It all starts with Bitcoin, a (₿TC) ‘cryptocurrency’ based on blockchain distributed ledger technology (DLT).
The first-ever decentralized payment network meshing all noble elements of an open-source electronic cash.
From October 31, 2008 (Satoshi Nakamoto whitepaper release date) to January 3, 2009 (Bitcoin software system launch), to a decade plus and counting later in 2019 (all time high $19, 893 BTC/USD exchange rate value); little-b bitcoin ($BTC currency) and big-b Bitcoin (network protocol) are growing stronger daily. This bitcoin guide’s goal is simple; educate users (via awareness) and inform investors* (with insights).
MTC is carefully-crafting the best knowledge base building blocks of the emerging ecosystem of bitcoin’s era.
The two biggest questions Master the Crypto gets on the borderless, permissionless, P2P cryptoasset are:
1) what is Bitcoin?
1a) how Bitcoin works?
And yes, of course the proper acknowledge of the 24/7/365 real-time reality-based question:
2) what is the price of bitcoin? <insert #whenlambo memes.gif>
It’s time to break down these quintessential questions to separate fact from fiction (even ^folklore^).
There is a lot of hoopla, hype and hysteria hovering around in a congested cryptoverse, it’s easy to get lost.
Let’s look at how bitcoin stands on its own “two fees” apart from ETH, LTC and its distant token cousin, BCH.
Digesting a full slice of humble BTC pie ingredients baked with upfront fundamentals will be invaluable.
Bitcoin may be lightning in a bottle, but the category creating crypto coin requires user-adoption at its core.
MTC’s resourceful flagship review on bitcoin contains seven different facets and factors to press play on.
- What is Money (Bitcoin’s durability, acceptability, divisibility, portability, limited supply and uniformity)
- The Economics of Bitcoin (The Who, What, When, Where, Why and How on bitcoin) [*here]
- How Bitcoin’s Price Works (driving forces determining the value of BTC) [*here]
- Bitcoin Price History (Chronological Timeline Chart of 55 Major Price Action Events) [*here]
- Top 50 Bitcoin Catalysts (Mining Halving, Institutional Interest, Global Banking) [*here]
- Bitcoin Halving (May 2020 BTC Mining Block Reward Chart History) [*here]
- What’s Next for Bitcoin? Hopeful Bitcoin Price Predictions or Will It Die? [*here]
The archived bitcoin price predictions along with many other relevant components of the leading cryptocurrency, will all be saved for other outline overviews. Buying bitcoin and smart custody must go hand-in-hand, however, the aim is for all crypto connoisseurs to walk away knowing more than you do right now.
Many wonder will bitcoin die by an epic crash and collapse or see the bubble pop soon? or will btc go back up again? These forecasts on whether bitcoin is a one-hit wonder or not is for another time and place, for now it’s back to the day-one bitcoin blueprint basics before turning into a bonafide bitcoiner (and believer).
By now, bitcoin deserves a bedtime storyline of the who’s who to the what’s what. Any crypto investment is a gamble, but a true master’s starting point is taking the time to unscrabble the financial future of bitcoin.
The disrupting new dawn of programmable money and trouble of B.T.C. spawns from the ‘new-age’ blockchain technology model.
Bitcoin, under the guise of trustless distributed ledger technology – from a seed (whitepaper), to a sprout (software) – has grown into a sexy new emerging asset class as a full four and five figure cryptocurrency that is responsible for a $200 billion industry today (as high as over $820 billion). But before we can beef up the bitcoin ecosystem and talk about mining for block rewards or studying crypto market chart analysis every week, day, hour, minute and even second for some – it’s time to trace back the roots of money and formulate an understand of its meaning and mass-use acceptance. Before any hodl gang lingo or store of value digital gold 2.0 convo, it’s start on square one.
Money 101: The Early Days of Value Exchange
To understand the importance of digital currencies, we should first start to look at how money has evolved over the years. Historically speaking, the use of physical currency is quite a recent phenomenon — mainly because the first monetary trades between humans consisted solely of barters. For example, a few millennia ago, the most prominent mediums of exchange consisted of things like cowrie (sea snail) shells, beads, etc. In fact, recorded evidence from back in the day shows that countries like India, China, and Africa had strong trade markets where people were regularly exchanging goods with one another.
As people all over the world witnessed the dawn of the Bronze age, more and more metals started to be used for currency creation. This was because metals are way more durable, portable, fungible, and divisible when compared to seashells and other similar mediums of exchange. With that being said, there is one severe downside to using metal coins — i.e. their weight. Centuries ago, when merchants had to lug their goods halfway around the world, they were forced to carry massive loads of metal coins on their mules, thereby making the process of facilitating barters quite expensive, impractical and time-consuming. To rectify this problem, Chinese rulers from the 11th century started to issue banknotes to make internal as well as global trades easier. This idea then caught the attention of many foreign emperors, particularly in Europe — thereby ushering in a new era of finance.
The scenario then stayed the same for centuries on end up until the early 1970s when President Ronal Raegan abolished the gold standard. In this regard, it needs to be pointed out that for most of their history, paper bills have been directly redeemable for precious metals such as gold. Under the gold standard, monetary units of trade being used across the planet could be redeemed for a specific amount of gold. The point of this system was to essentially curb the power of governments by keeping inflation levels in check, however, since abolishing this standard, modern-day fiat currencies are essentially backed by nothing more than a person’s trust in his/her local government. In the words of ex-Chairman of the Fed Reserve, Alan Greenspan:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”
Simply put, if the gold standard was still in place today, the need for Bitcoin would probably have not arisen in the first place. For those interested in learning about how centralized monetary systems — that are in place in over 97% of all nations around the world today — work, it could be useful to check out an article written by Nick Szabo where he covers a host of such pertinent topics. What should start to click in the conversation about bitcoin and Bitcoin shooting for the stars is when all of the major ‘money characteristics’ (limited supply, portability, divisability, durability, uniformity and acceptability) are met in grand (golden) style and financial fashion.
Approaching Bitcoin can seem like a daunting task at first, especially the word ‘crypto-currency’ only went mainstream two years ago. In this regard, some of the richest folks in the world have shared their stories of how they eventually sifted through all the noise surrounding this domain. Then, using but a twitch of the thumb to do a light-switch flip turned on, a bitcoin epiphany clicks. It’s true disruptive power is finally discovered. In this guide, we will dig deep into a host of concepts related to this space including blockchain, altcoins and see how revolutionary these technologies really are.
Trying to grasp the immensity of Bitcoin from a purely technical standpoint can be quite an arduous task so it would be better to look at the term ‘digital currency’ in terms of its utility and importance. For starters, individuals who can grasp the basics of BTC are already ahead of the curve when compared to most people. Even seasoned investors like Warren Buffet and Mark Cuban have, in the past, slighted BTC without really comprehending what makes the digital asset tick. Buffet, in fact, has likened Bitcoin to ‘rat poison’, so that sort of gives one an idea of how traditional players view this market.
Before we delve deeper into what Bitcoin has to offer, it can be quite helpful for our readers to envision what they think an ideal currency for today’s world should look like. For example, while technology has shaped how we interact with one another (smartphones etc), it has not been able to provide us with an economic platform that makes international payments and transfers really streamlined and economically viable. In this vein, it bears mentioning that a tx of 1000 dollars on Paypal can cost users anywhere between $70-$75 plus conversion fees.
