All Bitcoin and Crypto
“Narratives in the world of blockchain act like the Force in Star Wars — they mysteriously move and shape the market”
– George McDonaugh, co-founder of crypto and blockchain investment firm KR1
Round the World in Crypto
Riot Blockchain announces a large order of Bitcoin mining equipment leading up the halvening. The cryptocurrency mining company, authorized to operate in Colorado, purchased 1,000 S19 Pro Bitcoin miners. These specialized computers are designed to mine Bitcoin exponentially faster than consumer-level hardware. Thought the Bitcoin halvening is expected to occur in May, the devices are scheduled to arrive in July.
The trading volume for Bitcoin in South America has reached new highs. Local Bitcoins, a way for people to trade in-person, is showing increased transactions in Argentina, Venezuela, Columbia, and Chile. In addition to suffering from the recent economic downturn, several of these countries’ GDPs are tightly correlated to the price of oil. This combination of market uncertainty and preexisting financial stress appears to be fueling the desire to hold Bitcoin as a store of value or to act as a bridge to acquiring US dollars.
Several countries in the European Union are creating a blockchain energy platform. The new platform, Equigy, will act as a communication network allowing battery backups and electric vehicles to provide electricity during times of increased demand. This will enable users of the platform to work as “virtual power plants” to balance out electrical loads in their network. Equigy will be rolled out in the Netherlands, Germany, Italy, and Switzerland.Subscribe
The African continent continues to leapfrog the technological divide. A report by CoinIdol found that the youth have a keen interest in Bitcoin and other cryptocurrencies. As over 50% of the population is without a bank account, decentralized banking solutions are attractive to the growing community. Recording artist Akon has created his own cryptocurrency and is planning to build a city powered by the blockchain in Senegal. Taking inspiration from the Marvel comic book character Black Panther, Akon hopes this new city will become a technological hub for Senegal and Africa.
Iran is seeing an increase in Bitcoin trading volume as the population begins to suffer from hyperinflation and international sanctions. A new law passed on May 4th will begin its transition from its currency the Rial to the Toman, valued at 10,000 rials. Iran has been suffering from increased inflation since 2018 when the US pulled out of a nuclear deal with the middle eastern country.
In late April, it was announced that the Turkish crypto mining company iMiner would be opening up a mining operation with 6,000 ASIC miners. This would place the facility as one of Iran’s most significant crypto mining operations.Subscribe
Long an early adopter of technology, Japan continues to pass crypto regulation. Bitcoin use in Japan has benefitted from government guidelines regarding taxes, Know Your Customer (KYC) laws, as well as anti-money laundering restrictions. In many ways, Bitcoin is treated the same way the US dollar of Yen is. In 2019 the Financial Action Task Force (FATF) released guidelines for crypto payment networks, which Japan has agreed to implement.
What is Bitcoin?
(Image Courtesy Of Libertex)
- Bitcoins are created by computers running specific hardware (miners)
- Takes a lot of energy to create
- Only 21 million will ever exist, already 18.364 million created
- The code is open source, anyone can view it
- It is “Decentralized,” no CEO or President
- Functionally impossible to counterfeit
- Relies on blockchain technology, arguably the most secure database
Created in 2009 by a programmer who went under the name “Satoshi Nakamoto,” Bitcoin is the world’s first cryptocurrency. It is a digital currency that operates on the internet and is accessed through computers and mobile phones. In the simple explanation, the Bitcoin network is a payment protocol that allows value to be sent from one person to another without the use of a third party. Typically third parties like banks or other institutions need to approve transactions before they are processed. The Bitcoin network does not discriminate, nor does it censor payments, acting only to move value from the Sender to Receiver. For comparison, the Western Union network transmits dollars, the banking network transmits dollars, the Bitcoin network transmits Bitcoin.
(Image Credit Blockspoint)
We reached out to industry leaders in both the traditional and cryptocurrency markets to get their idea on the imminent Bitcoin halvening.
Equities Tracker – Andrew Vong
“What does the Bitcoin Halvening event mean? Essentially, it is the reduction of Bitcoin’s Inflation Rate by half to 1.8%. Yes, the Bitcoin monetary supply is still inflationary but it is gradually being slowed down every 4 years until it reaches its theoretical hard limit of 21 million. The CAGR of M2 in the US stands at roughly 6.5% from 1974 – 2020 (46 years). For society & the economy to function, it isn’t isn’t the case of choosing between the 2 but rather having Bitcoin be the Yin to the USD’s Yang.”
The Daily Chain – Alex Libertas
“There is no doubt that COVID has had a major impact across all markets globally. However, since Black Thursday, we have seen a 105% increase in Bitcoin as we make our way up to the 2020 halving.
Although we have seen quite rapid increases in price at previous halvings, I personally believe that the 2020 halving itself will be a non-event for the first few months. We may actually see a decrease in price as the broader economy struggles to return to normal. With over 20 million Americans unemployed since the ADP began in 2002, it’s difficult to see an immediate price explosion for an asset that is still often known as extremely volatile and unpredictable.
