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China's Central Bank Governor: There Is No Certain Launch Date For Digital Yuan
China’s Central Bank Governor: There Is No Specified Launch Date For Digital Yuan
People’s Bank of China, or PBoC, governor Yi Gang has noted that the central bank doesn’t yet have a certain date for the official launch of the digital yuan.
Yi provided the details in an interview with the Financial Times and China Finance, a transcript of which was released on the PBoC’s website on May 26. The interview took place during the Two Sessions, the annual meetings of the Chinese People’s Political Consultative Conference — an advisory body with more than 2,000 members — and the National People’s Congress, China’s parliament or top legislative body.
Though it has been known for a while that there is no definite date of China’s digital yuan launch, Yi’s statement affirm that point.
The PBoC has been internally testing its digital currency, otherwise called Digital Currency/Electronic Payment (DC/EP), in four cities — Shenzhen, Xiong’An New Area, Chengdu, and Suzhou — since April. Yi stated that these pilot tests are “still a routine work in the research and development process, and does not mean that the digital RMB will be officially issued. There is no timetable for when it will be officially launched.”
Yi also said that DC/EP might be used during the 2022 Beijing Winter Olympics “to verify theoretical reliability and system stability.”
When asked what’s so significant about issuing legal digital currency, Yi answered that it is “conducive to efficiently satisfying the public’s demand for legal currency under the conditions of the digital economy,” as well as to enhance the convenience, security and anti-counterfeiting level of retail payments, and to speed up the rise of China’s digital economy.
The PBOC began exploring DC/EP in 2014 and has “basically completed the top-level design, standard formulation, function development, joint debugging test, etc. under the premise of double-layer operation, cash (M0) substitution, and controllable anonymity,” as stated by the governor.
While Yi stated there’s no date for digital yuan launch, an industry insider told The Global Times that China could speed up the launch of DC/EP to shield from potential threats from the U.S.
“Although the U.S. hasn’t put Chinese financial firms and institutions onto its Entity List, the U.S. may still pose widespread threats to Chinese institutions and impact the yuan’s standing in international settlement. In this regard, China’s state-run digital currency may be rolled out sooner than expected to counter a possible U.S. block,” Beijing-based blockchain industry insider Cao Yin told the Global Times.
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The South Korean Ministry of Strategy and Finance is gearing up to tax income from the sale of Bitcoin and other crypto.
In brief
South Korean lawmakers recently provided details on upcoming legislation regarding income taxes on crypto transactions.
Tax would apply to profits derived from sources like crypto mining and initial coin offerings.
South Korea has an inconsistent track record of crypto-related taxation.
South Koreans may soon find their crypto dealings at the mercy of the tax man.
The South Korean Ministry of Strategy and Finance proposed a tax on profits made through crypto-fiat transactions earlier this week, including tokens sold by crypto mining organizations and through initial coin offerings (ICO).
Regulators intend to release the full proposal in July and submit the tax amendment to the South Korean regular assembly in September, as reported by local South Korean news outlet Edaily. In a country that has struggled to find the right approach to taxing digital currencies, the proposed change could bring much needed clarity to the domestic crypto industry.
Under existing laws, South Koreans are not taxed on income generated from digital currency transactions, breaking from the standard set by the US, Japan, Germany, and others, all of whom treat crypto gains as taxable income. Singapore also applies a value added tax (VAT) to crypto transactions, but South Korean regulators said they don’t intend to go that far.
Officials are now seeking to apply the standard of ‘taxation where income is located’ to digital currency transactions that generate a profit. Tax won’t apply if the transaction results in a net loss, but will be applied equally across citizens and foreign residents. Cryptocurrencies are anticipated to be treated as assets rather than currencies, in light of G20 deliberations on the matter. But not everyone is convinced the proposed changes are a good idea, or even possible to implement effectively.