Is the Idea of a Global Currency Feasible?
People who have traveled abroad are painfully aware of the fact that their local fiat assets are subject to so many peripheral exchange costs that they end up losing a lot of their hard-earned money along the way — be it via credit card conversion rates, tx costs, VAT, etc. Additionally, as things stand, there exists a total of 21 nations (including Australia, the USA, and Canada) that make use of dollars. However, all of these different assets (USD, AUD, SGD) are independent of each other and cannot be used interchangeably. To be even more specific, the individual currencies that exist across the globe — of which there are over 180 — fluctuate in value relative to each other, thereby making it impossible for conversions to take place for free.
With that being said, digital assets such as Bitcoin do offer a possibility wherein people can use a unified currency to facilitate their payments all over the world in a completely hassle-free, streamlined manner. In addition to this, cryptocurrencies eliminate several peripheral costs that one has to encounter at airports and city centers — where customers are provided with exchange rates that are far from an asset’s true market value.
How Efficient are Today’s Remittance Systems?
When analyzing today’s remittance platforms, we can see that migrant workers these days send anywhere around $574 billion back to their families every year. Not only that, this market is projected to keep growing as urbanization trends continue to flourish. However, most of these platforms are quite non-user friendly and the fees involved with facilitating such tx’s can exceed 10% of the total value transferred — while processing times can range anywhere between 1-4 days.
Now, from the context of crypto, we can see that using digital assets, migrant workers can send the same amount of money back to their loved ones within a matter of seconds, that too at a total tx cost of less than 2% of the total transaction value. So, when it’s all said and done, it seems as though having a global currency makes international travel and cross-currency payments significantly easier for everyone.
How Do Digital Currencies Fit Into All This?
In today’s day and age, most people actively make use of digital payment platforms such as Venmo, Apple Pay, Paypal for sending and receiving money. Even in countries where digitization is still happening slowly, people are beginning to see the advantages of not having to carry their physical assets everywhere they go. A poll from the Economic Times clearly shows that approximately 92% of all global currency reserves exist purely in a digital form. This number will most likely continue to grow as we move into the future.
Also, if a global digital currency was to enter the picture, governments all over the world would have their ability to implement expansionary or refractory powers greatly reduced. And while in certain circumstances, one could argue that centralized currencies have their advantages (such as reducing the chances of a recession), by and large, the counter-arguments outweigh all of the pros by a big margin. In this regard, we can mention examples such as Venezuela where the local currency witnessed hyperinflation of such insane proportions that it became almost worthless within a decade (at least for daily trade purposes).
“Power tends to corrupt, and absolute power corrupts absolutely.”
When a government or any other centralized entity (think big-name banks such as JP Morgan, Goldman Sachs, etc) can print money out of thin air, one has to think of all the potential craziness that can ensue. For example, back in 2008, bankers were able to reel in billions of dollars in taxpayer money as “bonuses” for essentially causing the housing crisis that saw many hard-working people (across the globe) lose all of their money within 12-18 months.
On the subject, Mr. Greenspan was quoted as saying:
“Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession … It was limited gold reserves that stopped the unbalanced expansions of business activity before they could develop into the post-World War I type of disaster.”
In closing out this segment, we can say that while it is almost impossible to revert to the gold standard we had back in the day, it is still not too late to eliminate the need of third parties from the scene.
Bitcoin to the Rescue
Having discussed the history of money in quite a lot of detail, we can now start to look at the proposition that Bitcoin puts on the table. In its most basic sense, BTC can be thought of as an all-encompassing solution that addresses many of the problems that come inherent with fiat currencies. To start with, it can serve as both digital gold as well as an electronic cash medium. If that wasn’t enough, the digital asset is completely trustless and cannot be controlled by any third party authority or institution. These three features in and of themselves make Bitcoin a much better financial vehicle when compared to any other currency available in the market today.
Going back to how fiat money works today, we can see that following the abolishment of the gold standard last century, future installations of governments all over the world were given complete power to print money in a completely random, uncontrolled manner. However, there’s a massive catch here, i.e. central banks don’t necessarily print new currency notes to create money, instead, they manipulate interest rates to influence economic activity and control inflation.
So for example, if a central bank reduces interest rates, people are provided with a massive economic incentive to borrow and spend money from various banking institutions. This, in short, was also the core reason for the 2008 recession that shook the world quite heavily. Similarly, when interest rates are increased, people generally tend to avoid making investments and usually look to cut back on their monetary consumption.
Another point that needs to be highlighted here is that when the Federal Reserve (or any other central bank) reduces interest rates, the supply of money increases quite quickly while the supply of goods and services grows more slowly.
Here’s where Bitcoin’s real utility starts to stand out and shine because unlike every other fiat asset in existence today, BTC has a fixed supply — i.e. there will only ever exist a total of 21 million BTC. This makes the premier crypto asset a scarce commodity (much like gold) and also makes it immune to a host of refractory and inflationary issues. Also, when a particular asset is hard to source, people tend to value it more. This concept can be better highlighted by thinking of paintings by artists such as Monet, Dali, Mundi that often are sold for hundreds of millions of dollars — primarily because there exists just one copy of the original artwork.
Bitcoin’s Utility as Electronic Cash Explained
While gold and other such precious metals are good SOVs, they are quite impractical for facilitating daily transactions. They are not only heavy and difficult to move around but they are also incredibly inconvenient to use in one’s day-to-day life (because they are not easily divisible). In this regard, Bitcoin offers a host of advantages to its users such as:
- The crypto asset is infinitely divisible and can be stored on several digital platforms such as a flash drive, laptop, cold wallet or even a piece of paper.
- It can be transferred anywhere across the world within a matter of moments.
- It is a highly secure tx medium and cannot be easily traced by nefarious third-party agents.
- It is unforegable and is the first scarce currency to enter the mainstream (since we abandoned the gold standard back in the 1930s.)
- It is fully transferable.
Bitcoin is TRUSTLESS
As mentioned previously, one of the biggest advantages of using Bitcoin is the fact that the currency is completely decentralized and therefore trustless. What this simply means is that while the BTC network keeps track of account balances and tx’s much in the same way as banks and other similar financial institutions do, it allows anybody to participate and supply computing power to the network — thereby allowing for enhanced security and faster transactions.
To be even more specific, the BTC ecosystem makes use of a niche architectural system that incentivizes anybody who participates in the network. As a result of this, participants who act honestly and go by the rulebook can make a lot of money. This explanation, however, is very simplistic and if one is inclined to learn more about the technicalities of BTC, they can read a paper published by Andreas Antonopolous a few years back.
Key Points Worth Bearing in Mind
- Legacy outfits pretty much work in the same way as Bitcoin, barring the fact that they use a closed-door approach. What this means is that they don’t allow users to verify and validate their transactions/dealings. Not only that, but they also have the power to completely freeze out an individual and refuse them service if they happen to have a poor credit score (or even if they haven’t done anything wrong as such).
- Owing to the fractional lending model being used by most of the world’s reserve bans, a person’s money ceases to be his/her’s once they have deposited it with a bank.
