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That is in stark contrast to dollars, euros and yen being printed out of thin air as US, European and Japanese central banks look over the growth abyss into the growth chasm gouged into their economies by COVID-19.

A massive disinflationary shock looms and their collective response exposes how worried they are.

But it's not the inflation rate or the addition of new supply that "hodlers" only long-term holders care about. It's the prospect of a big rally that has many rubbing their hands together.

Hoping that history repeats, those who have followed Bitcoin since its early days know that past halvings have been lucrative money-making opportunities for thosewith the stomach to hold the cryptocurrency through not infrequent bouts of vomit-inducing volatility.

The first halving in November 2012 saw Bitcoin rally from about $US11 a coin to more than $US1100 in December 2013.

The second halving in July 2016 saw the currency surge from $US650 a coin to just shy of $US20,000 a coin.

The reason this halving event the third in its history is being so closely watched is because the world's most followed cryptocurrency is gathering more attention from institutional investors, including some of the biggest names in the hedge fund world.

Respected hedge fund manager Paul Tudor Jones has given Bitcoin his imprimatur, viewing the cryptocurrency as the "fastest horse" when it comes to hedging against the risk of inflation potentially sparked by massive central bank stimulus.

That's a backhanded compliment from one of the keenest observers of the global economy: central banks may succeed in averting a massive deflationary or disinflationary shock, but only at the cost of torching fiat currencies through inflation stoked by zero-rate policies and unprecedented unconventional policy.

Another keen observer is local cryptocurrency fund manager Richard Galvin, who runs Digital Asset Capital Management.

He also highlights the massive flexing of central bank balance sheets as a significant driver of the rise in Bitcoin prices.

Bitcoin has rallied from an intra-day low of about $US4000 a coin on March 13 to $US10,000 last week.

It was trading around $US8700 a coin on Monday.

"A key change in investor sentiment has been the increasing focus, as economies start to look beyond their respective COVID-19 lockdown phases, on what impact sovereign and central bank stimulatory policies may have on the inflation outlook," Mr Galvin wrote in an update to investors.

"The level of central bank balance-sheet growth over the last six weeks has been like nothing domestic and global economies have ever experienced before."

He says that Bitcoin futures on the Chicago Mercantile Exchange were trading at a "significant premium" to cryptocurrency exchanges is evidence of macro-based investment funds building up their exposure as a hedge against inflation.

A key issue is the reaction of Bitcoin miners to the new reward incentives.

The Bitcoin business is highly energy consumptive given the computing power needed to validate transactions. The complexity of mining coins is reflected in what is known as the hash-rate.

"We expect continued market volatility as the market weighs any noticeable miner response any material fall in mining hash-rate is likely to see price weakness," Mr Galvin writes.

"It's hard to draw historical conclusions given the market structure of Bitcoin is so different from the last halving four years ago, but history is on Bitcoin's side with both previous halvings both occurring within material re-pricing rallies."

Read the original here:
Bitcoin: Will 'halving' fuel another monster rally? - The Australian Financial Review