Changpeng Zhao is the CEO of Binance, arguably the world’s most popular cryptocurrency exchange. Zhao rose to prominence ever since creating the exchange with the vision of making liquidity easy to come by and rewarding users through a unique affiliate program that allows traders to earn a cut of trading commissions. Zhao also created the Binance token, which lets traders save on their fees just for holding the coin.
Now, Zhao is doing something he almost never does. He’s offering his own take on where the Bitcoin price will go next. For years, he’s been promising not to chime in, speaking more about innovation and the advancement of both his exchange and blockchain technology at large rather than concerning himself with short term price gains.
What is he saying about the price now?
The Halving Gives Bitcoin Price More Upside Potential
Given the Bitcoin price is in the midst of a 50% upward swing since January first, many experts and innovators are suggesting Bitcoin’s upcoming halving event, set to grab hold of the blockchain at some point during this coming May, is already priced in. It appears Zhao firmly disagrees with that statement. He says that the upcoming halving event gives Bitcoin room to go on significantly bigger bull run.
On the surface, it may appear that Zhao’s views go directly against the efficient market hypothesis, which holds that if everyone in a given market knows the same information, the opportunity to capitalize on that information for profit essentially disappears.
Zhao’s prediction on the other hand holds that many investors either don’t know how to interpret information about the cryptocurrency market because the market itself is still so young, or they just don’t have access to the complete picture.
History Can’t Predict the Future
The idea that past performance can’t predict future results is one of the fundamental principles of investing. The last time Bitcoin’s halving event occurred and reduced the supply of new Bitcoins circulating throughout the cryptosphere, the price of digital gold doubled in 2016 and promptly shot up in value by 1,300% in 2017.
Zhao stresses that while investors should definitely not expect a 13-fold windfall anytime soon, he does believe there is lots of room for both the adoption and price of Bitcoin to grow.
The Crypto Mining Conundrum
Crypto investors and influencers love to talk about how a reduction in the supply of Bitcoin is going to increase the overall value of it. It make sense to make that argument given that a reduction in supply should increase demand.
However, the unique world of cryptocurrencies offers a different challenge. The challenge of being able to sell freshly mined cryptocurrency to the broader investing market at a profit, while still being able to re-invest in the ever-increasing mining power required to keep the doors of mining-centric crypto businesses open.
Think about it. The next Bitcoin halving event is going to mean miners only yield 6.25 bitcoins rather than the current yield of 12.5 bitcoins every time a given miner gets the reward. This essentially means once the halving event occurs, miners will still be spending the same amount of money to produce new bitcoins, but only profiting half as much.
Since mining becomes more expensive when operations scale and rigs get larger and larger, miners are left to take a much bigger risk to stay in business. Thinking much further ahead in the future, say 10 or 20 years, it may mean miners will actually become less interested in mining and more interested in shorting the market.
While bullish crypto investors like Zhao and even most crypto critics haven’t gone as far as predicting a total collapse of mining leading to a surplus of bitcoins in the future, the path to a much higher Bitcoin price or parabolic move isn’t necessarily one pointing straight up. If history has proven anything, Bitcoin’s price will continue to take investors on a rollercoaster ride going forward.