Bitcoin is an Unstoppable Force

Bitcoin copyTLDR. During the recent House Committee on Financial Services’ hearing about Facebook’s, Libra, Rep. Patrick McHenry described Bitcoin as an unstoppable force: “The world that Satoshi Nakamoto — author of the Bitcoin white paper — envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation, and governments cannot stop this innovation, and those who have tried have already failed. So the question then becomes, what are American policymakers going to do to meet the challenges and the opportunities of this new world of innovation?”

Today, the entire market cap of digital assets was around $263 billion. Digital currency market caps, coin prices, and overall trade volumes have dropped since June. Looking at what’s been happening over the last few months, the question on everyone’s mind is how is this time different from the past, when Bitcoin reached highs and then came down crumbling.

Bitcoin_Price_Analysis_24_July_2019__2_.png

Well, many things are different.

One of the things is that most of investing is not happening by retail investors, as it did in 2017. Google searches for “Bitcoin” are only 10% of what they were in 2017. FOMO by retail investors has not really kicked in yet. I can only imagine what will happen with the price of BTC when it does.

Screen Shot 2019-07-29 at 03.21.33.png

Source: google trends

Another thing that’s different is institutional demand for Bitcoin. Its soaring. Institutional interest is high, as booming derivatives trading on CME can attest. On June 17, open interest at CME Group saw 5,311 contracts totaling 26,555 BTC, approximately $246 million, dwarfing the volumes during the 2017 price peak. Fidelity, Bakkt, and TD Ameritrade all have plans to launch institutional trading products for BTC.

More importantly, network fundamentals better than ever. Hash rate has increased, driving up security. Security is measured by how much it costs to mount a 51% attack on Bitcoin. The more hash rate, the more security. Over the past five years, Bitcoin’s hash power has increase 1000x, growing to 70 million trillion hashes per second.

hash-rate.png

Source: blockchain.com

The increase  of daily on-chain transactions and block size, indicate that more people are transacting. Both the on-chain transactions per day (line below) and average transaction value in USD (fill below) have risen significantly since last year.

Bitcoin_Price_Analysis_24_July_2019__6_-1.png

Source: coinmetrics

The average BTC block size (fill below) has increased substantially, when you compare it to last year’s.

Bitcoin_Price_Analysis_24_July_2019__8_.png

Source: coinmetrics

Best of all, average transaction fees have been relatively low, compared to those in 2017. Currently its around $1.92, despite increased block size and on-chain use. Scalability have kept fees substantially lower than late in 2017.

Screen Shot 2019-07-29 at 04.06.30.png

Source: bitcoinfees.info

All this is happening almost a year before Bitcoin’s block reward halving, which set for May 2020. Next May, mining rewards will be reduced from 12.5 to 6.25 BTC, which will reduce the number of Bitcoins minted when a block is verified, and the number of Bitcoins potentially sold to the market.

As Bitcoin’s supply gets tighter and tighter, its inflation rate drops. Unlike governments that can print fiat currencies and risk inflation, Bitcoin’s inflation rate by 2024, the will drop under to 1% and over time it will decrease toward zero.

Today, the number of Bitcoins in circulation is  17.8 million Bitcoins. There will only be 21 million Bitcoins ever issued and we will not reach that number for another 120 years. While we only have another 3.2 million Bitcoins that will ever be created, this limited supply does not restrict Bitcoin’s use as a medium of exchange. Each Bitcoin is equal to 100 million Satoshis. So, if Bitcoin’s price ever reached $1 million, one Satoshi would be worth just a penny.

And it not the only thing that’s happening.

With economic uncertainty and fear of recession the world economy is in turmoil. European Central Bank chief Mario Draghi, signaled the strong possibility of monetary stimulus, if the economy doesn’t pickup. Basically, the ECB is thinking about cutting interest rates and printing more money. In the U.K. a no-deal Brexit is on the horizon with the UK’s new Prime Minister Boris Johnson. Also, the American economy is on the brink of recession despite the gross domestic product increases. This is because economists believe the Federal Reserve is poised to lower interest rates soon.

Anthony “Pomp” Pompliano, the co-founder of Morgan Creek Digital Assets, in a recent tweet wrote that the upcoming policy by the ECB may act as “rocket fuel” for Bitcoin.

I couldn’t agree more.

The looming global recession, has investors looking for new ways to diversify their portfolios. As institutional investors prepare for a global economic downturn, Bitcoin and other cryptocurrencies have unique characteristics to provide the diversification they need. A study released this month, by Grayscale Investments and Q8 Research, found that more than a third (36%) of investors would consider an investment in Bitcoin.

The biggest news surrounding crypto in the past few weeks has been Facebook’s Libra coin. When a large, credible firm like Facebook enters the crypto world, it gives credibility to the entire industry. Libra is a gateway to Bitcoin. As new people get introduced to cryptocurrencies through Libra, they will become more aware of Bitcoin. Libra could drive more people to use Bitcoin as way to send each other money in a peer-to-peer fashion, and investors to consider putting their money in Bitcoin, as a store of value.

While no one can predict the future, when the next financial crisis hits, Bitcoin will go up or down because of two things: liquidity and investor confidence. Yet again, Bitcoin’s true nature might prove to be the most important weapon in its arsenal. It’s completely decentralized. Its value doesn’t rely on a centralized authority, such as a company or government.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

3 comments

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.