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A large investment bank has launched a crypto custodian service for institutional investors.
Global investment bank Nomura, hardware wallet company Ledger and crypto investment fund CoinShares today launched a long-awaited crypto custodian service, called Komainu.
First announced in May 2018, Komainu will service institutional investors and support a range of cryptocurrencies. It is regulated by the Jersey Financial Services Commission.
Komainu is headed by Jean-Marie Mognetti, the co-founder and CEO of CoinShares. Andrew Morfill left his position at Santander, where he commanded its cyber defense unit, to join Komainu as Head of Operations.
Mognetti said in a statement that: "What this partnership has highlighted is the need for credible and solid service providers to support industry participants. Komainu bridges the gap by bringing financial expertise and capabilities for institutional clients to feel confident their assets are in safe hands.
Mognetti told Reuters that the platform has been trialed with a small number of clients for four to five months. Komainu’s advantages over other systems are, it claims, that it can integrate with the technology systems of large financial institutions.
The CEO of Ledger, Pascal Gauthier, said in a statement that “Institutions are looking for compliance and security when it comes to the custody of digital assets.” He added that, without the proper security, “institutions' digital assets are weaponised against them.”
Nomura is the latest large financial institution to offer custody services. Fidelity also offers a custodian, as does Bakkt, the custodian and Bitcoin futures platform owned by the Intercontinental Exchange, which also runs the New York Stock Exchange.
Nomura in January launched a crypto-asset benchmark for Japanese investors. Called the NRI/IU Crypto-Asset Index, the benchmark tracks top cryptocurrencies, among them Bitcoin and Ethereum. Nomura is also on the governing council of blockchain network Hedera Hashgraph, where it lords over the network alongside Google and Deutsche Telekom.
The institutional investors, it appears, are here to stay.
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China's state media frequently functions as bellwether for government policy, with its reporting prompting changes in policy from companies.
In brief
Reporting in Chinese state media has taken a markedly different tone on crypto exhanges Binance and Huobi.
Chinese state media often functions as a bellwether for the government's views, with its reporting prompting changes of policy by companies.
While Binance exited China in 2018, Huobi has opened a Communist Party of China branch within the company.
Two of the world’s biggest crypto exchanges are receiving markedly different coverage from Chinese state media. Binance, which exited the country in 2018, is facing negative reporting from local media outlets. By contrast, Huobi, which has opened a government relations branch, is being lauded.
State media outlet China National Radio (CNR) recently reported on Binance's accessibility in China, while also highlighting the China Internet Finance Association's recent "Risk Tips for Participating in Speculation of Overseas Virtual Currency Trading Platforms." CNR noted that the "risk tips" emphasized the dangers of virtual currency transactions and ICO trading—both illegal in China since 2017—while highlighting recent security breaches suffered by Binance.
The "risk tips", CNR reported, emphasized that some virtual currency trading platforms have set up servers overseas to continue to engage in related activities, posing a risk to users.
Binance hasn’t had a corporate registration in China since 2018, when the company exited the country, citing a “hostile regulatory environment”. The location of Binance’s corporate domicile is currently unknown, with CEO Changpeng Zhao claiming that the company doesn't have an office.China's state media is a bellwether for government policy, with its reporting frequently prompting changes in policy from foreign companies. In 2013, state media targeted Apple, with the company eventually capitulating to government demands to open up a data center within the country (making user data accessible to local law enforcement).
Huobi's charm offensive
Earlier this week, Binance's rival exchange Huobi was also the subject of a report from Chinese state media—but China News took a markedly different tone to CNR's reporting on Binance. Huobi was highlighted as an important part of the tech cluster in the recently established Hainan free trade zone.
In its relations with the Chinese government, Huobi has taken a different approach to its rival Binance. In 2018 it opened a Communist Party of China branch (a government liaison and lobbying office) within the company, a move that many organizations undertake to signal regulatory compliance and build a sense of legitimacy.
The CPC’s charter says that any enterprise in China having at least three party members as employees must establish its own party branch; setting up a party branch in Huobi demonstrates the exchange's loyalty to the Party and willingness to work under its supervision.
Huobi is also a stakeholder in China’s national Blockchain Service Network as one of the 14 founding members of the platform, and has participated in China’s Belt and Road initiative.
The question for exchanges in the region is: which approach will ultimately bear fruit?
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Tether CTO Paolo Ardoino says over-the-counter trading desks and crypto exchanges want dollars on hand, and this is driving up demand.
