said.

Bitcoin halving is a recurring event programmed into the cryptocurrency every four years or every 210,000 blocks until the year 2140, when all 21 million bitcoins are estimated to have been mined. What it essentially does is slow bitcoin mining. May’s halving will see 50% fewer bitcoins generated every 10 minutes.

The effects of next year’s halving are being actively debated by the crypto community with some experts predicting a 2017-like bull-run.

Bitcoin halving has led to bullish price moves in the past. After the 2012 halving, prices surged a year later to over $1,000 for the first time ever. After the 2016’s halving, bitcoin also went on a bull run, which saw prices near $20,000 for the first time ever.

One of the most important things to understand about the next halving is that it will lower the reward for mining bitcoin blocks from 12.5 bitcoins to 6.25 bitcoins, which will make mining more expensive, said Interlapse Technologies CEO and Coincurve co-founder Wayne Chen.

There is a good chance that prices could quickly double and hit new record highs in the middle of next year after bitcoin halves, Chen noted.

The halving impacts bitcoin’s supply-demand equilibrium, explained Charles Hwang, adjunct professor at Baruch College and managing member of the hedge fund Lightning Capital.

“The supply right now that is being released through coinbase transactions is 647,000 bitcoin over the span of the last 12 months. The demand is very close to that,” Hwang said. “What we’ll see in May, when the supply gets reduced due to the halving event, is a supply shock where the supply for the next 12 months (after May 2020) will be cut in half to 328,500 while the demand might remain over 600,000.”

Bitcoin might not rise right away, but the effects will be eventually reflected in the price, Hwang added. “Based on historical charts, the market does not go up right away. It takes at least a year. Eventually, we might see moves up like in previous halvings,” he noted.

The other driver is regulation and it is the next best thing that could happen to bitcoin in 2020, according to analysts.

Additional regulation is a path towards wider acceptance and adoption, Chen highlighted.

“For Canada, there is a big regulation coming, where virtual currency companies need to be regular as money-service businesses. There is going to be more regulatory oversight. It is a good thing. It makes institutions a little bit more receptive to doing business with crypto companies,” he said. “With crypto right now we are in a state where we need more big retail players to help with driving adoption and help people understand it.”

Regulatory policies will drive sentiment going forward, added Holmes, noting that any new announcements might cause short-term volatility.