A combination of mining becoming more profitable and a spring 2024 halving of the number of newly minted coins is expected to see the bitcoin price hit $120,000 next year. At least, that’s the prediction of Standard Chartered analyst Geoff Kendrick.
Kendrick’s bold forecast was made in a recent note to Standard Chartered clients and predicated on the bitcoin price reaching $50,000 by the end of this year – a bitcoin currently trades at around $30,400 after gaining almost 84% since the beginning of 2023.
At that price level, predicts Kendrick, bitcoin miners will have to sell less of the newly minted coins they earn to cover overheads such as energy bills and hardware. Currently around 900 bitcoin are mined a day. At today’s value, the market value of those bitcoin is around $27,360,000.
Kendrick writes that around 20% of the newly minted bitcoin earned by miners every day is accounted for by the 12 largest listed miners – earning them $5,472, 000, or an average of $456,000 a day each.
This spring, large listed bitcoin mining operations were selling close to 100% of the bitcoin they mined to cover expenses. At a price of $50,0000 or higher, Kendrick would expect miners to sell just 20% to 30% of their newly awarded bitcoin. That scenario, the analyst writes, would reduce supply of the original cryptocurrency by around 250,000 a year compared to recently.
That kind of reduction in supply would push prices higher, further incentivising bitcoin owners to hold on to more their cryptocurrency because fewer sales would be needed to cover costs:
“Increased miner profitability per BTC [bitcoin] mined means they can sell less while maintaining cash inflows, reducing net BTC supply and pushing BTC prices higher.”
The second catalyst for a potential quadrupling of the bitcoin price is an event expected to take place next April or May – a halving of the number of bitcoin able to be mined every day.
Bitcoin’s blockchain protocol includes the built-in mechanism to reduce the supply of newly minted units of the cryptocurrency over time. That’s designed to maintain scarcity, helping support prices and avoid value debasement through money printing – a core criticism of the fiat currencies that cryptocurrencies are positioned as an alternative to.
“Halvings” as these events are called occur roughly once every four years. The last, when the block reward for miners fell from 12.5 to 6.25 bitcoins, took place in May 2020. When the halving occurred on May 11 2020, a bitcoin was worth around $9300. By January 1 2021, a bitcoin was trading for around $32,150. By March 2021, units of the original cryptocurrency were fetching over $60,000.
All of those gains can’t be put down to the halving of the block reward. Most risk-on asset classes, growth tech stocks as the most obvious example, were soaring at the time. But some of those gains are attributed to the halving event. When the previous halving occurred in July 2016 bitcoin was worth around just $650. By the end of that year, it had gained over 65% to climb to $973. By mid-December 2017, it had reached $19,650.
In April Kendrick predicted the 2023 halving would add $10,000 to the bitcoin price, helping take it to $100,000. That’s since been revised up to $120,000.
Could the bitcoin price rise above $120,000 in 2024?
Some market participants are even more bullish on bitcoin than Standard Chartered’s Kendrick. Ark Invest, the vehicle of star stockpicker Cathie Wood, is predicting that bitcoin will top $1 million over the next decade.
The investment vehicle’s June Bitcoin report highlighted several indicators for the cryptocurrency it sees as bullish, including:
- During June, the supply of bitcoin that has been unmoved for at least one year reached an alltime high, ~70% of circulating supply.
- Perhaps because of Blackrock’s Bitcoin ETF application or indications that Grayscale had gained an edge during its trial against the SEC, GBTC’s discount to bitcoin’s net asset value (NAV) narrowed toward a one-year low.
- The balance of bitcoin on OTC desks, a proxy for institutional activity, hit a one-year high.
Ark sees the seemingly improving prospects of the SEC approving one or more of the current applications for bitcoin spot ETFs by asset managers including BlackRock, Invesco and Wisdom Tree as behind signs of returning interest from institutional investors.
Ark invests in what it sees as disruptive new technologies. The investment company’s Ark Innovation ETF is up almost 56% for 2023 but suffered a disastrous 2022 which saw many of the tech stocks it is invested in routed. The ETF lost around 80% of its value between February 2021 and the end of 2022.
The company also has a Fintech Innovation ETF, which is heavily invested in the cryptocurrency sector and blockchain technology that underpins it. It could be argued that, as such, the investment company, whose capital allocations are closely followed by retail investors, has a vested interest in taking a bullish position on bitcoin’s long term prospects.
Other analysts are bearish on bitcoin
Not all market analysts are, however, bullish on bitcoin with plenty of bears out there too. The bears see the strong gains for bitcoin and other cryptocurrencies so far in 2023 as a “bull trap” that will entice investors in before another significant price drop.
Forbes advisor notes that veteran global investor, Mark Mobius, the billionaire founder of Mobius Capital Partners, has predicted a huge fall that could see bitcoin drop to the $10,000 range. He first predicted that would happen in 2022, which it didn’t. He is, however, sticking to his guns and still expects a new loss of value to take hold at some point this year.
Global investment manager VanEck’s Matthew Sigel, head of digital assets research at the firm, also sees bitcoin dropping back to around $12,000 over coming months. He believes higher energy prices making mining unprofitable will have a major impact, alongside still rising interest rates and tighter long term monetary policy, which usually discourage investors from riskier asset classes.
Another headwind is the SEC’s current crackdown on the crypto sector in the USA, which has included legal action against Coinbase and Binance, the two biggest crypto exchanges, which it accuses of offering unregistered securities to U.S. citizens.
Should you listen to the Bitcoin bulls or bears?
With such divided opinion among crypto sector analysts, it might be hard to decide who to listen to. Ultimately, it is a question of believing in the long term prospects of cryptocurrencies and bitcoin itself, or not.
With cryptocurrencies still struggling to break into mainstream finance, there remains a huge amount of uncertainty around their, and bitcoin’s future prospects. Plenty of respected analysts fall into both the bull and bear camps, further muddying the waters.
If you do decide to bet on a new bull run, do so with a strong appreciation of the risk involved and don’t overexpose yourself. Bitcoin remains an investment that looks relatively zero sum in the long term and will either prove very lucrative indeed. Or result in much or all of the value of an investment ultimately being lost.