In brief:
Bitfinex and Tether CTO Paolo Ardoino speaks to Coin Metrics co-founder Nic Carter about Tether.
He explains why $5 billion of Tether has been printed since January, and whether it could reach $100 billion.
He also looks at the exodus of Bitcoin from crypto exchange Bitfinex.
Tether and Bitfinex CTO Paolo Ardoino today revealed why Tether has minted $5 billion in the last six months, more than at any point in the company’s history. After slowly climbing the market cap rankings, Tether has now risen above XRP to reach third place in the crypto rankings, with a market cap of $9 billion. But what’s behind this massive surge in demand?
Speaking on the “On The Brink With Castle Island” podcast, Ardonio said demand has been driven by exchanges craving cash, especially after the market crashed in mid-March.
“On 12 and 13 of March, when there was that huge drop—50 percent in Bitcoin and other major currencies—we have seen people being stuck on fiat on-ramp exchanges because they couldn’t move fast enough their dollars in order to exploit the market conditions or protect themselves,” he explained.
He suggested that the inflow of money wasn’t coming from outside the cryptocurrency sector but from exchanges who wanted more Tether.
I believe that Tether is absorbing part of the cash wealth that is sitting in cash in bank accounts on many other exchanges,” he said, adding, “We have seen OTC desks that have started dealing massively in Tether as well.”
Ardoino also spoke about the exchange’s inflows and outflows, its banking situation and whether Tether can grow to $200 billion.
For context, crypto exchange Bitfinex and stablecoin issuer Tether are two separate companies, run by the same people. Tether is responsible for issuing the Tether (USDT) stablecoin, which now has a market cap of $9 billion. Each dollar stablecoin is purportedly backed up by Tether’s reserves, although the company has never produced an audit to guarantee this.
Bitcoin flowing out of Bitfinex
In the interview, Ardoino was asked why large amounts of Bitcoin (BTC) had been flowing out of the Bitfinex exchange, while big amounts of Ethereum (ETH) flooded back in—a phenomenon that had many market commentators scratching their heads.
Ardoino explained that several large over-the-counter purchases were the reason for the sudden liquidity in its Bitcoin holdings.
He also noted that for months, if not years, the Bitcoin price on Bitfinex had been higher than on other exchanges, but that this has reversed since March 12 (when there was a large crash in the price of Bitcoin and traditional currencies). He suggested this lead to more arbitrage opportunities, where traders buy Bitcoin for a lower price on Bitfinex and sell on other exchanges for a profit.
“On the Ethereum side, we have seen a really considerable inflow, more than $1 million Ethereum in the last two or three months,” Ardoino said before suggesting it could be in preparation for Ethereum 2.0.
The road to $100 billion
Ardonio was also asked about Tether’s scalability, and how it would work with banks if the project’s market cap kept growing.
“It’s theoretically not complicated to go from $0 to $200, $300 billion but if you surpass $100 billion and more, it becomes more complex to deal with banks,” said Ardoino.
Tether has had difficulties in the past with its banking partners. It lost $750 million of its reserves when accounts in a Panamanian bank were seized by law enforcement. To solve this, it created a cryptocurrency designed to work as a loan from the crypto community to cover these losses, which it intends to pay back. It has also stopped paying dividends to its shareholders.
“I believe that if we have to go to $100 billion then it would require probably a tier one bank to help us in the enterprise. The more you grow, the more you need diversification, and the more you need to step up the game and deal with the much bigger banks each time,” he said. But there are clouds gathering in the global economy that could scupper Tether’s expansion plans.
The specter of negative interest rates—where banks charge depositors to hold their money—has been mooted by several central banks recently. If implemented, Tether would have to pay banks holding its cash reserves. “It would be possible to still break even in that situation. To still maintain the capital and super safe investments. I think that it is harder if you have $100 billion, but if you have $9 billion it’s definitely something that is achievable,” he said.
Perhaps there is a limit to Tether’s rapid growth after all.
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A Swiss Bank is responding to a recent report from Goldman Sachs that declares Bitcoin (BTC) is neither an asset class nor a suitable investment.
Swissquote’s head of digital assets Chris Thomas released a point-by-point rebuttal to the report. He begins with a comparison between Bitcoin’s volatility and wild swings in traditional markets.
“Absolutely, Bitcoin did fall 37% on March 12, 2020. And just one month later, oil markets plunged 333% in the space of 24 hours, nearly 10x a greater drop, touching a low of minus $40 per barrel at one point. In December 2019, Goldman Sachs predicted the average oil price through 2020 would be $63 per barrel.”