Some Downsides Associated with Bitcoin
Even though on paper Bitcoin’s framework seems pretty flawless, in real life the currency does have its fair share of limitations. For example, to make the BTC network completely secure, its inventor Satoshi Nakamoto had to sacrifice certain aspects such as high tx throughput and scalability. To elucidate further on this point, we can see that when compared to legacy payment solutions (such as Visa, Mastercard, etc.), Bitcoin’s TPS (transactions per second) is quite poor. Similarly, due to certain scalability issues, if a lot of people start to make use of the flagship digital currency for various payment purposes, the network might get overwhelmed and start exhibiting certain technical issues.
Bitcoin’s Potential is Limitless Basically
Many of our regular readers may recall that back in the ’90s, many people assumed that the internet was just a fad and that the technology would fade completely from people’s minds in the coming few years. In this regard, it should be pointed out that back in 1995, a Newsweek article contained the following lines:
“Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make governments more democratic.
Baloney. Do our computer pundits lack all common sense? The truth in no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.”
With these words in mind, it should be highlighted that while the BTC network currently has its fair share of scaling-related issues, it does not mean that in the future these problems might not be rectified completely. For example, there already exists something called the Lightning Network (LN), a second-layer protocol that allows users to process thousands of BTC transactions per second. Not only that, but the technology also allows transactions to be processed in an almost instantaneous fashion (while charging users little to no processing fees).
In the future, many experts predict that we may have a system that connects people to the LN using only their smartphones. If this vision were to come true, retailers all over the planet will be able to save on humongous amounts of annual fees that they currently have to dole out to various payment service providers.
In closing out this section, we should point out that there currently exist certain technical issues with the LN which make it not quite ready for commercial use.
Chew on This Before You Buy Bitcoin
In closing out this segment, we need to be clear that while BTC as a financial investment option is extremely enticing, it does come with its fair share of economic uncertainty. So, when deciding to buy Bitcoin, there are a few questions that we should bear in mind so that one can get in the mindset of a seasoned investor.
- Have currency options stop evolving or have they constantly been adapting to the tech developments that have been taking place around them (throughout history)?
- Why do human beings tend to value commodities that are scarce a little more when compared to those that are not?
- Who is the real benefactor when a financial offering becomes popular: the first investors or the folks who cashed in when others were joining in on the fun as well?
- Which currency model is better suited for the 21st century: one that is controlled by third-party entities or one that is governed by hundreds of local peers?
- Will the world’s financial elite store at least a fraction of their wealth in an asset such as Bitcoin? What incentive would they have to do such a thing?
- Are business owners likely to start using cryptocurrencies in the future? If so, why would they do such a thing?
- The internet did not become a mainstream fixture overnight, so who’s to say that Bitcoin does not have any future potential?
- There are only 21 million BTC in the world and over 8 Billion people, so what fraction of BTC can each person in the world theoretically own?
In regards to the entire matter, well-known investor John Pfeffer wrote an op-ed piece sometime back in which he was quoted as saying:
“… the potential value of a winning monetary store of value protocol can be measured in relation to the total value of gold bullion and foreign reserves, suggesting a potential value in the USD 4.7–14.6 trillion range. If Bitcoin were to become that monetary store of value (and it currently appears to be the strongest contender by some margin), it could be worth USD 260,000–800,000 per BTC, i.e., 20–60x its current value. If one places a higher than ~5% chance of Bitcoin succeeding in this way, it is a rational and attractive investment for a long-term investor before considering other potential upsides stemming from payments and unit of account utility.”
While the aforementioned quote was written at a time when the price of a single Bitcoin was hovering near the 20k mark, if for example, Bitcoin does indeed become a mainstream store of value, it would not be surprising to see the value of the asset surge anywhere between 70–230 times. Thus, for an asset with such a crazy financial upside, how much should a person ideally invest in such a commodity is entirely up to them. Pfeffer points out in his paper that if BTC has more than a 1.4% chance of becoming a long term SOV, one should go straight ahead and invest a portion of their portfolio in the premier crypto offering.
Since its inception, predicting the future of Bitcoin has been a daunting task for traders and economists all over the world. Despite people coming up with a variety of unique analytical techniques to accurately assess the financial future of the flagship cryptocoin, Bitcoin’s position as an investment vehicle has remained quite controversial, to say the least.
In this section, we take an in-depth look at the various fundamental factors that play a large role when it comes to determining the price of BTC as well as learn certain methods that can help investors have an upper hand when investing big in crypto. Additionally, we will also look at the core concepts of crypto economics and the brief history of what has impacted the behavior of Bitcoin over the past decade or so.
Why is BTC so Volatile?
Anytime a conversation regarding Bitcoin pops up, we often see the term volatility popping up more than usual. From a purely technical standpoint, we can see that economic volatility measures the “intensity of changes in security over a given period of time”. In layman’s terms, the more volatile a particular asset is, the more rapidly its price will change over a certain period of time. To further elaborate on this point, we can see that on the 15th of November last year, the price of a single Bitcoin lay around the $6,300 mark, however, within just 10 days, the asset’s value dropped by nearly 40% (to around $3,700). Such a dip for a traditional asset would be considered a crash but in BTC’s case, the swing was viewed as nothing out of the ordinary.
Also, it is important to remember that while people tend to correlate the volatility of an asset with a corresponding level of risk associated with it, this line of thinking is a bit incomplete since it only focuses on the negative aspects of volatility. And even though by owning a relatively large amount of a highly volatile security, an individual might be exposing him/herself to huge monetary swings. We need to understand that crypto purchases should be thought of as long term investments and thus temporary ups and downs are part and parcel of the game.
Another way of looking at the situation could be that by owning a volatile security offering, one has the potential to yield massive rewards (given that a trader can accurately read events surrounding a particular market.)
Over the past decade, Bitcoin has exhibited signs of high volatility, as a result of which the asset’s value has mostly been based on speculation surrounding its immense future potential. However, now that we have a 10-year tx history to work with, we can see that the many BTC oscillations that we witnessed (in the past) make more sense as we start to analyze all the events that have directly impacted the currency in the past.
Some Historical Events Surrounding Bitcoin
To gain a better understanding of what makes Bitcoin tick, it can be useful for us to look at a brief history of the premier crypto asset.
BTC came into existence in 2009, a time when the value of a single coin lay around the $0.0001 mark. Since then, the cryptocoin has seen insane high’s — with its price even breaching the $20,000 threshold — thereby making it the best performing financial asset of the past decade. However, the first time BTC started to draw a lot of mainstream attention was back in 2013, when the Cyprus banking crisis had just ended. During the same year, some Chinese investors put in a lot of money into the offering, thereby forcing its value to rise by over 1000%. This golden run did not last long because a few months later, the world bore witness to the Mt. Gox hacking scandal — an event that saw third party miscreants make their way with a huge sum of stolen BTC (touted to be worth hundreds of millions of dollars).
To put things into perspective, back in 2013, Mt Gox was responsible for facilitating about 70% of the world’s Bitcoin trades and as a result of the hack, the entire crypto market was hit hard — with the total market cap of this space dropping by over 40%. Following this rollercoaster ride, the market stayed cold for a few years before steadily starting its financial ascent once again. By the end of next year, not only was the crypto market experiencing unparalleled levels of investor interest, even other associated products such as ICOs (Initial Coin Offerings) started to gain a lot of momentum. Things were so crazy for a little bit that even blockchain startups that had no experience were able to raise millions of dollars within a matter of days.
