Katharine Wooller, Managing Director, UK and Eire, Dacxi
The Bitcoin halving event, which occurred on the 11th May, has been a watershed moment for the industry. It has been a deafening theme for crypto narrative in recent months, and more recently has caught the eye of professional investors and conventional media alike, with some predicting it will be the catalyst for a substantial boom. It appears bitcoin, finally, has a hard-won place in the mainstream.
Halving: In a nutshell
Bitcoin has a key feature; there are a fixed amount available, and, crucially it has a pre-programmed supply reduction built in. The miners, who maintain the bitcoin network, validate transactions and add them to the blockchain when they are verified. They do this at considerable electrical and computing cost and thus are paid in bitcoin. Periodically, the reward for doing so halves. In the past this supply reduction, which previously occurred in 2012 and 2016, has coincided with a strong run-up in its price.
All grown-up
Bitcoin has now been in existence more than ten years and has survived the doubters, the scammers, the hackers, government attempts to quash it, and along the way it has given rise to new innovations using the blockchain technology that underpins it. To overstate this amazing “survive and thrive feat” as well as the innovation it represents would be difficult. Bitcoin, conceptually, has exceeded expectations. Alas the 5,000+ crypto currencies that have sprung up alongside it include the good, the bad, and so very ugly. Nearly all of these should fall away as Bitcoin dominates; at time of writing it is 67% of daily traded volumes. Understandably, there is a very short list of 3 what we call blue-chip coins (LTC, BTC, ETH) that the institutional investors have shown interest in.
Solving some our largest problems
There is a clear appeal of digital currencies to the cashless internet economy based, including 24/7 price transparency that is available, cross border usage, divisibility to many decimal places, as well as third party oversight and controls. Bitcoin has been on a roller coaster ride over the last two years and has held its value throughout the current dramas and even increased in value as governments have stimulated their economies on a massive scale via printing cash endlessly to avert a market meltdown. This is likely to create a massive inflationary environment into the future and sets the stage for Bitcoin to make its next move upwards after stocks and real estate prepare to reset valuations and attractiveness.
A new gold?
A lot of the dialogue around bitcoin talks about an improved version of gold, as a medium to convey value. Improved by virtue of the technology being quicker, and cheaper to both store and move. Indeed, a recent transaction of $1.1bn worth of bitcoin, by bitfinex, cost $84. Unsurprisingly this has caught the imagination of the financial infrastructure industry. Some market commentators postulate a 10x increase in prices in the next 12 months, based on a few % of the global appetite for gold switching to crypto, with bitcoin being the heir apparent.
Diversification: Now
For the industry as a whole, it is great news that bitcoin is now demonstrably decoupled from traditional markets. It is apparent that the price of Bitcoin is outside the traditional assets’ ecosystem, and the market is determined by a new set of criteria. Bitcoin now has the crucial “social proof” that it cannot be altered by external forces, no matter how powerful, bringing much joy to the libertarians and retail investors alike. Indeed, google searches for ‘bitcoin halving’ hit an all-time high in the late April, suggesting firm interest from newbies. Further, the quality of exchanges available to both retail and institutional investors has improved substantially in recent years, providing a much-needed ease of entry into the market.
Professional Investors
Indeed, leviathan investors, such as Paul Tudor Jones, coming out in praise of bitcoin, as a viable hedge against inflation, saw bitcoin enter – unexpectedly – stage left to a much broader financial audience. Bitcoin is viewed as what gold was in the 1970s, thus driving increasing interest from his fellow baby boomer cohort. Indeed, Dacxi, a digital exchange focusing on educating retail investors, saw some of its busiest weeks in the run up to halving. The addition of global pandemic and imminent worldwide recession has been the perfect storm for the world to crave safe new assets. Crypto is firmly out of the niche and into the zeitgeist.
What’s next
In my opinion, crypto has reached critical mass in terms of adoption. There’s no going back. I was delighted to wake up in London on the 12th May and see the BBC reporting on halving – it doesn’t get much more mainstream than that!
As digital currencies become the increasingly dominant technology, anyone with an interest in markets and investing would be well placed to educate themselves on this seemingly unstoppable asset class. With the recent momentum gained from the halving, crypto is likely to be a broader theme of daily life for decades to come.
