The third big "bitcoin halvening" is coming in May, 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 halvening 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 consistent across the whole network, unable to be edited and/or updated unless the whole network agrees with the update - cryptocurrencies are able to 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. That is, 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 amount of new bitcoins unlocked for mining a block is halved.
So far, bitcoin has undergone two halvings. After the first halvening in 2012, bitcoin prices rose about 8,000% over the following 12 months. After the second halvening in 2016, bitcoin prices rose about 2,000% over the following 18 months. In both instances, many .
In other words, bitcoin halvings have traditionally been exceptionally bullish catalysts for cryptocurrencies. And that makes complete sense. According to Will Cong, Associate Professor of Finance at Cornell University, - money supply and velocity would be important determinants - to the value of bitcoin and other cryptocurrencies. At the end of the day, prices are determined by supply and demand. If supply growth slows, and demand growth doesn't, then prices should go up.
The third bitcoin halvening is coming in May 2020. The number of bitcoins unlocked for mining one block will fall 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:
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 amount of new bitcoins coming into market, and will lead to relatively slow supply growth.
Meanwhile, on the demand side, bitcoin demand will move higher in 2020 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, implying that cryptocurrency demand growth in 2020 should run largely parallel to bitcoin demand growth.
Accelerating demand growth plus constrained supply growth will lead to higher prices for bitcoin in 2020.
Privacy is a top priority in the cryptocurrency community, and privacy-focused coins will likely win big in 2020. That's why McCall has picked top privacy coin Zcash as one of his top altcoin investments for 2020.
Zcash is a pure play on the growing importance of privacy in cryptocurrency.
That is, the first wave of cryptocurrencies was all about decentralization:
“Existing currency valuation models do not quite take into consideration decentralization — a potentially distinguishing feature of cryptocurrencies,” says Professor William Cong of Cornell University.
Now that cryptocurrencies have gained more mainstream traction and are starting to exhibit staying power, it’s time for another distinguishing feature to emerge — privacy. Privacy is one of the more important and discussed characteristics in both the crypto world and the financial transaction world at large.
As the importance of privacy grows in the crypto world, privacy coins will outperform, and Zcash looks particularly primed to outperform given the company’s recent pivot into private mobile transactions.
A leading altcoin positioned for potentially big gains in 2020 is Ripple.
Ripple is a company which leverages blockchain technology to enable banks, payment providers, digital asset exchanges and corporations to send money globally, usually using the company’s cryptocurrency, XRP.
In many ways, then, Ripple is the infrastructure behind cross-border cryptocurrency payments.
As cryptos gain more mainstream traction, Ripple is adding more and more banks and various other customers to its network. Most recently, the National Bank of Egypt just partnered with Ripple.
More and more banks will partner with Ripple in 2020 as cryptocurrency awareness and demand rises. As it does, the price of XRP will rise, too.
Basic Attention Token (BAT)
One of the more interesting cryptocurrencies to watch in 2020 — and which could explode higher — is Basic Attention Token.
The core idea behind BAT is pretty simple. The digital advertising model is broken, in that user and advertiser incentives are not aligned. Instead, they run opposite one another. That is, advertisers want users to watch their ads, while consumers want to skip the ads.
The idea of BAT is to realign the incentive structure in the digital ad network so that user and advertiser incentives match one another.
To do this, users get paid Basic Attention Tokens to watch ads in the Brave browser, so that they are now financially incentivized to watch the ad. The end goal, of course, is that more consumers watch ads, and advertisers sell more product/generate more brand awareness.
It’s a pretty smart business model.
And, as cryptocurrencies gain more mainstream consumer traction in 2020, this smart model for compensating users to watch ads should similarly gain traction. As it does, the price of BAT should rise.
One of the hottest cryptocurrencies, and one which Matt McCall thinks will remain red hot for the foreseeable future, is Chainlink.
In his Ultimate Crypto portfolio, Matt first recommended Chainlink in early January at a price of $2.09. Today, Chainlink trades hands at $3.87, up a whopping 85% in just five months. What’s more, that 85% return over the past five months, follows a 450% return in 2019.
In other words, Chainlink has been scorching hot. Strengthening fundamentals imply that it will remain hot for the foreseeable future.
Specifically, Chainlink leverages blockchain technology to create smart contracts, which are essentially self-executing contracts that can be executed without central oversight.
But businesses have been slow to adopt smart contracts because data is integral to executing these smart contracts, and there hasn’t yet been a reliable way to connect external data with the smart contract.
That’s exactly what Chainlink does. So, they provide a very necessary gateway to usher in broader adoption of smart contracts. This adoption uptake in 2020 will provide a natural tailwind for LINK, and the coin’s red-hot rally will likely persist.
Synthetix Network Token (SNX)
The Synthetix Network Token is a cool platform in the ethereum ecosystem which leverages blockchain technology to help bridge the gap between the often very obscure cryptocurrency world, and the far more tangible traditional asset world.
That is, in the Synthetix Network, there are Synths, which are synthetic assets that provide exposure to assets such as gold, bitcoin, U.S. Dollars and various equities like Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL). The whole idea of these synthetic assets is to create shared assets wherein users benefit from asset exposure, without actually owning the asset.
It’s a very unique idea, and a promising project in the ethereum landscape. Because it helps bridge the gap between cryptocurrencies and traditional assets, it creates a level of familiarity and value that are often missing in other cryptocurrency assets. This familiarity and value ultimately position SNX price to rise in 2020.
DxChain Token (DX)
On the smaller side, a cryptocurrency which look like an interesting speculative buy in 2020 is DxChain Token.
DxChain is a very ambitious project which aims to use blockchain technology to solve the world’s data computation, storage and privacy issues. It’s a tall order. But, if it works, it could yield huge results in terms of DXC usage and value growth.
In 2020, data privacy concerns are front and center. As such, privacy-focused coins should rise. DXC is one of the more interesting privacy-focused coins with potentially huge long term upside.
While it’s still all very speculative, those attributes may make this altcoin worth the risk over the next few quarters.
In the bigger picture, it’s not an understatement to say that the opportunity in cryptocurrency in 2020 is a once-in-a-lifetime event.
New technologies are often undergirded by periods of rapid, exponential growth … before either dying out in supernova fashion or normalizing to meet realistic expectations. So when cryptos had their first “once-in-a-lifetime” event in 2013 — which turned every $1,000 into $93,000 — the spectating world thought they had missed out.
Then came the next life-changing event in 2017, turning every $5,000 into $123,000 … that was assuredly the big boom that you either rode to 25x gains or, well, you didn’t, right? Wrong.
Cryptocurrencies are unlike any trend we’ve ever seen before, and there will be another opportunity for investors to turn a fistful of dollars into millions of dollars.
The key to this explosion is the Halvening. Don’t miss out this time!
The post appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.