Four Months After the ‘Halving,’ Bitcoin Returns to $700-Plus Price Territory

By John Stewart
@DTPaymentNews

Bitcoin is on a tear again. The cryptocurrency has breached the $700 price barrier seven times out of the last nine days, according to data from Blockchain.info, and bids fair to remain above that level Tuesday. It was trading at $709 early in the day, according to Coindesk, a digital-currency news service. Its high for the year is $762, reached June 16 after a remarkable surge.

Bitcoin last traded over $700 on July 2. Its value then drifted downward, settling at a nadir of $515 a month later before staging the climb that has brought it to its current level. Despite these pricing vicissitudes, Bitcoin has enjoyed a banner year in 2016. Its value has increased 64% since the first of the year, when it traded at $432. Only a year ago, according to the Blockchain.info data, Bitcoin was trading in the low $200s.

Experts credit events in China, some of them brought about by regulation from the national government, for the digital currency’s rise in recent weeks. “The price is being driven by demand in China, with citizens there looking for some protection from fluctuations on the yuan and the growing set of capital controls laid on by the Chinese government,” George Peabody, who follows Bitcoin at Glenbrook Partners, a Menlo Park, Calif.-based payments-advisory firm, tells Digital Transactions News by email.

Another possible factor lies in the so-called halving that took place in July. This event, which is hardwired into Bitcoin’s code, takes place roughly every four years and cuts in half the reward Bitcoin miners receive for cracking the mathematical puzzles that lie behind the creation of new coins on the blockchain. In the latest halving, the reward was chopped to 12.5 coins from 25.

Since the mining operation has grown into a costly enterprise consuming high levels of computing horsepower and electricity, the sudden halving of the incentive was expected by many observers to lead to higher prices as some miners folded and others cut back on their activity.

That may have happened, but not immediately. Bitcoin’s price dropped sharply on Aug. 2, from $606 to $515, and then remained in the $500s for the entire month. It traded mostly in the $600s after that before rising into the $700s on Oct. 29.

Better prices could lead to increased supply as miners return to higher production levels. At the current value, those 12.5 coins are now worth $8,863. That’s well below the $17.725 miners could have earned at the old rate, but it’s still up 38% from the $6,438 the coins fetched in early August. Indeed, who has the most to gain from the run-up in Bitcoin’s value, it turns out, also has a geographical center. “It’s benefiting the miners, who are mostly in China, too,” notes Peabody.