As the market started to gain more and more hype, some of the scalability issues surrounding BTC started to become increasingly prominent. For example, people had to start paying increased transaction fees as well as face insane wait times. These factors eventually led to the downfall of the asset, causing Bitcoin to plummet from a price point of just under $20,000 to just over $3,400 within a timeframe of just16 months. If that wasn’t enough, ICOs too witnessed a steep decline in their popularity levels — with the fundraising method essentially disappearing from the face of this planet within a few years.
The point of learning about these key events is to understand the long term trends associated with BTC and how certain factors can be used to gain leverage within this burgeoning market sector.
The Mechanics of it All
It is important to understand that volatility and other such events related to Bitcoin should be viewed as indirect influences rather than the currency’s core defining features. To expound further on the subject, we can see that the true mechanisms which determine the value of BTC are very rarely talked about by a vast majority of all mainstream media outlets.
At the very crux of things, BTC can be thought of as a direct benefactor of the supply/demand model — a fundamental principle of economics which clearly states that the value of a good is directly correlated to two of its core properties:
- The amount of commodity that exists in circulation.
- Demand for that particular commodity
So, when the demand for a particular asset is greater than its market supply, its price starts to witness an upswing. Conversely, when the supply is more than the existing demand, the price of the asset starts to go down. For visualization purposes, we can consider the following example.
Say the production of apples was to drop by over 50% overnight, this would have a major impact on the price of the fruit — i.e. the value of a single apple would shoot up considerably. Not only that, as the price of apples continues to increase, the number of people who can afford the fruit will continue to drop. This same analogy can also be used in the case of Bitcoin.
Supply and Demand: Bitcoin
As mentioned in the previous section, the aforementioned supply-demand framework is used pretty much across every service sector in existence today. But in the case of Bitcoin, we need to understand that there are two different currencies involved — i.e. BTC vs USD. To further elaborate on the matter, we can see that on one side we have individuals who are trying to offload their BTC in return for US Dollars while on the other side we have people who are trying to acquire the premier crypto coin using their USD. Also, the dollar amount at which buyers and sellers agree to facilitate their deals determine the price of Bitcoin at any given time.
What all of this essentially means is that the “volume of sell orders relative to buy orders” is what helps drive the value of BTC on a day to day basis. So if the sell volume is more, there will be an increase in supply — which, in turn, will result in a price decrease if demand remains steady. Similarly, an increasing number of buy orders (while sell orders remain constant) results in the price of BTC going up.
Therefore, for an individual to accurately predict the future value of BTC, he/she will need to know all of the various factors influencing the supply/demand ratio of the flagship crypto asset — a task which is almost impossible in real life. However, there are still many drivers that investors can constantly keep a tab on to understand BTCs supply/demand chain more clearly.
What Drives the Demand for Bitcoin in Today’s Market?
Some of the key factors which determine the demand for BTC as well as other altcoins in the market include:
- The price of complementary goods such as fiat currencies, precious metals, and digital currencies.
- The purchasing power (as well as median income) of consumers operating within a particular market segment.
- The subjective expectations of people looking to buy Bitcoin — which is determined by the speculation surrounding Bitcoin’s future.
- The flexibility of supply chain delivery — i.e. how quickly BTCs supply ratio can change.
- The currency’s market utility and requirement.
As a general rule of thumb, demand curves tend to have a negative slope, which means that the more a particular commodity is priced at, the less demand it will intrinsically have. One can also see that in most cases, the correlation between quantity and price is inverse.
Lastly, financial assets for which the demand function is positive are referred to as Giffen goods. And while casual readers might categorize BTC as one of these goods — mainly because the demand for BTC can increase as the price of the asset goes up (as was seen during the 2017 market surge) — the fact of the matter is, BTCs total supply and its actual available supply are two different things altogether.
As we have already pointed out earlier, Bitcoin’s total token supply (at any given time) is a matter of public knowledge — which basically means that anybody can access the BTC ecosystem to see how many tokens are in circulation. Not only that, in all, there can only ever exist a total of 21 million coins, as a result of which Bitcoin has unforgeable scarcity.
- While governments all over the world have the power to increase their fiat supply (as and when they see fit), no such thing can be done when it comes to Bitcoin.
- The total number of tokens has been predetermined in the Bitcoin protocol and thus there is no possibility of this figure being altered in the future.
- The total number of new coins being added to the BTC supply chain can be predicted quite accurately by anyone.
- The reason why Bitcoin’s price is so volatile is because its supply can’t be adjusted as per market demand — as a result of this, shifts in demand tend to show up as variations in price.
BTC Supply: How it Affects the Currency’s Price
When talking about Bitcoin’s available supply, we are referring to the volume of BTC that people are willing to offload at any given price. Thus, a clear distinction needs to be made here between the currency’s available and circulating supply — with the latter basically referring to the amount of BTC that has already been mined but is not available for commercial purchase.
From a mathematical standpoint, we can make sense of the entire situation by looking at the following equation:
Available supply = Circulating supply – BTC that are being held or are lost
In short, the core factors that drive the price of Bitcoin are it’s bought and sold volume — i.e. if the sell volume exceeds the buy volume at a particular price point, the value of BTC is bound to drop. In the same vein, if the currency’s buy volume exceeds its sell volume, it’s value will shoot up.
Speculative and Intrinsic Value: What’s the Link Here?
The intrinsic value of an asset is essentially its true financial worth (as attributed by the market). It is determined by several factors such as its cost of production, market utility and functions, and scarcity. For example, in the case of fiat, their value is directly related to the social contracts they possess. However, in the case of BTC, the currency is not affiliated with any government entity and thus many people seem to keep harping on the same question again and again: “Does Bitcoin have any real, intrinsic value as a currency?”.
For any currency to have intrinsic worth, we need to assess whether it fulfills the following three functions:
- Does it serve as a legitimate medium of exchange?
- Can it be used as a store of value?
- Can the currency be used as a unit of measurement?
With this information in mind, let us try and see if Bitcoin fits the aforementioned criterion:
- Bitcoin as a means of exchange: As things stand, there are currently many retailers/merchants across the globe that accept payments/remunerations in the form of Bitcoin and other similar cryptocurrencies. And while the scalability aspect of BTC is still a little questionable, several developers are working to create solutions that will help rectify this problem. For example, Schnoor signatures are designed to allow for multiple transactions to be grouped and processed as a single tx — thereby allowing for more efficient value exchanges.
- Bitcoin as a long-term SOV: A lot of people tend to highlight BTCs volatility as a major deterrent when it comes to its use as a store of value. However, because the premier alt-asset makes use of a decentralized framework that is not controlled by anybody, it serves as an attractive option for any person looking to transfer their wealth internationally.
- Bitcoin as a unit of measurement: For an asset to serve as a unit of measurement, it needs to be stable. This is the only feature that BTC does not satisfy in its entirety.
Additionally, the strength of a financial commodity keeps on increasing as the number of people using the asset goes up. In the same breath, the strength of an SOV rises as more and more people start to trust that commodity. Lastly, as with any new currency, the people who enter the market first are usually the ones who can gather the maximum amount of profit. Thus, for people who believe Bitcoin is destined for big things in the coming few years, it would not be a bad move to invest some of your savings in the premier crypto offering.