However, I do think we will see a run in the following 3-6 months as lockdown restrictions become loosened, people return to work and start pumping money back into the economy. This accompanied by miners adjusting to the new difficulty and the supply being cut in half, I think, can be a huge catalyst that pushes Bitcoin to $20,000 and beyond.
As we have seen in the past, higher Bitcoin prices bring more exposure in the mainstream media. Therefore many more eyes should be on this new asset. Now is the best time to learn about Bitcoin, and why it is the perfect opposition to the failing FIAT currency, as there are so many great resources available that are now easy to find for newcomers to the space.
The United States continues to print unlimited US Dollars, which has just added an extra three trillion to its national debt, taking the amount to 28 Trillion from 25. This is continuously weakening the USD, and Bitcoin’s anti-inflationary model stands out as a truly viable alternative to the traditional system now more than ever.
The fact that the United States can print $3 Trillion in one week and the entire market cap of Bitcoin is only $170 Billion shows just how early we are in this space.”
The Bitcoin Halvening
Before the coronavirus reared its antibiotic-resistant head, the cryptocurrency community’s attention has been placed firmly on the Bitcoin Halvening.
Who With the What Now?
The Bitcoin Halvening is an event that takes place approximately every four years, in which the Bitcoin reward drops in half. That is, there are half as many Bitcoins created after each halvening event.
When Bitcoin was created in 2009, 50 Bitcoins were created every 10 minutes. As computers on the network validated each transaction in the background, these participants received 50 Bitcoins for their use of electricity and processing power. In 2012 the first halvening occurred, dropping the reward to 25 Bitcoins. Then, in 2016, the second halvening took place. This month (this week, in fact), the third halvening will further reduce the supply of new Bitcoins released into the market. Only 6.25 Bitcoins will be created every 10 minutes until the next halvening when only 3.125 are created.
If this is sounding strange, it is. Part of Bitcoin’s design is based on a deflationary model. That is, the amount of newly created digital currency goes down over time. Modern monetary policy dictates that the supply of currency only goes up. We see this not only in the amount of new money created as debt but in the United States actions taken towards quantitative easing and the Federal Reserve Rates. While this article will not delve into the subjects mentioned above, it is useful to understand that most (if not all) currencies are based on an inflationary model.
What Does it Mean?
For Bitcoin, the halvening is celebrated by the crypto-faithful. Parties and informal gatherings take place around the world, price predictions run rampant, and traditional news outlets barely pay it any attention. In some respects, the 2016 halvening was responsible for the 2017 crypto bull market that saw the price of one Bitcoin reach near $20,000. Does this mean we will see a similar price pump? Probably not. And here’s why.
To the Charts!
Before 2016 Bitcoin was less than exciting. Primarily celebrated by cyberpunks or lurkers on Reddit, most had probably never heard of it. The cryptocurrency had already been through one complete market cycle, or crash cycle. In 2016 saw Bitcoin soar from sub-$200 to $1,200 before dropping back down below $200.
Up to the halvening, Bitcoin saw a slight bump in price, reaching $800 before dropping back down. Immediately after the halvening, the price dropped to below $500, which caused many to declare that Bitcoin was dead.
Pundits claimed the halvening was “priced in.” In other words, the market had already factored the halvening into the price of Bitcoin. And from the above graph, things did not look well.
However, markets are not rational beasts. The market is made up of people, and people are driven by emotions. Even automatic trading algorithms that were created by people operate with those inherent biases. As time passed, the story slowly started to change. This situation changed so slowly, in fact, that a significant number of people left the cryptocurrency markets altogether. It took nearly a year for the effects of the halvening to appear in the charts. But when it did, it showed up with a vengeance.
That drop in July doesn’t look so bad anymore in comparison. And the all-time high of $20,000 makes July look like a smoking buy.
So . . . Buy Now?
Not so fast. We need to remember that the 2016-2017 cryptocurrency market was completely different than it is now. Back then, Initial Coin Offerings (ICO’s) were raising millions of dollars on half-baked ideas and empty promises. There were nearly zero regulations regarding cryptos, and the IRS was still scratching its head over this new “Magic Internet Money.” There were so few ways to short Bitcoin and zero ways for institutions or “Big Money” to be involved.
Currently, there are regulated Bitcoin exchanges, futures products, and derivatives. Congress is actively looking into new crypto regulations, and the IRS is allocating considerable manpower to help tackle the issue. In many ways, the landscape is so different I would not be surprised if it took longer than a year for the effects of the halvening to be felt. It is also possible the price of Bitcoin is being manipulated by those with deep pockets, as many assets are. This speculation is one aspect that has kept the Bitcoin ETF (Electronically Traded Fund) from being approved for the past 7 years. Yes, the Bitcoin ETF has been struggling to reach approval since 2013. Despite these setbacks, the Bitcoin ETF dream continues to push forward despite the latest proposal by Bitwise being rejected in April. To date, the SEC is still not convinced Bitcoin is not subject to price manipulation nor use for illicit purposes.