“If you do a P2P transaction without going through an exchange, there is a possibility of avoiding taxation,” Seung-Young Jeong, a researcher at the Korea Local Tax Institute, told Edaily. “Even with IP tracking, if there are a large number of targets, administrative costs will increase and it will be difficult to track each day.”
South Korean action on crypto taxes have been in flux over the past few years, stymied by coronavirus concerns and a retroactive tax bill for the Bithumb exchange that resulted in an ongoing lawsuit. Crypto in South Korea is also under pressure from a proposed change that would stop residents from using DeFi products, designating cryptocurrencies as ‘high-risk assets.’
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Bitcoin buying dropped off more than half in March, but rebounded soundly in April, according to the fintech company.
In brief
Revolut analyzed trading data collected from its crypto trading app.
UK users bought, on average, 50% less crypto when lockdown restrictions kicked in mid-March, the data showed.
But by the end of April, Bitcoin trading saw a huge rebound, according to the challenger bank.
When the UK went into lockdown, financial trepidation spread into the Bitcoin world, according to a new study released Wednesday by “challenger bank” Revolut.
The London-based fintech analyzed data from 3 million UK customers who use its crypto trading service to buy and sell Bitcoin (BTC), Bitcoin Cash (BCH), Ripple (XRP), Ethereum (ETH) and Litecoin (LTC).
The UK went into full coronavirus lockdown with the British public ordered to stay at home on March 23.
In the second half of March, UK crypto traders bought nearly two-thirds (-58%) less crypto per week, Revolut said. That’s an average per week drop of approximately 540 pounds to 230 pounds ($663 to $280). Users of the Revolut app also did about 50% less trading, the company said.
April saw Bitcoin buyers return
Interest in the market began to pick up again on April 20, when users began to purchase more BTC, according to the report. This was accompanied by a rise in the price of BTC.
On April 20, BTC was about $7,000. Since then, it has gone up more than 30% to about $9,000.
In the two weeks following April 20, the number of users buying cryptocurrencies rose 68%. The average amount of cryptocurrency bought by users increased by 57% and the amount bought per trade increased 63%, the report showed.
Bitcoin domination
Throughout the lockdown period, Bitcoin (BTC) dominated purchasing habits, with a total 51% share of the cryptocurrency trading market, Revolut’s data showed. This was followed by XRP, ETH, and BCH, the company said.
Revolut’s data also highlighted how different age groups buy and sell cryptocurrency. Those in the 55-64 age group buy at the highest value (345 pounds per trade) whereas those in the 18-24 age group trade at the lowest value (109 pounds per trade), the firm said.
Launched in 2015, Revolut now boasts more than 10 million customers, mainly in the UK and Europe. Along with banking services, the company offers a currency exchange, insurance brokerage and equity trading platform. The fintech completed a $500 million Series D in February, valuing the company at $5.5 billion.
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Samsung blockchain wallet has integrated with crypto exchange Gemini, enabling users to buy, sell, trade and store cryptocurrencies.
Multinational tech conglomerate, Samsung, is onboarding crypto exchange and custody service Gemini directly into its blockchain wallet.
The integration of Gemini's mobile app will enable Samsung users to instantly buy, sell, and trade cryptocurrencies, such as Bitcoin and Ethereum, as well as place them into cold storage via Gemini's custody service.
"Crypto is not just a technology, it is a movement. We are proud to be working with Samsung to bring crypto's promise of greater choice, independence, and opportunity to more individuals around the world," said Gemini CEO Tyler Winklevoss. "Now, Samsung Blockchain Wallet customers can buy crypto in a simple, elegant and secure way on Gemini."
Launching in 2018 alongside Samsung's flagship smartphone, the Galaxy s10, Samsung's blockchain wallet was lauded as a genuine game-changer by the cryptocurrency community. Not only was it one of the first major smartphone firms to facilitate safe storage of cryptocurrencies out of the box, but it also extended support to a host of decentralized apps (dapps).
