Bitcoin Price Could Break Above $1100 In 2016 As Mining Reward Halves

The year 2015 has been quite eventful for bitcoin with BTC/USD temporarily breaking above the 500-mark for the first time in over a year on November 04. It currently trades at 457.11 levels.

A recent report from Reuters now suggests that in the forthcoming year bitcoin price will surge again due to slower growth in money supply.

Bitcoin is a web-based currency, invented by the mysterious Satoshi Nakamoto in 2008. Bitcoin creation depends on mining computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes, Reuters explained. First successful miner currently is rewarded with 25 new bitcoins, worth around $11,000.

The bitcoin system has been so designed that the reward would be halved roughly every four years, in order to cap inflation.

Wikipedia explains bitcoin’s supply growth: “25 bitcoins per block (approximately every ten minutes) until mid 2016, and then afterwards 12.5 bitcoins per block for 4 years until next halving. This halving continues until 2110–40, when 21 million bitcoins have been issued”.

This means than the mining reward will be halved in July 2016, therefore the supply growth will be reduced.

Daniel Masters, co-founder of Jersey-based Global Advisors' multi-million dollar bitcoin hedge fund, estimates the price of bitcoin could test its 2013 highs of above $1,100 next year and then pick up speed to rise to $4,400 by the end of 2017. The halving of the mining reward will increase the price of bitcoin by around 50 percent from where it is now, he told Reuters.

Citing other reasons for such a huge jump, he says it would be due to a number of factors including an increased acceptance of payments in bitcoin by big companies and authorities, growing interest and investment in bitcoin’s underlying blockchain technology, and also rising demand from China as its currency weakens and the economy slows.

But Bobby Lee, the chief executive of one of the leading bitcoin exchanges in China, BTCC, thinks the price could rise by as much as eight times in the time up to the reward halving, taking it as high as $3,500 by next summer.

"It (the halving) dampens supply so, all other things being equal, that puts upwards pressure on price," Reuters quoted Jeremy Millar, partner at London-based financial technology specialists Magister Advisors. "No one can argue with that fundamental economic principle."