Confidence in cryptocurrency increases across European populations. View in browser

“The fundamental difference between Bitcoin and fiat: predictability and transparency. With fiat, nobody knows how many dollars exist, or how many will be created next year, and as the halvening demonstrates, with Bitcoin, everybody knows exactly how many Bitcoins exist, how many will be created next year, and even what the inflation schedule will look like 20 years from now. ” ~ Erik Voorhes, CEO of Shapeshift digital asset platform

Market State

The cryptocurrency market continued to rise in value over the past two weeks. The overall market entered into the $240 billion range last week by jumping $35 billion in less than 48 hours. Bitcoin soared over 20% touching the $9400 range before falling back below $9000. Currently Bitcoin is trading at $9200. The Bitcoin block reward halving will take place on the 12th of May, 2020. Newly created Bitcoins paid to miners will drop by half from 12.5 BTC to 6.25 BTC per block. Bitcoin’s inflation rate will drop to 1.8% making it as scarce as gold. Historically the previous halvings, which took place in November 2012 and in July 2016, have caused the price of Bitcoin to rise.

However, there are two different viewpoints on how the halving will affect the price of Bitcoin. Many expect it to rise automatically as decreasing supply puts pressure on price to increase as long as demand stays consistent. While others predict a more bearish outlook. According to those who have a bearish stance, the Bitcoin market is more mature and efficient and is better at pricing in the future events, so the halving will have no significant effect on the price and past performance doesn’t guarantee future results.

Whichever the case may be we might see a lot of halving related price swings. Miners are one of the important driving factors for Bitcoin’s price volatility as halving will cut their revenue in half, making it expensive to mine Bitcoin. Miners who are holding large amounts of Bitcoin will be impacted by the price volatility. Bitcoin derivatives products can help miners hedge their risks against price volatility. Retail and institutional traders will also try to profit from the price volatility further increasing the price swings.

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Quiz of the week

What was the price of Bitcoin at the time of the second block reward halving?

  1. $150 - $180
  2. $300 - $320
  3. $650 - $680

Scroll down to see the answer at the end of the newsletter.

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Top stories of the week
Get Set for Bitcoin ‘Halving’! Here’s What That Means

Bitcoin’s third block reward halving is less than a week away. It will reduce the block reward from 12.5 BTC to 6.25 BTC thus slowing down the issuance rate of Bitcoin. After the halving Bitcoin’s inflation rate will be lower than the global average and that of gold. Historically halving has been a major catalyst for a price surge. For instance, Bitcoin gained about 8000% within the 12 months following the 2012 Bitcoin halving and around 2000% within the 18 months following the 2016 halving. However, the price of Bitcoin doesn’t appreciate immediately after the halving. The price of Bitcoin depends to a large extent on miners as they are the only supplier of new coins in the market. 

Miners create constant selling pressure by selling their newly mined Bitcoins in order to pay for their operational expenses. As miners' income decreases sharply (1800 BTC/day now, 900 BTC/day post-halvening), the selling pressure will increase until the least efficient miners will leave the market. At first inefficient miners try to cover their operation through their Bitcoin treasuries that were accumulated during profitable periods to stay in business. The higher their breakeven price (which depends on the type of hardware they use and electricity price), the more they need to sell to cover operational costs. Initially this process might drive Bitcoin’s price down and continue until the least efficient miners run out of Bitcoin to sell and are forced to leave the market.

When the least efficient miners leave, the hash rate drops, and Bitcoin’s mining difficulty level decreases in order to incentivize the remaining miners to continue mining. The most efficient miners who have access to the newest hardware or cheapest energy remain in the market and capture more market share. The remaining miners will become more profitable and need to sell less Bitcoin to cover their operational expenses. If the price of Bitcoin reacts to this diminished selling pressure and increases, this will create a positive feedback loop for miners who survived and enable them to sell even less, accelerating the upwards price movement.

Many famous investment advisors suggest to investors to buy some Bitcoin before the next halving event. For example, in his weekly newsletter “Greed & Fear”, Christopher Wood, global head of equity strategy at the Jefferies LLC, American multinational investment banking firm suggested that “investors should buy Bitcoin ahead of the halving. The halving should increase upward price pressure assuming demand for Bitcoin continues to grow, as was the case after the previous halvings in 2012 and 2016.” He also added "Bitcoin should be a source of diversification in a portfolio, as is gold, precisely because of its truly decentralised nature. It is this feature, combined with the fixed supply, which makes it a hedge against central bank manipulated fiat money."

Confidence in Cryptocurrency Increases Across European Populations

The European subsidiary of Japanese largest cryptocurrency exchange bitFlyer has published its annual Crypto-Confidence Index for 2020 on the 29th of April. 66% of Europeans believe that cryptocurrencies will still exist in ten years. The survey was conducted in March during the continuing height of the coronavirus pandemic outbreak (a time during which the value of both traditional and novel assets has been unstable). Despite the financial effects of the pandemic, confidence in cryptocurrencies across Europe has increased by 3% compared to 2019 survey results, and increased in eight out of the ten countries polled. Surveyed countries included Belgium, Denmark, France, Germany, Italy, Netherlands, Norway, Poland, Spain, and the United Kingdom with a pool of 1000 people from each country. Surprisingly Italy, amongst the countries hardest hit by the coronavirus has the highest level of confidence in cryptocurrencies. 72% of Italians are confident that cryptocurrencies will exist in the next ten years, which is a 4% increase from last year. 