Since its arrival, the blockchain wallet has expanded from the s10 series into several other Samsung devices, including the Galaxy S20 Series, Galaxy Z Flip, and the Galaxy fold.
"Samsung is committed to establishing a simple and secure gateway for more individuals to enter the blockchain and cryptocurrency ecosystem," stated a press release.
Now, with the integration of Gemini, Samsung's relatively nascent wallet looks to up the ante on its crypto venture.
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The cost of using Bitcoin has fallen considerably over the past week while the transaction backlog has begun to subside.
In brief:
Bitcoin's average transaction fee has dropped 53% in the past five days.
The number of transactions waiting to be processed is falling.
But the number of Bitcoin transactions is going down too.
The cost of making a Bitcoin transaction has fallen by 50% in five days, with the backlog of transactions, which had been clogging the network, starting to lessen up.
That marks a swift reversal for Bitcoin, where transaction fees had skyrocketed by more than 2,000% in 2020 alone.
Seen below, the average fee incurred by users of the Bitcoin network fell by 53%—from $6.64 to $3.06, according to data from Bitinfocharts.
The sudden drop in fees follows a drastic reduction in the number of unconfirmed transactions clogging up the Bitcoin mempool. Bitcoin’s mempool is where Bitcoin transactions sit, waiting to be confirmed on the network. It can be measured in megabytes (MB) of data, or in raw numbers. Seen below, the number of transactions awaiting confirmation in Bitcoin’s mempool has fallen by 71% in the last five days.
While the sheer number of transactions have fallen hard and fast in the past five days, the size of its mempool in megabytes remains relatively high. Right now, Bitcoin has a congested mempool equalling just under 60MB in size—down 33% from its recent peak of 90MB on May 20—as per data from Blockchain.com. Given Bitcoin’s ten minute block times, which produces six blocks per minute, the 60MB backlog could subside in just over 10 hours.
This does assume a continued low transaction rate. But Bitcoin’s transaction count has been dropping recently. The overall number of Bitcoin transactions has fallen by 37.9% in the past two weeks since the block reward halving, according to data from Bitinfocharts. So while fees are coming down, transactions are too—and that’s not a good thing.
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CoinShares have released a new index linking Bitcoin and gold to leverage the risk-off attributes of gold with Bitcoin's propensity for higher returns.
Today, digital asset management firm Coinshares has launched an index to track the performance of several cryptocurrencies—including Bitcoin—alongside that of gold. The index is now live on the Bloomberg Terminal.
Dubbed the CoinShares Gold and Cryptoassets Index (CGCI), the index is designed to provide investors exposure to cryptocurrencies, in a "risk-managed" way. The index comprises of 31.75% cryptocurrency in 5 equally weighted constituents, with the remaining 68.25% consisting of gold.
Robustly researched and documented index products were the catalyst for institutional adoption of commodities in the late '90's through the advent of the Goldman Sachs Commodity Index," said Daniel Masters, executive chairman of CoinShares, in a press release. "This crypto and gold index aims to do the same, by using academic research and its benchmark regulated status to pass muster with even the most stringent investment committees."
The CGCI looks to build upon existing crypto indices by employing modern portfolio theory. The aim is to create a diversified fund by countering the volatility of cryptocurrencies with gold, a low-risk asset.
Testing the hypothesis, CoinShare’s conducted a study in conjunction with Imperial College London. The research concluded that the pairing of gold and cryptocurrencies could deliver a better “risk-adjusted return profile” than simply holding gold or cryptocurrencies alone.
“The CGCI is the product of nearly two years of research, development and experimentation conducted by Imperial in close collaboration with CoinShares,” said Professor Will Knottenbelt, director of the Imperial College Centre for Cryptocurrency Research and Engineering. But it will need another two years to test if it's successful.
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Africa has seen an explosion of growth among peer-to-peer Bitcoin traders within the last month, even outpacing the regional P2P scene in Latin America.
