The third big bitcoin (CCC: BTC) ‘halving” is upon us, and according to our very own Matt McCall — whose Ultimate Crypto portfolio has averaged a jaw-dropping 40% gain in 2020, against a market that’s flat year-to-date — that’s a huge reason to be bullish on cryptocurrencies in 2020.
But, before we jump into understanding what that halving is (also referred to as a “halving”) and which cryptocurrencies to buy for 2020, let’s first understand why cryptocurrencies as a broad asset class have a bright future.
The core purpose of cryptocurrencies is relatively simple: leverage technology to eliminate the middle-man in financial transactions and make buying and selling things less costly and more efficient. Through the blockchain — a decentralized public ledger of transactions that anyone can view is consistent across the whole network and is unable to be edited and/or updated unless the whole network agrees with the update — cryptocurrencies can conduct and verify financial transactions without needing any central oversight.
That may sound like a mouthful. It’s not. Traditional currencies need big banks to oversee and verify all transactions. Cryptocurrencies do not. This means they’re less costly and more efficient than traditional currencies because there’s no middle-man to pay and no paperwork to fill out.
Sure, there are risks to cryptocurrencies achieving mainstream adoption and overtaking government-backed currencies. But, lower transaction costs and quicker transactions are large enough value props to warrant there being a bright future for cryptocurrencies (even if they don’t take over the world).
Why the Halvening Is Bullish
Now, let’s take a deeper look at why cryptocurrencies will rise in 2020.
Two key characteristics of bitcoin are limited supply and constrained supply growth.
There are a fixed number of bitcoins in the world (21 million). The bitcoin world started with most of those bitcoins being “locked in the system.” Each time an individual updated bitcoin’s ledger (also called “mining”), the individual would unlock new bitcoins. But to constrain supply growth and retain incentives for mining, the bitcoin system is set up so that every so often, the number of new bitcoins unlocked for mining a block is halved.
So far, bitcoin has undergone three halvings. After the first halving in 2012, bitcoin prices rose about 8,000% over the following 12 months. After the second halving in 2016, bitcoin prices rose about 2,000% over the following 18 months. In both instances, many alternative cryptocurrencies rose far more than bitcoin.
In other words, bitcoin halvings have traditionally been exceptionally bullish catalysts for cryptocurrencies. And that makes complete sense. Prices are determined by supply and demand. If supply growth slows, and demand growth doesn’t, then prices should go up.
The third bitcoin halving happened in May 2020.
The number of bitcoins unlocked for mining one block fell from 12.5 bitcoins to 6.25 bitcoins. Because of this halving, bitcoin’s supply is expected to rise by just 2.5% in 2020 — an all-time low for the cryptocurrency. It’s expected to rise by less than 2% in 2021.
Concurrently, demand growth should accelerate in 2020, driven by the introduction of more financial derivative products, broader support from central banks, and increasing recognition of bitcoin as a digital store of value.
Bigger demand growth plus lower supply growth equals higher cryptocurrency prices. That’s largely why Matt McCall, who has already picked two 70%-plus altcoin winners this year, thinks that the best of the big 2020 cryptocurrency rally is still ahead of us.
With all that in mind, I suggest readers keep a close eye on these seven explosive cryptocurrencies in the coming year:
- Bitcoin (BTC)
- Zcash (ZEC)
- Ripple (XEC)
- Basic Attention Token (BAT)
- Chainlink (LINK)
- Synthetix Network Token (SNX)
- DxChain Token (DX)
Cryptocurrencies to Buy for 2020: Bitcoin (BTC)
Of course, the most obvious cryptocurrency to buy for 2020 is bitcoin. Over the next few months, bitcoin will be a direct beneficiary of slowing supply growth and accelerating demand growth across the cryptocurrency world.
On the supply side, the third halving in May will directly impact the number of new bitcoins coming into the market and will lead to relatively slow supply growth.
Meanwhile, on the demand side, cryptocurrency interest will soar in 2020 as the third halving draws media coverage and public attention. Bitcoin demand will move higher simply because this is the “gateway” into cryptocurrencies for new investors. That is, as new investors enter the cryptocurrency market over the next few quarters, most of them will likely start by getting their feet wet with bitcoin.
Accelerating demand growth plus constrained supply growth will lead to higher prices for bitcoin in 2020.