Regarding Goldman’s assertion that investments should not be reduced to a need for others to pay a higher price, Thomas responds that traditional markets also function on an assumption of capital appreciation.
“The ultimate decision to buy (or sell) comes down to whether we believe the price will go higher (lower) and hence whether someone else is willing to pay a higher (lower) price for that investment…
Bitcoin, and select others, are the driving force behind the paradigm shift which is happening. Goldman Sachs is ignoring the strong foundations of this emerging asset class based on cryptographic principles and a world where many, if not all, assets will be tokenised, and trading them will be democratised.”
As for the long-standing narrative that Bitcoin is primarily a tool for criminals, Thomas points out that Chainalysis concluded in a January 2020 report that only 0.08% of crypto transactions originate from the darknet markets and that criminal activity represented just 1.1% of total activity.
Bernard Madoff’s $65 billion scam in the fiat world dwarfs scams in the cryptocurrency world in terms of magnitude, he contends. Lastly, Thomas says the fact that major financial institutions such as Fidelity Investments and JP Morgan are confident enough to venture into the space shows that financial institutions do believe that cryptocurrency has a future.
Although security and the management of private keys remain challenges in the cryptocurrency space, Thomas argues that banks such as Swissquote maintain security and can also solicit deposit insurance in case of hacks.
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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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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 banking giant’s move could signal a thaw in relations with the crypto industry. But will Jamie Dimon change his mind about Bitcoin?
In brief
JP Morgan has approved banking accounts for crypto exchanges Coinbase and Gemini.
The exchanges are the bank's first crypto customers.
The news will be encouraging for crypto businesses seeking banking services.
JPMorgan has extended its banking services to popular cryptocurrency exchanges Coinbase and Gemini, according to people familiar with the matter, who spoke to the Wall Street Journal. The exchanges will be the bank’s first cryptocurrency clients.
Reported today, the landmark move is a sign that Wall Street is gaining confidence in the cryptocurrency industry, but banking requirements could still be overly exacting for many crypto businesses struggling to acquire accounts.
Coinbase and Gemini had to jump through multiple hoops to gain JPMorgan’s approval, the sources said, emphasising the degree to which the exchanges have become regulated entities.
“The fact that both are regulated by multiple parties played a big part in the approval process,” they told the WSJ.
Both exchanges hold money transmitter licenses in multiple states; Gemini won a trust charter in 2015 from the New York State Department of Financial Services. Meanwhile, Coinbase has a BitLicense, a specialized license for crypto businesses, and is registered with the Financial Crimes Enforcement Network.
As well as an extensive vetting process, JPMorgan’s decision may have been influenced by increased interest in Bitcoin by mainstream investors and traders.
Trading volumes saw record highs in March and April, as people sought a safe haven from volatile traditional markets; investment platforms geared towards institutional investors, such as Grayscale, have been thriving, and more funds are turning to Bitcoin as a viable alternative, in the face of quantitive easing.
Even Wall Street legend Paul Tudor Jones has recently come out in favor of Bitcoin, contrasting its monetary policy with that of the Fed's. Beyond recommending it to other institutional traders, he also said that 1-2% of his assets are in Bitcoin.
In the past, JPMorgan chief executive Jamie Dimon has criticised Bitcoin. But, more recently, the bank has experimented with blockchain, and even its own digital currency, JPM Coin (for clients' digital payments.)
The bank approved the Coinbase and Gemini accounts in April, per the WSJ. Primarily, it will handle dollar-based transactions, and cash-management services for the exchanges.
No Bitcoin or crypto then—at least, not yet.
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In brief:
Stellar wants to become the global payments standard in the next 5 years.
While admitting it won't happen any time soon, the Stellar foundation wants governments to issue CBDCs on the network.
Several Stellar network upgrades are planned for June.
today the Stellar Development Foundation shared its lofty goal to become the next global payment standard. How it will get there, however, depends on whether governments choose to harness Stellar's permissionless network for Central Bank Digital Currencies (CBDCs). Since the talk, the price of Stellar has shot up 11%—beating the rest of the market.
Speaking during Consensus distributed, Stellar CEO, Denelle Dixon, kicked proceedings off with an applicable nod to the current financial crisis.
"The existing financial infrastructure is outdated, operating on models that have been unchanged for decades," said Dixon, "In the context of this pandemic, just look at how many people have waited weeks for paper stimulus checks.