In brief
Bitcoin volume on P2P platforms in Africa saw another record week.
More than $14 million in Bitcoin was traded across LocalBitcoins and Paxful combined.
Economic turmoil in the region could be partly responsible.
Bitcoin traders in Africa have their feet on the gas pedal, with no intention of slowing down any time soon.
Less than two weeks after registering all-time high, peer-to-peer trading volumes at the regional level, Africa has done it again. According to data from analytics site Useful Tulips, Bitcoin traders in Africa exchanged the equivalent of more than $14 million across P2P platforms, such as LocalBitcoins and Paxful.
Bitcoin reading volume in Africa is currently outpacing local trading in Latin America, a region often referenced when examining regional, peer-to-peer volumes.
This volume was higher than last week's figure for Latin America —a region often taken as a reference in terms of trading volume on p2p and OTC platforms. Just over $11 million worth of Bitcoin was trading through Latin America over the last seven days.
The growth in local trading appears to reflect increased interest in cryptocurrency within the African continent. As Decrypt recently reported, local inflation rates range between 4% to 7% year-on-year, and economic uncertainty stemming from the coronavirus outbreak combined with a widespread economic recession seems to be leading a growing number of African traders to view Bitcoin as a viable store of value
In Latin America, Venezuela is still the leading the Latin American BTC market. Despite having lost almost a million dollars in volume in the last week, its $4.3 million gives it a slight edge over Colombia, which reported $4.1 million in trades during the same period.
But on the other side of the globe, Nigeria saw considerable growth, registering more than $9.3 million in weekly trading volume, 400% more than South Africa, its closest competitor.
Although it is difficult to determine how local traders behave on centralized exchanges, volume on P2P platforms is likely much higher within African countries, according to Useful Tulips founder Matt Ahlborg.
In an interview with the On the Brink podcast, Ahlborg explained that Latin Americans and Africans prefer P2P trading because it reduces commissions and allows for a direct relationship with other customers.
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US Pumps Trillions Into Economy, Will It Impact Bitcoin Price?
Policymakers around the world have created unprecedented amounts of new money in an effort to stave off an impending recession, or worse: a total depression. In the United States, the Senate approved a $2 trillion stimulus package in late March, and the House of Representatives has now accepted a proposition from House of Democrats for another $3 trillion intended to ease the needs of Americans who are suffering an unemployment rate of around 15%. As a response to COVID-19, the Federal Reserve has undertaken a series of quantitative easing unparalleled in its history. How will these actions of the U.S. government influence the price of Bitcoin?
As the monetary body responsible for controlling the world’s reserve currency, the Fed uses quantitative easing as a way of sustaining the economy with fresh liquidity. Having total control over money printing allows the Fed to print as many dollars as it wants, which it then pumps into the financial system by purchasing assets on the open market.
Market observers remember the consequences of the Great Recession in 2008, when the Fed brought up more than $1.2 trillion worth of assets in just four months as a means to inject fresh capital into the markets. However, the scale of quantitative easing undertaken in the wake of the COVID-19 crisis dwarfs anything done before, with the Fed putting no limit on the amount of money it is going to infuse into the system.
Over the past 2 ½ months, the Fed has bought about $2.8 trillion worth of assets. Unlike in the aftermath of 2008 when the governing body limited its asset purchases to secure U.S. Treasury bonds, this time it decided to buy even riskier assets like corporate and municipal bonds as well.
What should crypto investors expect?
U.S. bailout money is aimed at assisting public companies and preventing shareholders from losing their value. This new money may inflate the cost of assets, but since most Americans don’t own assets, the only result they will see is a weakening purchasing power. Beni Hakak, the CEO of LiquidApps, sees an opportunity for Bitcoin (BTC) to prove its store of value narrative:
“The COVID financial crisis is the first crisis that Bitcoin is experiencing as an asset class, and while some expected it to perform similar to gold, it led to a sharp decline in Bitcoin’s price. As the world economy has started to open up, Bitcoin has recovered quite nicely, outperforming the S&P since their respective lows. With the Bitcoin halving behind us, an event that has historically been followed by a bull run, it will be interesting to see if Bitcoin can gain acceptance as a hedge against inflation and a store of value.”