On the other hand, Forbes believes that Bitcoin may go in price sooner than later. Citing an increased appetite for uncensorable payments, stock market volatility, and the increased demand for hard assets like gold, contributor Clem Chambers believes that “this time is different.” As the Federal Reserve continues to inflate the dollar supply, keeps interest rates close to 0%, and offers stimulus checks, it seems inevitable that some of that wealth funnels into Bitcoin. We already see this phenomenon as the purchase of cryptos on the crypto exchange Coinbase is up following the $1,200 stimulus checks, which were dispersed earlier this month.
Regardless, the ecosystem has changed substantially from the last time a halvening occurred. Of course, Bitcoin is a creature unto itself. Sometimes it acts as digital gold, sometimes it’s a safe haven, and other times it seems to pump or dump for no reason. Regardless of the immediate price of Bitcoin, its longevity and uptime have firmly planted it in the minds of investors across the world. Plan accordingly.Subscribe
Our friends at the social media data aggregator LunarCRUSH have gathered data on Bitcoin posts on Twitter. By looking at the number of tweets over the past 30 days with the hashtags Halvening, Halving, BitcoinHalvening, etc. a few patterns begin to emerge. This correlation disappears if the date range is expanded to January.
Data by LunarCRUSH Chart by William B
Most interesting is the positive relationship between the number of Halvening tweets and the Bitcoin price. The immediacy of the halvening seems to correspond to the price bump as investors buy Bitcoin in anticipation. This is what we saw during the last halvening, as referenced in the previous article.
We can see Bitcoin reaching for the local top of $10,522 set in February. A sharp break above this resistance would be a bullish sign for Bitcoin post-halvening.
Blockchain Bills in Congress
(Image Courtesy of Altcoin Buzz)
Bitcoin and cryptocurrencies have not gone unnoticed by the US Government. Blockchain, the technology which runs cryptocurrencies, has been slowly gathering support behind closed doors. The House and Senate have introduced no less than 32 blockchain bills in the past year, mainly focusing on regulations and guidelines for the fledgling protocol.
Of specific concern are cryptocurrencies used to fund illegal or terrorist activities, long the warning call of those who oppose uncensorable payments. The EARN IT act proposes to remove mechanisms cyber terrorists and hackers might use to inflict harm. Included in the legislature is a proxy banning of encryption of end-to-end communications. It is not unrealistic to imagine this being applied to blockchain and cryptocurrencies, which utilize several encryption methods, or algorithms. Even if blockchain was unaffected, allowing the government to bypass encryption would make all of our data more susceptible to theft. Modern Markets goes into more detail in our 5.0 Newsletter on these topics.
The coronavirus pandemic has also led to an increased interest in digital voting using the blockchain. Social distancing guidelines have affected nearly all aspects of life, even threatening to push back election dates in the US. A Senate staff memo explains that blockchain would be an ideal way to conduct remote voting: “Blockchain can provide a secure and transparent environment for transactions and a tamper-free electronic record of all the votes . . . It also reduces the risks of incorrect vote tallies.” Not only could a similar system be used by the public, but for votes within the government to take place. Traditionally all votes in Congress have taken place in person with no contingency plan to accommodate social distancing.
This is not the first time that blockchain voting has been suggested. In 2018 Microsoft proposed a solution based on the Bitcoin blockchain, as it currently is the most resistant to tampering or a 51% attack.
The path to a digital dollar has become increasingly clear due in part to COVID-19. Unsatisfied with the slow distribution of stimulus checks, 11 members of Congress wrote a letter to Treasury President Mnuchin on April 23rd, urging him to deliver the checks via a blockchain system. Citing China’s interest in developing a digital Yuan, the letter requests the US “utilize private sector innovations such as blockchain and DLT to support the necessary functions of government to distribute and track relief programs.”
The rest of the world is simultaneously experimenting with similar payment systems. Sweden, Uruguay, France, South Korea, and China, as mentioned above, are all exploring the blockchain payment landscape with localized Central Bank Digital Currencies, or CBDC’s. The advantages of a CBDC over traditional wire transfers or ACH payment is speed. Funds could be sent at night, over the weekend, or outside regular banking hours and arrive within minutes instead of days. In short, they are centralized versions of a crypto stablecoin like Tether.
A central nationalized CBDC would need to overcome a multitude of hurdles, including consumer education, privacy concerns, liquidity, and retail acceptance. Jake Yocom-Piatt, project lead for the Decred crypto opined, “Since CBDCs are necessarily centralized, this centralized control over the network would give CBs access to an unprecedented amount of data about individual and collective transaction patterns.” As the owner of the blockchain, the country would be able to scan and parse all the data involved in every transaction. This means for a specific user, their location, wallet, location, and amount transacted would be readily available to the government.
This newsletter, analysis, research, and commentary provided by Modern Markets, lead analyst Kaltoro, with contributions from TytanInc and Digital Lawrence. The publication incorporates data from numerous sources including, but not limited to, CoinMarketCap, Bloomberg, CNBC, Lunar Crush, and the team at FomoHunt.
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