The only two countries that demonstrated a drop of confidence in the cryptocurrencies are the UK and Norway, but regarding the UK decrease is by only 1% and 56% of the population still believe that digital currencies will exist in some form by 2030 (the data regarding Norway was 73% in 2019 and just 67% in 2020). Though the UK result increased to 61% when narrowing the results to respondents between 18 and 44 age groups. The survey also found out that 1 in 10 Europeans believe Bitcoin will be fully ingrained into society as a form of currency in the next 10 years versus 8% in 2019, whilst 9% believe it will be used as a security or investment versus 7% last year. 12% of the Italians replied that cryptocurrencies will one day be used as a mainstream currency, making it the country with the biggest cryptocurrency believers. A quarter (25%) of respondents were certain that cryptocurrencies would still exist in the next 10 years, but had no idea how they would be used.

Bloomberg: Born from the Financial Crisis, Bitcoin Maturation is Accelerating

The financial magazine Bloomberg has released their cryptocurrency outlook April 2020 edition titled “Bitcoin Maturation Leap.” According to the report the Bitcoin market is maturing and mentions few reasons why the market is set up for another bull run. The report notes that Bitcoin was born out of the financial crisis and as such Bloomberg expects Bitcoin to thrive during this uncertain economic time. Despite being an asset that is just a decade old Bitcoin was praised for its “24/7 price transparency, and the lack of limits, interruptions or third-party oversight.”

Bloomberg says “This year marks a key test for Bitcoin's transition toward a quasi-currency like gold, and we expect it to pass. Bitcoin and gold also stand to be primary beneficiaries of the unprecedented monetary stimulus that's accompanied by a mean-reverting stock market.” Bitcoin has been five times more volatile than the S&P 500 in the past year, yet Bitcoin is down by only 5% in 2020 (from the 1st of January till now) compared to the S&P 500’s 22% drop. The report concluded it as a sign of maturation. “For more-established assets, this would be considered a sign of divergent strength. For the nascent crypto, it's also an indication of a transition toward gold-like adoption, maturity and performance.”

The report also shows that “the 2020 cryptocurrency decline is holding above its 2018 low, which was about an 80% drawdown from the peak. While the S&P 500 has dropped below the similar bottom from two years ago. Increasing futures open interest, declining volatility and relative outperformance despite the stock-market shakeout indicates Bitcoin is maturing from a speculative crypto asset toward a digital version of gold.”

Ernst & Young Supports the Use of Ethereum by Enterprises

Ernst & Young (EY), one of the Big Four accounting firms in the world, held an online conference called EY Global Blockchain Summit 2020 I Going Public between the 21st and 23rd of April, 2020. Due to the coronavirus pandemic this was the first enterprise blockchain event conducted completely online and live streamed on YouTube. During the event EY Global Blockchain Leader Paul Brody presented information about the latest EY blockchain initiatives and partnerships they have established with DELL Technologies and Microsoft. His keynote articulated why private blockchains will not succeed in scaling and creating network effects and presented his case on why public networks will bring the needed upside for Fortune 500 companies. The positive impacts of transitioning to public networks from private ones is eliminating the vendor-consortia lock-in, which could lower the total cost of ownership (TCO), and being able to scale in-network effects without needing a new blockchain R&D department.

These goals are promising but enterprises are struggling to feel comfortable with the existing compliance rules and regulations and to overcome their fear of exposing their private data and assets. In the center of EY’s public Ethereum efforts is Baseline, the initiative that was started just a month ago with the help of ConsenSys, a large Brooklyn-based Ethereum-focused company, and Microsoft. Baseline has the goal to enable enterprises to work together without disclosing their private and sensitive data while leveraging the public Ethereum as a middleware for “baselining.” This is possible by replacing the actual data with mathematical proofs of that data based on cryptography methods called zero-knowledge proofs. Baseline is closely integrated with Ethereum which has several strengths and weaknesses. A key strength is that for example the Ethereum Foundation, and the Enterprise Ethereum Alliance (EEA) are ready to invest funds and allocate resources.

Also, the availability of Solidity-skilled developers (Solidity is one of the programming language of Ethereum) and already existing public libraries to work with Ethereum will make any future efforts easily planned and executed. On another hand, a middleware service should be able to connect and work with other blockchain protocols as well in order to ensure long-term availability and not be locked into using only Ethereum. Regardless of the risks, Ernst & Young’s commitment to using the public Ethereum network is strong. The company has a blockchain-enabled service called OpsChain, which has been used for food and beverage traceability, drug and medical supply chain, shipping and logistics, fund management and financial transactions and labor management, and it has its latest version 4.0 specially built on top of Baseline. According to Paul Brody “the only way that blockchains will deliver upon their true promise to the world is if public blockchain networks are the preferred path for enterprises and investors.”

Some Americans Are Spending Their Stimulus Checks on Bitcoin

Over 22 million Americans lost their jobs due to the coronavirus pandemic. The US government sent out over $157.9 billion in 88 million stimulus payments to those who lost their jobs. Though most Americans are spending it on food, rent, medicine and other essentials, some are splurging their cash on Bitcoin and other cryptocurrencies. Brian Armstrong, CEO of American Coinbase, tweeted a graph of user activity on the cryptocurrency exchange that showed the number of exact amounts of $1200 deposits peaked suddenly from about 0.1% to 0.4% of all deposits on the exchange in certain days of April. This coincides with the stimulus checks for the same amount that the US government is sending to its citizens. Binance has noticed a similar tendency and seen more deposits of exactly $1200. Also a number of people posted on Reddit that they decided to buy Bitcoin with their stimulus checks. Some even suggested others to receive their stimulus cash via Cash App as it allows them to buy Bitcoin directly.

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Quiz answer

What was the price of Bitcoin at the time of the second block reward halving?

The correct answer is “C”.

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