As central banks are reacting to the worst economic downturn in nearly a century and all sorts of monetary policies are being attempted to lessen the economic downturn, Bitcoin, cryptocurrencies, coins, and other tokens are experiencing a rally that may just create a roadmap for mass adaptation. With the event that has been on the investor and crypto community’s fingertips, the 2020 Bitcoin Halving that happened on 12 May 2020, here is a short review of what is happening, how it affects you, and why?
12 May 2020
Awaiting the third Bitcoin halving, investors and the crypto community are anxiously awaiting the outcomes of what is expected to be a major event setting off a chain reaction expected to increase the value of Bitcoin. Occurring every when bitcoin reaches 210,000 mined blocks or about ever four years, the rewards given to miners are cut in half, in turn doubling the supply of Bitcoin released into circulation. Similar to when companies do stock splits to make share prices more attractive, the Bitcoin halving has more to do with supply and demand more than it has to do with adding real value.
The theory goes as demand in Bitcoin increases, the supply of available Bitcoin in circulation decreases; therefore increasing the price one is willing to pay. If the total quantity in circulation is split into two, the doubling increases supply as demand continues to increase. This therein halves the inflation rate while maintaining the incentive for miners to participate regardless of the smaller rewards; assuming that demand for Bitcoin continues to increase. The piece of the pie that is already owned now becomes more valuable for sellers as the market is flooded by more buyers looking to also get a piece of the Bitcoin pie.
During the first halving, the reward halved from 50 to 25 Bitcoins/block (BTC/B) seeing an increase from $10 to nearly $1,150 USD. The second halving the reward halved again from 25 to 12.5 BTC/B see an increase from $650 to nearly $20,000 USD and then correcting over time landing around $3,200 USD. In this third halving, the reward will again halve from 12.5 to 6.25 BTC/B. If the future serves us right, the result will potentially bring the current BTC price of $9,969 to over $20,000 USD, correcting somewhere in between. Can we expect the same increase in value as BTC and other cryptocurrencies are gaining demand as a medium to store wealth and hedging financial risk as it increases in demand and value?
When it comes to comparing to other currencies, the purchasing power of money is still mostly determined on supply and demand. As of recently, Bitcoin and other cryptocurrencies like Ethereum, Bitcoin Cash, and Gemini dollar have begun being accepted at some of the world’s biggest retailers, and this is just the beginning as more forms of fintech payments are being accepted worldwide; creating a marketplace where cryptocurrency is the mainstreamed method of hedging risk while designing a marketplace of transaction flows that are fully digitized. This change in demand has the potential to compete with the purchasing power of weak fiat currencies but still used in conjunction with the world’s strongest government-issued currencies, who are not constrained by revenues when it comes to federal spending.
FOMO, Strategy, or Fairness
With the free markets proving to be capricious in the event of a global pandemic shutting down entire labor forces from contributing to economies. Cryptocurrencies begin to prove themselves as an option to store value, providing a potential road path for adoption.
Quantum Economics Founder Mati Greenspan, gained a lot of attention on Twitter this week revealing his “all in” strategy — tweeting “Y’all feeling FOMO yet?!” following a BTC opening the following day of $9,969 USD. Bullish on the mass adoption across the world, Greenspan’s tweets have nonetheless created a massive interest in bitcoin prior to its next halving. Sparking an increasing demand, proving the theory that Bitcoin is based on the “power of the crowd” pushing Bitcoin ahead in the capital market amid a global lockdown creating the worst economic downturn since the Great Depression.
So what is next? Can the increased hype on one cryptocurrency maintain mass adoption of the entire ecosystem of cryptocurrencies, or is it just the start of a trend of cryptocurrencies becoming a mainstream instrument within the capital markets?
American hedge fund manager, Paul Tudor Jones has taken Bitcoin as a “best profit-maximizing strategy to hedge against inflation.” In response to central banks increasing the nation’s supply of money, Jones’ strategy mirrors a strategy used in the 1970s to store value; gold. This time Bitcoin passing four characteristics for securely storing value — purchasing power, trustworthiness, liquidity, and portability. Tudor Jones’ approach to storing value should prove right as traditional assets that store value such as gold, oil, REITs, and other commodity ETFs continue to slip during the prolonged shelter-in-place keeping assets and further economies frozen.
Tudor Jones’ prediction falls in line with methods of storing wealth, creating the case for cryptocurrencies as a haven for those who do not trust central banks, governments, fiat currencies, and other traditional assets. Taking a role similar to gold; rising during a crisis and dropping during confident time periods — but what about mass adoption?
Entrepreneur, Alex Mashinsky looks back to 1971 when the US went off the gold standard. “Since 1971 the Federal Reserve has played a role as lender of last resort, reinflating assets every time corporates got in trouble, while American incomes have stagnated since. In American monetary policy, the Federal Reserve has drawn on the magic power of the US dollar to continue reinflating assets while offering a one-time check to Americans.” What hasn’t been done with this power is investing in the future infrastructures to ensure the economic conditions of future technology, but rather ensuring the largest institutions don’t collapse, bringing down the house of cards that currently create the conditions for the re-marketization of capital. So what roles do cryptocurrencies play in this — depends on the mediator? Mashinsky comments on the “three horses in the monetary race to create the future of money: 1) government-sponsored unlimited supply coin, 2) corporate-sponsored permissioned-based blockchain, or 3) open blockchain.”
This prediction falls in line with needing industry to capitalize on the opportunity to distribute access to capital to surpass institutions that have benefited from the economic theories of the past to keep a world economy afloat while benefitting the few who manage the centralized access to capital.
Why is this important?
Experiencing a second catalyst for innovation that has been evolving since the early 2000s, fintech and decentralized finance play a role in developing new methods in raising capital during a time when traditional institutions are attempting to recovery or simply keep afloat. The opportunity moves beyond the concept of a central authority, slightly shifting the conditions for conducting business in accordance with shareholder desires. Moving from an era of free-market capital to an era of freed-market or open-market capital. Contributing to these innovative markets will be a collection of exchanges facilitating new forms of participation never seen by traditional capital market instruments.
In these times, it will be essential for corporations to reconsider ways to raise capital. While the real economy is locked down, omitting human and labor capital; and the market economy is struggling, omitting debt and equity; exchanges like Tokenizer offer a platform to participate in the market for asset-backed tokens gaining access to fundraising, investing, and trading tokens a part of the overall cryptocurrency market jump.