Quantitative easing vs. quantitative hardening
The apparently unlimited money printing represents a harsh contrast to the Bitcoin halving, an event which occurs once every four years and cuts down Bitcoin’s issuance by half. For crypto enthusiasts, this is further proof of Bitcoin’s status as the “hardest money in the world.” Bitcoin’s provable scarcity is attracting attention from average investors and users concerned about money printing and the possibility that it may lead to runaway inflation.
While the system may be “baked” with transparency and non-regulations, Avi Rosten, a product manager at CryptoCompare — a crypto data and research platform — states that through his monitoring he is seeing that the market is fluctuating severely. The high volume means distrust, noting big fluctuations in the U.S. stock market between March 12 and March 13 when CryptoCompare recorded 11,000 trades per second. Rosten says everyone was leaving risk-on assets to the U.S. dollar with Bitcoin as no exception. He added that it is about time for Bitcoin to show its value as an asset as all eyes are on it:
“We are likely seeing increased interest due to the excitement surrounding the Bitcoin halving, as well as record spot exchange volumes. Our April Exchange Review found that April 30th saw the second highest spot volumes in crypto history.”
The U.S. may be at the epicenter of the financial storm, but it doesn’t mean that other economies aren’t suffering it. Quantitative easing measures such as the recently proposed $3 trillion have caused currencies such as the Brazilian real, Mexican peso and South African rand to lose over 20% in value to the dollar since the beginning of the coronavirus crisis.
The uncertainty after the mid-March crash pushed Bitcoin into the place where gold has usually been. While markets are slowly regaining their losses, many countries are facing a second wave of the coronavirus, pumping the breaks on the recovery process.
A throwback to the ’70s?
The year is 1973, and an oil crisis sends shockwaves throughout global markets. Governments, especially in the U.S., print money fiercely in order to stimulate the job market. Attention is diverted to scarce commodities such as gold since investors want to hedge against the risk of rising inflation.
While this picture of uncertainty nicely fits the present-day situation, it also relates well to the economic condition of the 1970’s. The decade, which began with the U.S. abandoning the gold standard entirely, ended with a crippling 13.3% annual inflation in the country, even as wages and economic growth trended sideways. A combination of stagnant growth and rising inflation, or “stagflation,” pushed gold into the limelight as an inflation-resistant store of value.
Getting back to the present, fiat currencies are expanding their supply at the same time as the Bitcoin halving. With inflation fears beginning to flood the markets again, assets with provable scarcity are regarded as well-positioned. Mati Greenspan, an analyst and the founder of Quantum Economics, believes that after the large-scale quantitative easing rollouts undertaken by the U.S., Bitcoin will sustain its price and preserve its future value due to its low supply:
“It [Bitcoin] acts as a hedge against inflation like gold and silver. So if the likely scenario of this money creation happens to induce inflation, then it’s very likely that gold, silver and Bitcoin would hold their value against that currency and act as a valid hedge.”
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CNBC anchor Joe Kernen says he is now a Bitcoin (BTC) investor.
In a new interview with venture capitalist Chamath Palihapitiya, Kernen says about 3% of his wealth is invested in the largest cryptocurrency.
“I have to disclose I own like three cents out of a dollar or something, you know what I mean. I have to disclose that I own it. But Paul Tudor Jones made the case yesterday, and yesterday was the halving. So the stock-to-flow has now gone up.”
It’s part of a long-term transition for the former Wall Street stockbroker, who was initially skeptical on crypto assets.
On the latest episode of Squawk Box, Kernen asks Palihapitiya about the impact of the announcement that billionaire investor Paul Tudor Jones is bullish on Bitcoin.