This, she suggests, is forcing policymakers, governments, and central banks alike to recognize the need for innovation as well as equitable access to the financial system. In response, Stellar has been examining how to implement CBDCs.
"CBDCs was exactly the type of digital money Stellar was designed for, connecting today's real-world financial infrastructure with the digital blockchain world," Dixon explained.
When asked what this new normal might bring for Stellar, Dixon responded that it would likely create a huge opportunity with blockchain becoming the arbiter of innovation.
Talks inevitably turned to Facebook's Libra—a project that has had to drastically change direction from initial conception due to regulatory pressure. With Stellar attempting to achieve a similar goal, will regulation become a hindrance?
"The network layer is very much like the internet, it shouldn't be regulated," explains Dixon. "Stellar itself is the layer that everyone can build on top of, so I don't see regulation with respect to that."
No digital dollar on Stellar, yet
As for whether a government would opt to create a digital dollar on private sector initiatives such as Stellar or Libra, Stellar’s founder, Jed McCaleb, remained tactful.
"We've talked to a few governments around the world about CBDCs. I still think it's pretty early for that and especially early for them to issue these things on a public chain, most [governments] when they get into the nuts and bolts of it they want to control it," says McCaleb. "So, I still think the whole CBDC story is far away."
Nevertheless, he holds out hope that a government does choose a permissionless chain, Stellar's in particular. McCaleb argues that there is no benefit of a private chain as it technically already exists in the form of digitized dollars held in central bank reserves.
"It doesn't really get you anything unless you make it this more open system where it's flexible for people to send money around," he added.
Stellar's technical advancements
McCaleb ran through several technical upgrades to the Stellar ecosystem.
Rattling off the stats, McCaleb highlighted that since the network started in 2015, it has conducted over a billion operations, issued 7,000 assets, and onboarded 121 validators. This means that the network is now in a position to run without the support of the Stellar foundation.
"This is obviously a big step for decentralization," McCaleb said.
Stellar's next milestone is the Protocol 13 and Horizon 1.0 upgrades—expected to be voted on by validators in early June.
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An analyst at crypto research firm told Decrypt that miners can squeeze the last life out of older miners by cutting down on electricity costs
In brief
The Bitcoin halving will wipe out old miners.
But they can remain profitable for longer by cutting down on operating costs.
But newer, faster miners will eventually squeeze them out of the market.
Tuesday’s Bitcoin halving will eventually wipe out all inefficient miners, Johnson Xu, Chief Analyst at research firm TokenInsight, told Decrypt. But Xu said there’s a way to keep these energy-intensive machines profitable after the Bitcoin halving: find cheaper electricity.
On Tuesday, the amount of Bitcoin that miners receive for Bitcoin mining will cut in half—that’s why it’s called the halving. This effectively cuts mining revenue in half and means that miners will have to work twice as hard to earn the same amount of Bitcoin. To compensate, mining farms will introduce more powerful miners, squeezing inefficient miners out of the market.
But people with older miners can still turn a profit after the halving, said Xu, by keeping their electricity and operation costs "sufficiently low.”
“If the miners don’t have access to the most efficient mining machine, then the miners have to consider lowering electricity and operations expenses in order to compete with other miners and compensate for the disadvantages of owning outdated hardware,” he said.
There are a few ways that miners can cut down on electricity costs. Many mining farms are set up in places where electricity is incredibly cheap, like some regions of China. In China, "there are some miners who can access sub-$0.02/kwh electricity. However, these are extremely rare cases,” said Xu.
Another way to save on costs would be to relocate Bitcoin miners to cold regions. In colder regions, operators of Bitcoin miners don't need as much energy to cool down the miners, so they can pocket the extra cash.
But this won't last forever
Miners with access to cheap electricity would have a “significant advantage,” said Xu, because they can continue to use outdated hardware to mine Bitcoin.
But they can only do this until the total network hash rate—the metric for the combined computational power of Bitcoin miners—grows significantly due to the influx of more powerful computers.
“Once these latest mining machines slowly replace the network hash rate, they will eventually squeeze out all the outdated hardware in the long term,” he said.
For anyone who can’t scrimp on running costs, the only way to profit is to throw money at the problem. “The best way to prepare for the halving is to run the most efficient miners,” said Xu.
If miners can’t get their act together by Tuesday, they have four years to prepare for the next Bitcoin halving.
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A halving event along with a potent US stimulus package will only serve to lift the price of bitcoin, says the early Bitcoin advocate.
