Berenberg analysts: Bitcoin ‘could rally’ near next year’s halving event
Bitcoin (BTC) may finally put the crypto winter behind it and outperform the market in the coming months, according to a Berenberg research report.
Such an opportunity could be due to “a combination of circumstances, developments and timing,” the Hamburg-based multinational investment bank reported.
In particular, analysts write, Bitcoin is virtually the only digital asset characterized as a commodity rather than a value by the US Securities and Exchange Commission (SEC), the decentralized nature of the blockchain protocol, as well as the upcoming Bitcoin halving that will see the rate of new coins are produced and released into circulation by half, according to report author Mark Palmer.
The halving cuts miner rewards in half. Currently, miners earn a reward of 6.25 Bitcoin; next spring this figure will be 3.125.
Historically, Bitcoin halving events have been associated with a significant increase in the price of the asset, and Berenberg sees the next one as no different. Moreover, the next halving could also “serve as a catalyst … by extension,” for MicroStrategy shares, the largest corporate holder of Bitcoin reserves at around 140,000 BTC.
“If history is any guide, we believe the price of Bitcoin could rise before and after this much-anticipated halving, with MSTR’s stock offering a leveraged way for investors to take advantage of that event,” the report said.
While the price of Bitcoin rose around 65% since the start of the year, MSTR is up almost 120% during the period.
MicroStrategy stock ended Thursday trading at $318.64, with Berenberg covering MSTR with a Buy rating and a $430 price target.
What is the Bitcoin Halving?
Bitcoin halving is an event that occurs roughly every four years, with the protocol specifying that only 21 million Bitcoins will ever exist. The halving is designed to gradually slow down the creation of new coins until the last one is mined in the year 2140.
The first Bitcoin halving took place in November 2012, when the mining reward was reduced from 50 BTC to 25 BTC per block. The second halving occurred in July 2016, reducing the reward to 12.5 BTC per block, and the third halving took place in May 2020, reducing the reward to 6.25 BTC per block.
The next Bitcoin halving is set to happen at block 840,000, which is estimated to happen around April 2024, with the mining reward halved again.
The halving has important implications for Bitcoin’s supply and demand dynamics. Slowing down the rate at which new Bitcoins are created makes the asset a little more scarce.
On the flip side, the halving makes mining less profitable for miners, as they receive fewer Bitcoins for the same amount of work. This can lead to a decrease in the network’s hashrate and increased competition among miners.
What other factors could increase the price of Bitcoin?
Berenberg also argues that Bitcoin’s recent strengthening can be seen “as an indication that more investors are recognizing it as a sensible alternative, not only among crypto-tokens, but also within a global financial context.”
The banking crisis earlier this year, the report said, has also had a “lingering impact” on traditional finance, even arguing that investors have lost confidence in the Federal Reserve “due to its perceived mishandling of the interest rate cycle.”
The bank said these macro factors have led to concerns about de-dollarization – the process of reducing or eliminating the use of the US dollar in international trade and financial transactions – and could potentially highlight the value proposition of Bitcoin as an alternative currency.
This is also what MSTR stock could benefit from “if investors increasingly turn to Bitcoin as an alternative currency,” the report said.
“As such, we believe Bitcoin has emerged as a safe haven relative to other crypto-tokens, and this advantageous position may stimulate demand for it,” the report said.