Below is a list of the early pioneering days of the price action history of bitcoin’s value in US dollars. Here’s the latest updates:
- April 23rd, 2019: After months of bearish conditions, Bitcoin was finally able to leave behind its initial losses from May and scaled up to a five-month high of $5,600.
- March 31st, 2019: All through March, Bitcoin was able to slowly gather financial momentum — with the crypto asset closing the month on a positive margin of around $4,100.
- February 28th, 2019: Bitcoin’s price hovered below the $3,500 mark over the first week of February. However, soon thereafter the currency’s value started to rise and reached a price point of $3,867.
- January 31st, 2019: At the time, the CBOE — in conjunction with VanEck and SolidX — withdrew its proposal that sought to entail the creation of a Bitcoin ETF only to resubmit a couple of weeks later.
- January 1st, 2019: The year started rough for Bitcoin, with the premier digital currency staying below the $4k mark for a few weeks running. Even the overall capitalization of the crypto market stooped to around the $66 billion mark.
- December 3rd, 2018: For the first time in many months Bitcoin mining became an unprofitable activity. Not only that, only for the second time in its brief existence, BTC’s mining difficulty ratio dipped by a whopping 15% — thereby making way for a sharp depreciation in the currency’s total value.
- November 15th, 2018: Bitcoin Cash undergoes a hard-fork thereby facilitating the creation of Bitcoin ABC and Bitcoin SV — with the latter project being helmed by the notorious Dr. Craig S Wright, an Australian computer scientist who claims to be the pseudonymous inventor of Bitcoin, ‘Satoshi Nakamoto’. Additionally, owing to the fork, the price of Bitcoin dropped to $4,275.
- October 31st, 2018: The day marked the 10th birthday of Bitcoin’s Whitepaper causing the market to rise by a cool 5%.
- October 15th, 2018: Institutional custodian Fidelity announced the launch of its very own digital currency trading platform, as a result of which, the price of Bitcoin rose sharply.
- September 18th, 2018: Cryptocurrency Exchange, Zaif Falls gets scammed by hackers to a tune of more than $60 Million. Bitcoin’s price continues to hover around the $6k mark.
Bitcoin (BTC) Price History: List of Events Worth Noting
In order to know where bitcoin is going, it may be important to wonder where the price of BTC/USD has been before today.
Bitcoin Price in 2018
(i) Goldman Sachs Drops Plans to Launch Crypto Trading Desk (Sept 2018)
After sending the market abuzz with excitement, Goldman Sachs released a press statement claiming that the firm was dropping all plans of launching a Bitcoin-based trading desk anytime soon. This announcement came at a time when the market at large was struggling and the price was of Bitcoin was in freefall.
(ii) Bitcoin ETF Delayed by the US SEC (August 2018)
On the 7th of August, the US Securities and Exchange Commission released a statement in which the regulatory body made it abundantly clear that it was going to be delaying its decision on several Bitcoin ETF proposals that had been submitted to it.
(iii) Bakkt Launch Made Official by the Intercontinental Exchange (ICE) (August 2018)
A representative for ICE — the parent company of the New York Stock Exchange — released a statement on the 3rd of August stating that the financial juggernaut was going to launch a cryptocurrency startup known as Bakkt that would be supported by several established multinational firms including Microsoft, Starbucks, etc.
(iv) SEC Rejects ETF Proposal from The Winklevoss Twins for Second Time (July 2018)
For the second time within the space of a few months, the US SEC rejected an ETF proposal submitted by Tyler and Cameron Winklevoss — owners of the crypto trading platform ‘Gemini’.
(v) Blackrock Hints at Crypto Exploration (July 2018)
During the second half of July 2018, the CEO of Blackrock — one of the world’s largest wealth managers — announced his eagerness to examine the prospect of a crypto and/or Bitcoin-related fund.
(vi) Blanket Ban on Crypto Ads Reversed by Facebook (June 2018)
On the 23rd, Facebook announced that it was going to be lifting its ban on all crypto-related content which was announced during the first quarter of 2018. At the time, the price of Bitcoin was found floating around the $6,600 region.
(vi) Bithumb Falls Victim to Hacking Scandal — June 2018
The first few weeks of the month was pretty hard on Bitcoin, with the currency hovering around the $5,800 territory — thanks to South Korean crypto exchange ‘Bithumb’ being hacked by miscreants to the tune of more than $31 million.
(vii) Four Crypto Exchanges Brought to Court by the US CFTC (June 2018)
The United States Commodities and Futures Trading Commission filed several subpoenas on the 11th of June against Bitstamp, Kraken, ItBit, and Coinbase. In the court document, a representative for the CFTC pointed out that the aforementioned trading platforms had been indulging in different market manipulation tactics.
(viii) DOJ Launches Probe into Allegations of Widespread BTC Price Manipulation (May 2018)
US Department of Justice authorities launched an extensive criminal probe to assess whether certain financial entities were deliberately manipulating the price of Bitcoin for their personal gains. On the 24th of the month, the price of a single Bitcoin lay at $7,609
(viii) UpBit Headquarters Raided by Local Tax Agencies (May 2018)
On the 11th of May 2018, S.Korean tax officials raided UpBit’s office after they received word that the crypto exchange was manipulating its books. As a result of this news, the price of Bitcoin fell sharply 5.5% within a span of just a few days (from around $8,711to $8,372)
(ix) Goldman Sachs Announces its Plans to Explore Crypto Trading Solutions (May 2018)
A report released by the New York Times on the 3rd of May 2018, stated that finance giant Goldman Sachs was going to be exploring the prospect of launching its very own Bitcoin trading platform. The announcement sent the price of Bitcoin soaring above the $8,800 threshold.
(x) Twitter Bans Cryptocurrency Ads on its Platform — (March 2018)
In the wake of Facebook and Google deciding to ban all crypto-related ads on their respective platforms, Twitter too soon followed suit and did the same.
(xi) Google Bans Cryptocurrency Advertisements (March 2018)
During the first week of March, Google imposed a major ban on all ads related to crypto-assets as well as on Initial Coin Offerings. Google also provided a full range of crypto-specific terms within its broader ‘bad advertisements’ policy.
(xii) SEC Issues New Operational Guidelines for Crypto Exchanges (March 2018)
As FB, Google continued to ban all crypto-related activities on their respective platforms, the US SEC issued new guidelines asking all crypto exchange platforms to register with the regulatory body to continue with their regular, day-to-day operations. On the 7th of March, the price of a single Bitcoin stood at $8,344.
(xiii) Facebook Enforces Shocking Ban on Crypto Ads (January 2018)
On the last working day of January 2018, the social media juggernaut announced its intention to ban all ads related to cryptocurrency and Initial Coin Offerings from its platform.
(xiv) Coincheck Gets Hacked (January 2018)
One of Japan’s largest crypto exchanges Coincheck fell victim to a group of hackers who were able to walk away with 123 million dollars worth of XRP, and 500 million NEM tokens. The price of Bitcoin lay around $8,800.
(xv) PayPal co-Founder Peter Thiel Acquires Massive Chunk of BTC (January 2018)
Many media outlets reported on the 3rd of January that Venture Capitalist Peter Thiel had bought millions of dollars worth of Bitcoin. At the time, the price of Bitcoin stood at $13,870.