Palihapitiya says the fact that Jones is now one of Bitcoin’s most high-profile investors is giving the crypto markets a big boost in credibility.
“Now you’re seeing a lot of lines of different thinking converge. When we started to believe in the long-term value of Bitcoin, it was as a store of value and that schmuck insurance that you kept under the mattress. And there was a small cohort of us that have believed this for almost 10 years now.
But when you have people like Paul Tudor Jones, sophisticated market participants, who don’t necessarily come to it from that perspective because he was probably first in gold or curve steepeners or whatever, now all of a sudden even he is looking at Bitcoin. And the reason is because we are in this massive deflationary spiral and you have to figure out how to protect yourself.
However you think about it, from a classic economic theory or the schmuck insurance where you’re somewhat skeptical of the established governing masses, it is important that we have a non-correlated hedge, and I struggle to find anything that is as uncorrelated to anything else and to everything else than Bitcoin. And if we see it have its day, it’s a moment where you’re going to wish you bought the 1% and just kept it.”
Last year, Kernen went viral on Twitter after saying Facebook’s Libra is not a true cryptocurrency and that Bitcoin’s price action reminds him of the early days of Amazon, when most people didn’t really understand the impact it would have on the economy.
“Electricity, the internet, and then the internet of money… think about Amazon in 1998, where people didn’t understand anything about it.
Take the friction of transferring money to whomever – you can take it to zero. Like Amazon took retail to zero. You can take [money friction] to zero. Do you know how powerful that would be?
It’s going to put a lot of people out of business. This is the kind of creative destruction – it’s like trying to stop the industrial age. You can’t.”
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The economic gloom of Brazil continues amid the coronavirus pandemic. The deteriorated fiscal position and political uncertainties have created fears of a deep economic recession.
The Central Bank of Brazil has also cut the interest rate to 3%, which is an all-time low. In fact, it is expected that there will be another monetary policy slash in interest rate as they seek to fill out the degree of stimulus needed to ease the economy.
According to a report published by Delphi Digital, the 30% loss in the value of the Brazilian Real and the cutting of the interest rate to 3% will drive investors away to a better option. In the report, it was stated that the sheer size of this potential move may be a demand source for Bitcoin.
This will be more possible if tighter capital control becomes more commonplace as speculated by the report. Not to misunderstand, this report does not suggest that capital flowing out of the emerging markets will definitely be channeled into Bitcoin.
Cryptocurrency usage in Latin America in the last few years has been very encouraging with Brazil, Colombia, Argentina, Mexico, and Chile being among the top 10 cryptocurrency countries. It is interesting to note that most of the countries facing severe economic woes turn to Bitcoin as there is a good correlation between Bitcoin and some of the highly inflated Latin American countries.
In 2019, the inflation rate of Argentina was 58.9%, and around this period, the Bitcoin users in this region increased significantly. Similarly, Brazil, in 2015 witnessed the worst inflation rate in 13 years.
The country’s economic distress coupled with the newly adjusted interest rate puts Brazil in line as a Bitcoin demand source, there is a challenge that may possibly arrive from the implementation of the new tax regulation pushing smaller exchanges off the market.
According to the co-founder of Acesso Bitcoin, Pedro Nunes, the tax regulation affected trading volume drastically forcing them to consider a shutdown. Latoex, another exchange affected by the tax regulation implementation pointed out the difficulties in meeting the requirement announced by authorities.
The tax regulation is obviously a problem to the smaller exchanges and less of a problem to the bigger ones. Considering the fact that most of the bigger exchanges can comply, the impact on the smaller exchanges will not be huge on the market, and may not stand in the way of the country becoming a Bitcoin demand source.
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One of the largest banks in the world is now offering services to cryptocurrency exchanges. JPMorgan Chase & Co., which is undoubtedly led by one of bitcoin’s most outspoken bête noire on Wallstreet, has extended banking services to Winklevoss-owned Gemini and Coinbase.