In brief
In 10 days, the bitcoin mining reward will drop to 6.25 BTC.
At the same time, the US is pumping trillions into the economy.
Combined, both these events could drive up the price of BTC, says Charlie Shrem.
The Bitcoin halving is mere days away and Bitcoin prices have been surging. Meanwhile, US dollars are getting pumped into the economy. So what's the better investment: Bitcoin or dollars? If you ask Charlie Shrem, he’ll tell you Bitcoin.
“The dollar is going down,” Shrem, one of the earliest of the Bitcoin entrepreneurs, said at Virtual Blockchain Week last night.
“Therefore, the value of Bitcoin has to go up. So it is the people holding dollars who are the ones who are getting screwed.”
What’s he talking about? Recently, the US government signed an unprecedented $2 trillion stimulus package to keep the economy afloat during the novel coronavirus pandemic. All that money is arguably backed by nothing, beyond the good graces of the United States of America.
At the same time, the Bitcoin halving, an event that happens every four years, is around the corner. And by Shrem's reckoning, it's a signal feature of Bitcoin—a capped money supply—that makes the digital currency truly valuable.
On May 12, the Bitcoin mining reward—what people who run the system get paid for their computing efforts—will drop from 12.5 BTC to 6.25 BTC, to reduce the amount of new Bitcoin entering into the supply. Ahead of the halving, the price of BTC has shot up 30% in the last month to its current price of $8,700.
Mainly, Shrem believes, that's due to the sinking value of the dollar. “The value of Bitcoin has to go up, in relation to the dollar,” he said. “The ones who are holding bitcoin, now have double the purchasing power.”
The argument for Bitcoin
Shrem is generally considered by Bitcoin maximalists to be one of the community's icons, pioneers, and martyrs. In 2014, when he was 24, he was charged with money-laundering criminals' Bitcoins on Silk Road, a black market for illicit goods, among other things. Silk Road was one of the first popular uses of Bitcoin.
More recently, he founded cryptocurrency “intelligence service” CryptoIQ. He also hosts a crypto podcast “Untold Stories.”
Now, Shrem is popular on the speaking circuit, where he continues to evangelize for Bitcoin. During his appearance last night, he was more bullish than ever, thanks to the perfect storm of the pandemic and the pending halvening.
“It is crazy we have a halving during coronavirus,” he said at the virtual conference last night.
Since mid-March when the lockdowns began, 30 million Americans have filed unemployment claims. “All these people are starting to get their unemployment benefits, probably when they are going back to work, anyway,” Shrem speculated, suggesting that plenty of extra cash will soon be sloshing around in the system.
He thinks it could lead to a bull run.
Stock market is for gamblers
In Shrem's eyes, the stock market is a metric for the government to manipulate, so people will think that everything is okay. “I don’t own any stocks for that reason,” he said.
As evidence, he finds it ludicrous that at a time when so many people are out of work, the stock market is hitting all-time highs. “How is this something we can correlate to how the economy is actually doing?” he asked.
When one of the virtual conference hosts pointed out to him that the Bitcoin market is also manipulated, his response was basically, yes, but most Bitcoin traders are largely aware of the problem. After all, stories of whales manipulating BTC’s price are rampant.
Plus, he said, whenever anyone asks him about investing in crypto, his mantra is: Be careful. It’s crazy. "If someone tells me they want to get into crypto, I tell them it is a high risk, crazy, volatile," Shrem said.
By contrast, if you call a friend about the stock market, they are likely not going to tell you that, he said. That’s because the stock market is generally pitched as a level-headed investment.
Memories of house arrest
After pleading guilty to aiding and abetting the operation of an unlicensed money-transmitting business in 2014, Shrem spent 18 months in house arrest, unable to leave his parent’s Brooklyn home without a judge's permission. He also spent time in federal prison.
When asked how he was dealing with the current lockdown, Shrem, who is now married, and living in sunny Florida, compared it to that period of being under house arrest.
“My wife and I had to adjust to eating at home more often, not being able to go out,” he said. “When it first happened, we went into a full house-arrest mode. You can’t look at it as being stuck at home.”
He has been taking notes on peoples’ reactions to the lockdown around the country. Some states are pushing for more personal liberty and freedom, he said. (In Michigan, hundreds of people have broken the emergency orders to protest.)
And then, he said, reflecting back on his old stomping grounds, “you have places like New York where they love the government. They love Big Brother.”