Bitcoin Price in 2017
(xvi) Bitcoin Scales Up to its All-Time High Value (December 2017): $19,893
The 18th of December marked the day when Bitcoin reached its financial apex — a threshold that has since not been broken.
(xvii) CBOE Announces the Launch of Bitcoin Futures Contracts (December 2017)
The second week of December 2017 saw the CBOE launching Bitcoin-based futures contracts. This resulted in the price of the premier asset soaring wildly. Not only that, even the total market cap of the digital currency market as a whole rose sharply around this time.
(xviii) Launch of Segregated Witness Proposal (SegWit2x) Cancelled (November 2017)
Bitcoin’s core dev team announced on the 8th of November 2017, that it was putting its plans of implementing the SegWit2X protocol on the backburner. The price of BTC on the day stood at $7,844
(xix) CME Introduces Bitcoin Futures Contracts into the Market (October 2017)
The Chicago Mercantile Exchange released a circular in which it was brought to the attention of the masses that the financial institution was going to launch a Bitcoin Futures contract by the end of 2017. This was the first time an established financial entity had come forth and shown such explicit support for BTC — mainly because, up until then, BTC was viewed largely as a shady investment tool. Also, in the wake of the above-stated announcement, the price of Bitcoin started to soar and scaled up to a then ATH of touch $6,601.
(xx) Bitcoin Surges Pas $5k Threshold for the First Time (October 2017)
On the 13th of October, Bitcoin, for the first time in its young history, rushed past the $5k mark. This feat was considered quite miraculous by many, especially since the crypto asset had started the year around the $966 mark.
(xxi) China Shuts Down All Crypto Exchanges (September 2017)
After assessing the situation in quite a lot of detail, Chinese tax officials concluded that they would be banning all crypto trade avenues operating within the country’s borders. The announcement immediately caused investors all over the world to panic and sell their BTC holdings — thereby causing the premier digital currency’s value to drop sharply almost overnight.
(xxii) JP Morgan Chase CEO Jamie Dimon Calls Bitcoin a Fraud (September 2017)
Jamie Dimon, the CEO of JP Morgan at the time stated in an interview that he thought of Bitcoin as a ‘fraudulent scheme’ that would eventually cause immense financial stress to a lot of investors. However, the market at large seemed to ignore Dimon’s words since Bitcoin continued to stay strong around the $3,800 region.
(xxiii) Chinese Government Issues Ban on ICOs (September 2017)
During the first week of September (on the 3rd to be exact) the Chinese government implemented an umbrella ban on all ICO related activities.
(xxiv) Bitcoin Undergoes Hard Fork, Bitcoin Cash $BCH Created (August 2017): $3,384
Since the start of 2017, many from within the global crypto community had been asking for a BTC hard fork quite vehemently — primarily because of the scalability issues related to Bitcoin. As a result of the split, the world bore witness to the birth of Bitcoin Cash (BCH).
(xxv) Japan Recognizes Bitcoin as a Legitimate Transaction Medium (April 2017)
The first day of April saw the Japanese government recognize Bitcoin as a legal payment method. News of the announcement sent the price of Bitcoin soaring to a relative high of $1,215.69
(xxvi) SEC Rejects Winklevosses Request for a Bitcoin ETF (March 2017)
The US SEC rejected a Bitcoin ETF proposal submitted to it by the Winklevoss brothers. The reason cited for this refusal was a lack of stability within the crypto market.
(xxvii) Bitcoin Breaks Past $1K Threshold After Nearly Thirty-Six Months (January 2017)
After experiencing a decent rally all through 2016, the price of Bitcoin finally crossed the $1,000 mark after a long long time.
Bitcoin Price in 2016
(xxviii) Bitfinex Gets Hacked, Loses Nearly $72 Million Worth of Crypto (August 2016)
In August, premier cryptocurrency exchange ‘Bitfinex’ announced that it had fallen victim to a cyber scam, which resulted in hackers making their way with a little more than 120,000 BTC. Owing to this massive security lapse, the price of Bitcoin dipped by a whopping 20% almost overnight. In addition to all this, many news reports were claiming that some Bitfinex officials had prior knowledge that this hack was going to take place.
(xxix) Bitcoin Undergoes its Second Halving Event (June 2016)
On the 9th of June, Bitcoin’s block reward quotient was halved once again — thereby reducing mining returns from 25 Bitcoin per block to 12.5.
(xxx) Steam Announces Support for Bitcoin (April 2016)
Gaming platform ‘Steam’ released a statement during the first half of April, announcing its decision to accept BTC as a medium of purchase for its wide array of video game titles and other digital content. This move was quite short-lived because just a few months later, Valve — the parent company behind Steam — rescinded its decision to allow BTC payments.
Bitcoin Price in 2015
(xxxi) Dr. Craig Wright Claims that He is Satoshi Nakamoto (December 2015)
Wired published an in-depth piece on the 8th of December claiming that Australian computer scientist Dr. Craig Wright was the man responsible for creating Bitcoin. The author of the piece, Gwern Branwen, cited a series of emails, deleted blog posts to support his (as well as Wright’s) lofty claims. It was also around this date that Bitcoin’s symbol was officially accepted into the Unicode.
(xxxii) Winklevoss Owned Gemini Exchange Goes Live (October 2015)
Cameron and Tyler Winklevoss came to the forefront when they announced the launch of their very own cryptocurrency trading platform — Gemini. Upon its inception, the exchange was one of the first to base all of its operations in the United States and be fully regulated by local authorities. As things stand, Gemini is operational within 26 states across the US with all of its deposited assets having been insured by the FDIC.
(xxxiii) CTFC Declares Bitcoin to be a Commodity (September 2015)
Despite there being a lot of confusion surrounding the financial status of Bitcoin, on the 18th of September 2015, a representative for the United States’ Commodity Futures Trading Commission (CFTC) announced that the regulatory body would henceforth classify “bitcoin and other virtual currencies as being legitimate financial commodities.”
(xxxiv) New York Introduces a Mandatory BitLicense for Exchanges (June 2015)
On the 3rd of June, the NY Department of Financial Services introduced its very own regulatory scheme known as the ‘BitLicense’. Using this tool, crypto service providers would be allowed to trade digital assets such as BTC, ETH etc. in a completely seamless, hassle-free manner. The price of bitcoin was $232.05.
However, to acquire the aforementioned license, exchanges were required to pay an application fee of $5,000, as well as provide certain biometric data to the FBI.
(xxxv) Coinbase Comes into Existence (January 2015)
Coinbase — currently one of the largest crypto exchanges in the world — came into existence on the 26th of January, 2015. The firm was backed by several venture capital firms and was able to commence its operations across 25 states upon its inception.
(xxxvi) Bitstamp Loses Over 18,000 of its Customers BTC Savings (January 2015)
Using a host of social engineering strategies, hackers were able to steal more than 5.2 million dollars worth of BItcoin from Bitstamp’s coffers. Not only that, the security lapse forced the once premier crypto trading avenue to be shut down for a total of eight days.
