Bitcoin Price Review :
Bitcoin Price has been steeply increasing since last three week with hardly any correction so far. Around May 24th 2016 it was around $430 and today, 15th June 2016, as I write, it is around $684. In between it had crossed $700. Where are we heading and what are the reasons for this steep rise. Lets first focus on the reasons for this rise and thereafter we can analyse where will this lead to.
Bitcoin Halving Effect :
First and foremost reason for this surge in Bitcoin Price has been halving of reward for Bitcoin Mining which is predetermined and scheduled for around 11th / 12th July 2016. As per the software operations, after completion of every 210,000 blocks, reward for mining reduces by 50%. This creation of 210,000 blocks takes around 4 years. Since 2012 25 bitcoins were rewarded for successfully completion of one block on open ledger Blockchain. Now after Halving, only 12.5 bitcoins will be rewarded to bitcoin miners. Since daily only 144 blocks are permissible to be created on block chain, hence total bitcoins that will be generated after Halving effect will be 1800 bitcoins against 3600 bitcoins being made currently. This leads to drastic reduction in supply leading to increase in Bitcoin Price. Thus Bitcoin Halving has great impact on Bitcoin Price.
Chinese Devaluation of Yuan Currency :
One observation about the investments being made in transactions of purchase of Bitcoins, is that, 80% of money is coming in the form of Yuan. What does this mean? This simply means that money being used for transactions pertaining to purchase of Bitcoins, is coming from China. Chinese are converting Yuan into Bitcoins fearing devaluation of their Yuan currency. Price of Yuan has depreciated from 6.45 in March 2016 to a Dollar to 6.60 as of today, 15th June 2016. It us further expected to depreciate to 7.0 by the year end. In order to save the value of their money, Chinese investors are looking at potential of Bitcoins to store value of their money which can be reconverted back to Yuan at appropriate time. Besides saving them from depreciation and inflation, the Bitcoin Price is appreciating due to fundamentally strong concept of Bitcoin viz Dencetralized Blockchain, Limited Supply and Halving Effect. These factors have made Bitcoin a strong centre of investment, appreciating in long run.
Besides above two major factors which have taken Bitcoin Price to a new 2 year high level, Bitcoins are fundamentally very strong from investment point of view since demand is being increasing exponentially (refer my post : 12 reasons for investing in Bitcoins) and supply is being decreasing steadily over every 4 years. This has been a cause for general rise in Bitcoins over a long period. This fundamental strength coupled with Halving Effect coming in a month now along with Chinese devaluation of Currency has resulted in steep rise in Bitcoin Price.
Where do we go from here:
At the moment all fundamentals are in favour of Bitcoin. After the Halving in July, the price may not further increase much since this factor has already been discounted to a great extent. Bitcoin Price should remain steady above $700 for miners to continue mining profitably. There might be a short term correction after the Halving due to profit booking but on a long term, I don’t see any major correction taking price back to what it was a month back. Clubbed with Chinese currency factor, I firmly believe, Chinese will further bring in more investments if Yuan continues its value towards 7 against US dollar. I will not be surprised if Bitcoin Price touches $1000 by the end of the year or beginning of 2017.