JPMorgan To Provide Services To Coinbase And Gemini
JPMorgan has always maintained its anti-cryptocurrency stance with its boss, Jamie Dimon, even asserting that bitcoin is a “fraud”. True to form, the bank’s strategists have in the past warned investors to keep off bitcoin.
But, it appears that the bank might be slowly but surely softening its stance towards bitcoin. According to a report from the Wall Street Journal, sources familiar with the matter posited that the bank has taken on Coinbase and Gemini as its customers. This is the first time that JPMorgan is providing banking services to cryptocurrency-related clients.
The accounts for the two cryptocurrency exchanges were approved in April, and they are now operational. WSJ noted that the fact that both exchanges are regulated in the United States was a critical aspect that the bank considered in order to approve the accounts, although they were still subjected to an extensive vetting process.
It should be noted that JPMorgan will not be processing the exchanges’ bitcoin transactions. Instead, it will be allowing Coinbase and Gemini users to make deposits and withdrawals through wire transfers and the Automated Clearing House network. In other words, the bank will facilitate dollar-based transactions and cash management services for the two exchanges.
Will Jamie Dimon Change His Mind About Bitcoin?
As aforementioned, JPMorgan’s CEO Jamie Dimon has never been a fan of bitcoin. He has repeatedly pissed all over the cryptocurrency, citing that it is a “fraud that is worse than tulip bulbs”.
But, JPMorgan has been experimenting with bitcoin’s underpinning technology: blockchain. Sometime in February 2019, the bank announced that it would be launching its own cryptocurrency, the JPM Coin.
More recently, the bank has been mulling merging its in-house blockchain, Quorum with Ethereum development studio ConsenSys.
Whether Dimon eventually changes his stance on bitcoin is anyone’s guess. Regardless, the move by JPMorgan sets the pace for other financial institutions. The legacy finance sector is becoming interested in bitcoin during these times that traditional assets are greatly underperforming.
Wall Street Is Slowly Getting On The Bitcoin Bandwagon
It goes without saying that a major US bank like JPMorgan Chase & Co. offering services to cryptocurrency-oriented is an indication that Wall Street is casting a glance at bitcoin.
The bitcoin market has been flourishing lately. Besides the trading volumes that are now through the roof, the cryptocurrency has attracted a vast number of institutional investors- as evidenced by the blockbuster report by digital asset manager Grayscale. These investors are presumably flocking to bitcoin to hedge against the economic uncertainty brought about by the COVID-19 pandemic.
Moreover, the bitcoin price has performed particularly well so far this year, leaving other asset classes in the dust. To put things to perspective, bitcoin is up 23.8% while the S&P 500 is still well in the negative territory for the year. Gold, which is deemed a trusted safe haven, is up only 12%.
It is, therefore, no surprise that even legendary Wall Street investor Paul Tudor Jones has recently put his weight behind bitcoin. Tudor revealed on Thursday last week that his fund, Tudor BVI Global is planning to invest in bitcoin futures. He then disclosed yesterday that he has put nearly 2% of his assets in BTC.
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A much anticipated event has come and gone with nothing happening at all in either price or hash or much of anything else.
Bitcoin’s price has not moved, nor the hash, despite bitcoin’s block reward now reduced to 6.25 BTC from 12.5 bitcoins.
Bitmain’s Antpool mined this halvening block 630,000 and they got nearly 1 BTC in fees for it, worth about $9,000 as of writing.
So considering there has been such a drastic change in new supply, why did nothing happen?
Some might say because it’s been priced-in, but we don’t buy that theory as it assumes perfect information which isn’t quite possible.
Others might say because speculation happened before hand, but then why wasn’t there a sell the news event? So we have our own theory.
Nakamoto the Genius
We’ve been thinking about this for quite some time, but never found the time to articulate it.
If you look at the algorithmic past halvenings and what followed, it kind of says quite a lot about how inflation in the real world works and how supply and the value of money interact.
