Famed Venture Capitalist Predicts Bitcoin Price Will Spike Following May Reward “Halving”

On an episode of the Daily Exchange, investor and venture capitalist Tim Draper announces his thoughts on how bitcoin pricing will increase following the May reward halving.

“It’s right on track; I’m actually really excited because I kind of expected things to drop some while the excitement waned. But, then as engineers and entrepreneurs are building more and more of an infrastructure around bitcoin, it looks like it’s going to happen,” Draper told host Fred Schebesta, co-founder of Finder and head of the OTC crypto exchange HiveEx.

The “halving” or “halvening” is a regular event that happens approximately every 4 years. As bitcoin currently has a hard-set limit of 21 million coins that will ever be produced, the system will slow “half” of its generation rate on a regular basis. Bitcoin is a cryptographically secure piece of code, produced by solving a difficult computational equation. As this equation is difficult to solve but easy to prove, the coin is secure.

Every 210,000 blocks, the bitcoin network performs a “halving,” which increases the difficulty of solving the equation. This difficulty increase is hard programmed into the system as a check on technological advances. The first server to solve the equation for a network block gets to claim that block’s reward, which is typically a set number of bitcoins. As verifying transactions is a part of the equation-solving process, servers that seek this reward — miners — maintain the network’s efficiency. “Halving” cuts this reward, currently at 12.5 BTC, in half, or to 6.25 BTC.

Draper is basing his assertion on the idea that, traditionally, bitcoin goes on a bull run following a “halving.” The market typically settles following a “halving,” as some miners drop out due to the increased difficulty. This decrease in mining activity would, in fact, have the opposite effect, decreasing difficulty, which would encourage new mining activity. This would create a price spike that would encourage more mining.

Not everyone agrees that this is a sure thing. Some analysts, for example, are arguing that the spike already happened, in part due to anticipation for the “halving.” These analysts are arguing that the market’s March to June bull run, which saw the price of bitcoin more than triple, may have been the “post-halving spike.”

Other analysts argue that bitcoin’s current trajectory is reminiscent of May and June 2018, which would suggest that bitcoin is positioned to drop to $3,000 again. Like the current pattern, bitcoin in the second quarter 2018 made a staircase decline from a previous high. Finally, some have argued that the “halving” may force smaller miners out of business without offering enough incentive to get replacement miners in the game. This would create an opposite effect from other “halving,” akin to Litecoin’s August 2019 “halving.”

Draper also argues that by 2023, bitcoin prices will exceed $250,000. Despite concerns that small miners may find it more difficult, post-“halving,” to make a living of transaction fees, Draper feels that the consolidation of altcoins will benefit bitcoin. “I didn’t realize that so many of the cryptocurrencies would be marginalized, where they would lose their backing or the entrepreneur who’s driving them,” Draper added. “That consolidates more of that activity around bitcoin.”

Draper may not be alone in thinking bitcoin is poised to become big. Despite bitcoin closing the year at twice its year opening, it will likely be at half its year’s high. However, questions about the stability of the current fiat system mean that cryptocurrency can take a larger share of the current monetary system. “Assuming governments back cryptocurrencies, and consumers want them, adoption rates will drive the timeline for mainstream use,” Deutsche Bank strategist Jim Reid wrote in a report. “If current trends continue, there could be 200 million blockchain wallet users in 2030.”

Draper is one of the most successful venture capitalists in the world, with prominent investments in Ancestry.com, Focus Media, Hotmail, Ring, Robinhood, Skype, SolarCity, SpaceX, and Tesla. Draper made news for purchasing seized bitcoins from the Silk Road marketplace in a US Marshals Service auction.