Bitcoin Price in 2014
(xxxvii) Microsoft Announces Decision to Accept Bitcoin (December 2014)
Computing giant Microsoft announced back in December 2014 that it was going to start accepting Bitcoin payments from its US customers in exchange for its various digital apps, games and other content (through Windows and XBOX.)
(xxxviii) US Gov. Auctions Off More than 30k Bitcoin (June 2014)
Back in 2013, US regulatory authorities were able to seize a total of 30,000 BTC tokens from individuals who had been indulging in nefarious, silk-road related activities. This handsome sum of crypto was subsequently auctioned off on the 27th of June to the highest bidder — who accidentally turned out to be the billionaire/venture capitalist ‘Tim Draper.
(xxxviii) People’s Bank of China Shuts Down Many Crypto Bank Accounts (April 2014): $501.7
Following a deadline given by the Chinese government to all of the nation’s local crypto exchanges, authorities started to crack down on any trading platforms working in conjunction with local banking institutions.
(xxxix) IRS Announces BTC Will be Subject to Uniform Taxation Laws (March 2014): $453.05
The central tax authority of the USA — the Internal Revenue Service — announced on the 26th of March that Bitcoin would be taxed in pretty much the same way in which real estate is taxed across the country.
(XL) Crypto Exchange Mt. Gox Gets Hacked, Forced to Shut Down (February 2014): $662
On the 7th of February, Mt Gox was subject to a massive DDoS attack that resulted in the firm losing a whopping sum of 744,000 BTC that belonged to its customers. Following this incident, the exchange was forced to shut down on February 24th – with many of the company’s executives facing legal action thereafter.
Bitcoin Price in 2013
(XLI) China Bars Local Financial Institutions From Using Bitcoin (December 2013)
Owing to the rising popularity of Bitcoin within China, the PBOC — People’s Bank of China — took a unilateral step to ban Bitcoin as a medium of exchange within the country’s borders.
(XLII) BTC Surges to a Relative High of $1,242 on Mt Gox (November 2013)
With Chinese investor interest in BTC surging all through 2013, the price of Bitcoin rose to a new high on the 29th of November.
(XLIII) China Legalizes Crypto Trading (November 2013)
The PBOC released a statement on the 18th of November that officially allowed the country’s citizens to “participate in the bitcoin market”. Around the same time, Ross Ulbricht — the person behind Silk Road — was also convicted and sentenced to jail — thereby causing widespread uproar across the globe. As part of the crackdown, US officials were able to seize more than 170,000 BTC.
(XLIV) Department of Homeland Security Issues a Warrant Against Mt. Gox (May 2013)
Officials working for the Department of Homeland Security seized over 3 million dollars from a Wells Fargo Bank account which was linked to the then CEO of Mt. GOX ‘Mark Karpeles’. As part of the investigation, govt officials found Karpeles to be guilty of illegally transmitting money against the banks’ terms of service.
(XLV) Cyprus’ Revolution Causes BTC’s Price to Surge (March 2013): $131.07
After the EU issued a $10 million bailout package for Cyprus (following the nation’s economic struggles) back in 2013, the price of Bitcoin started to surge for the first time in its brief history— with the value of a single token spiking from $80 to over the $260 mark within just a few days time.
Bitcoin Price in 2012
(XLVI) Bitcoin Undergoes its Inaugural Block Halving Event — November 2012
As a result of Bitcoin undergoing its first halving event, the mining rewards associated with the premier cryptocoin dropped from 50 Bitcoin per block down to 25 Bitcoin per block. In addition to all this, content management solution – WordPress – too announced its decision to start accepting BTC for its various internal/external monetary transactions. As per a press release issued by the firm back in 2012, a spokesperson wrote: “Our goal is to enable people, not block them”.
(XLVII) Linode Hack Sees Firm Lose Over 46,000 Bitcoin (March 2012)
On the very first day of March 2012, a hacker breached Linode’s security cover and was able to make his way with more than $228,000 worth of digital assets from the company’s coffers. Some of the prominent people who were affected by this incident included:
- Bitcoin Lead Developer – Gavin Andresen
- Marek ‘Slush’ Palatinus.
Bitcoin Price in 2011
(XLVIII) Mt. Gox Hacked For the First Time (June 2011)
Before falling victim to its now-infamous hacking scandal of 2013, Mt. Gox’s security protocols were also breached a couple of years earlier. According to some reports, the incident saw the once premier trading platform lose a total of 4,019 Bitcoin.
(XLIX) Gawker Publishes an In-Depth Report About Silk Road (June 2011)
Gawker reporter ‘Adrian Chen’ published a piece back in June 2011, in which he clearly outlined how many crypto enthusiasts were making use of a deep web trading portal called Silk Road to facilitate their drug deals. In addition to this, a couple of months earlier, three crypto exchanges (including Britcoin, Bitcoin Protocol, BitMarket) went live – thereby allowing their users to successfully trade BTC in exchange for several different fiat assets. Not only that, around the same time, BTC’s value zipped past that of the US Dollar for the first time.
Bitcoin Price in 2010
(L) Mt. Gox Opens its Doors to the Public (July 2010)
On the 18th of July, Jed McCaleb, the lead developer behind Mt Gox officially released his brainchild for public use. McCaleb was previously known as the person behind a technology called peer to peer (P2P) — which allows users to share data in a completely localized manner. Also, in a matter of 6-8 months, McCaleb ended up selling his baby to Mark Karpeles (on March 6th, 2011), who then went on to turn Mt. Gox one of the biggest crypto entities of that time.
(LI) Bitcoin For Pizza: Laszlo Pays for his Meal Using 10,000 BTC
Laszlo, a BTC enthusiast from the United States, infamously paid for 2 Papa John’s pizzas using Bitcoin (10,000 BTC to be exact). The pizzas were approximately worth 25 dollars at the time.
Similarly, just 5 months earlier, a firm called ‘the New Liberty Standard’ had successfully purchased a total of 5,050 Bitcoin from an individual called Sirius for just 5 dollars.
Bitcoin Price in 2009
(LII) First Official BTC TX Facilitated by Satoshi Nakamoto (January 2009)
The world’s first Bitcoin transaction took place on the 19th of January between Satoshi Nakamoto and his tech associate Hal Finney. The tx saw a total sum of 10 BTC being exchanged between the two individuals.
(LIII) Genesis Block Established (January 3rd, 2009: $0)
On the 3rd of January, 2009 the world finally bore witness to the birth of Bitcoin — as Satoshi Nakamoto mined the premier currency’s first block ( now known fittingly as the Genesis block.)
Now that we have revisited a trip down memory lane on all of the historical bitcoin price events, let’s talk about the future catalysts to help drive Bitcoin’s value to all time highs.
Even though Bitcoin, along with the whole cryptocurrency market, is going through a stalling phase after a pleasant resurgence over the last few months, there is still good news yet to come for the market.
During the course of the Baltic Honeybadger conference, the head of investments during the crypto hedge fund – Adaptive Capital – Murad Mahmudov took the time to provide insight into the kind of catalysts that Bitcoin has to look forward to.
So how many ‘catalysts’ does the cryptocurrency have ahead of it? An impressive amount to be thoroughly clear – more than 50 to be exact – and each of these have the potential to provide some serious wind in the metaphorical sails of Bitcoin when it comes to vital segments like growth, adoption, application and, more importantly for investors, appreciation of its price over 2019 and the future.