Nakamoto could have, for example, gradually increased or decreased the supply but that probably wouldn’t have told us much about the nature of money.
While this sharp 50% reduction is in many ways kind of a mass academic lecture because we have all seen the effects of it so far.
There are three ‘surprises.’ The first one is that there’s no effect at all when supply is cut. Meaning when Fed or ECB moves their interest rate or when gov takes on debt which practically translates to increasing fiat supply, one shouldn’t expect any near term result.
Bitcoin is a relatively small and a fairly isolated monetary system that doesn’t act much as a unit of account. And still everyone quickly forgets about the halvening as nothing happens for months until in suddenly it has boomed in the past in a way that it seemed it will go on forever.
In the fiat system which is much bigger and a bit sticky due to its mass use as a unit of account, any change in interest rates or debt should take much longer than months to have an actual effect with here the process being more kind of every decade, while in bitcoin it’s around half a decade.
So the second surprise is that sudden boom because no one really expects it, except they maybe once thought it might happen but they’ve kind of forgotten about it.
Same in fiat where the experience is far longer with one interesting unpredictable being whether the fact now some expect this second surprise means there won’t be one this time.
Obviously that’s for the future to say but everyone expects a boom and bust in fiat until things are so good they claim no more boom and bust because it’s been so long since the bust that they forgotten about it.
And the bust is the third surprise. 2014, 2018, whether in 2022 also is to be seen but the supply cut that gave this ‘stimulus,’ effectively at some point reaches its limit.
Since bitcoin is still inflationary, albeit at a reduced rate of now 1.8% a year, this new supply starts weighing on the market with a slower reverse process beginning.
If we take 2017-2018, plenty would say $20,000 was madness, but it’s not clear it was at that point in time.
Supply had been cut, demand was constant or increasing, a new balance was found at that $20,000, and that’s the problem.
Because supply is increasing, once demand and supply strike a balance, the value of money should fall, as demand is remaining constant while supply is increasing.
Hence we have the reverse process of the two years bust with bitcoin’s price gradually falling to as much as $3,000 just before 2020 opened.
Again $3,000 probably was the right price at that brief point when a new balance had been struck, with some speculation then kicking in as well as ultimately the cost of production where miners just withdraw supply both to create a floor and out of necessity.
The necessity being that back then in five months their income was to be cut in half, therefore if they wanted to survive they had to put aside some bitcoin savings to smooth out the income reduction, with the cycle then repeating.
What this says and what Nakamoto is saying is that it is changes in monetary supply that create booms and busts, rather than some animal spirit or economic cycles.
He is clearly arguing that a fixed supply is better because presumably in his view money would not interfere with the economy, instead rather than the measurer of value measuring the economy, the economy would measure the measurer of value. That is instead of money pricing goods, production and the economy in general would set the price of money.
The value of money would thus increase if production, population growth and so on, increases, and it would decrease if there’s less production in the economy for whatever reason.
Hence bitcoin’s price fell when Milan was Marshall lawed on Red Monday, March 9th, and has gradually recovered since as the economy has gradually began to open.
We’re now in for a recession when we can see who will measure better the actual production in the economy instead of what arguably could be seen as fake busts.
That makes this fixed money idea pretty interesting but there are different opinions on it as you’d expect and we don’t quite have the data to objectively adjudicate so they can continue having their different opinions.
What is undeniable however is this revelation that booms and busts are created by changes in money supply, and that it is so is not evident because the effects of those changes are felt long after it has been forgotten there has been a change at all.
It is also undeniable that a monetary system with changeable supply interferes in the economy instead of being an objective measurer, say like a ruler can measure the length of a table.
Tables of course come in different sizes, but the measurer is one size – if we ignore anglo saxons and their feet with most so using meters.
Likewise Nakamoto and bitcoin is saying the size of the economy should change, not its measurer, money, which should be fixed.