During this conference, Mahmudov argued that, while there are some pretty impressive winds blowing in favour of Bitcoin in the future, there are some big factors in the present day that are helping it in the present. Some of these include the profound and deteriorating level of trust in the relationship between the people and political and business organs such as the government, the media and companies.
This brittle relationship between the people and the ‘mainstream’ political and business world is juxtaposed with the growing power, influence and efficiency of Bitcoin and its network. In addition to this growth, there is a greater desire from the public to improve their literacy and personal use of BTC.
“If inflation, state surveillance, geopolitical tensions, commercial banks and negative interest rates make fiat currency holders suffer, there will likely be an increasing incentive towards buying and holding bitcoin,” Mahmudov stressed.
So with over 50 different forces converging on Bitcoin to project it further forwards from the digital world into the minds and (often) pockets of millions, here is a comprehensive list of what these are exactly.
Main Driving Forces to Pay Attention to for Boosting the Value of Bitcoin in USD
First: Mainstream trust wanes as Bitcoin’s prestige grows
According to recent surveys, and as previously mentioned, the level of trust between multinational companies, banking institutions, government bodies, and even mainstream media and journalists has reached a profound low compared to more than a few decades.
Second: Interpersonal trust has also been dangerously eroded
This, of course, depends on where exactly you look and ask these questions. But it’s worth taking into consideration that even in the most ‘free’ places in the world (Northern Europe and Scandinavia), only 60 percent of people believe that their fellow man can be trusted. Check out the source right here.
Third: International Trust is on the decline too
The Westphalian system, the system of international relations that we most commonly know in the western world is seriously being stress-tested this century. With the current climate between nations resembling something out of Pulp Fiction, or Hateful Eight. (Yes, I like Quentin Tarantino).
Fourth: We are living less and indebted more
According to recent surveys, the quality of life enjoyed by people in 2019 is actually heading backwards. If anything, the quality of life is worse than it was in 2008. Meanwhile, the level of global debt is reaching record highs; rising by more than 50% of their levels during the global financial crisis of 2008.
Fifth: The Debt is far worse than we’re being told
The figures that we currently have on global debt only (worryingly) accounts for those that are ‘on the books’ of financial, governmental, etc institutions. If we were to take into consideration that kind of expenses that go ‘off the books’ such as nationalised industries, government expenditures on social security, pensions, healthcare – it gets far worse.
Six: The US Dollar and the multi-trillion debt
Over the world, the current landscape of the economy is in dire straits, and it’s something that’s not helped at all by the low interest, low inflation landscape. As a result, the USD debt is in negative yield to the tune of more than 15 trillion.
Seven – The divided choir of Economists
Contrary to popular belief: economics as a field is like physics – if you’re not terrified by it then you haven’t understood it. There are plenty of economic schools of thought, and the latest one is Modern Monetary Theory – which has brought up further questions as to how to approach monetary policy in the future.
Eight – Even greater divides
While social mobility is something that the English speaking world prides itself on, we are currently living through a period of time where wealth .inequality has never been higher. In fact, it’s reached a 100-year high in the western world, while it’s also reached multiple-decade highs in other regions of the world. This issue dove-tails quite succinctly with the emergence of new economic perspectives on monetary policy.
Nine – Age of Extremes
Much akin to the titular Hobsbawm book of the same name which studied the 1930s onwards – this increasing inequality, social and political disharmony and dissaffection has since led to the emergence of populist leaders and demagogues throughout the world, both on the left and right sides of the political spectrum. This is contributing to our earlier point of international disquiet between sovereign states as well.
Ten – With Extremes Come more extremes
With popular demagogues and political ‘Strong men’ comes the ever dangerous prospect of them dipping their hands into economics, monetary policies and even asset acquisition. This, to paraphrase Lenin, has the potential to ‘shuffle the cards and spoil the game’ of international economics.
Especially if they resolve themselves to disrupting taxation, and even confiscating assets. This makes the lure of a decentralized cryptocurrency even more powerful.
Eleven – Banking appetites for gold is at an all-time high
We are not only seeing a whettened appetite for Gold from central banks, but if we take into consideration that the price of precious metals like Gold and Silver have since increased with economic instability – things are looking hairy for mainstream finance.
Twelve – Dollar’s prestige is ebbing
Even though it occupies the lion’s share of the global currency – the prestige of the US Dollar is declining at a faster rate – so much so that we are hearing louder and louder calls for an alternative – which have included virtual currencies and stablecoins, according to the likes of the outgoing Mark Carney of the Bank of England.
Thirteen – The age of Banking Secrecy is over
While regions of the world like the Bahamas and Switzerland were basically seen as havens for your money, this is becoming a thing of the past – as these same countries are working even more closely and frequently with tax authorities to weed out potential tax evasion, among other kinds of malpractices.
Fourteen – Mass-Surveillance is Emerging more and more
Orwell is unfortunately being proven correct when he put pen to paper and created ‘1984′. Mass Surveillance has sharply increased, not just in the more authoritarian regions of the world either – as cities like London have taken a liking to facial recognition.
Fifteen – No-Cash, only card/cardless
Going cashless is all well and good so long as it remains a choice for those that prefer to make use of it. But in countries like Sweden, the diminishing use of paper money has actually led to more people being frozen out of the system as it steadily becomes more digital.
Sixteen – Sanctions and money as a weapon
With the Trump administration – we are seeing international settlement networks sprout up and even get closed down as international sanctions against the likes of Iran and Russia come into play. This places even more strain on the financial system, while making these same authoritarian states seek out alternative financial methods to duck out from sanctions.
Seventeen – Bitcoin’s growing influence as a counterpoint
While Mahmudov stops short of saying it, Bitcoin has steadily cultivated a reputation as being a financial safe haven for peoples money and investments. The reason being that it has yet to fully become ‘safe’ for its users, and will take some time before this aspiration can be realised, but it is a viable haven.
Eighteen – ‘The torch has been passed’
This new generation of people is far more literate and curious about new things compared to the generations that came before them. As the less technologically literate ebb away, this new generation is going to profoundly disrupt the ‘accepted’ norms.
Nineteen – The Internet is Rapidly growing
The number of new denizens of the internet is skyrocketing, and it’s helped along by the fact that people from the emerging world are steadily getting more and more plugged into the internet.
Twenty – The Emergence of Smartphones
The Internet of Things is something that is worth taking into consideration too – especially with far more people, not only having smartphones, but making thorough use of them for watching videos, searching the internet, and even making financial decisions through these revolutionary devices.
Twenty-one – The world is more online than ever
Being on the internet has gone from being an interesting option to a downright necessity, no matter who you work for. As a result, there’s a lot more of a need for money to be as accessible and fluid as other parts of these highly digitalized people’s lives.
Twenty-Two – Bitcoin and the rise of financialization of crypto
Cryptocurrencies, and especially Bitcoin, have steadily gained an appeal, not only as a financial instrument for its users, but as an investment vehicle and (to some) staple of a meaningful portfolio. With the green light given to Bakkt and its Bitcoin futures contracts – Bitcoin and cryptos are entering the conventional investment world.
Twenty-Three – Bitcoin is steadily improving for scale and effect
Even though Bitcoin has been known for its recalcitrance to changing for its users and an increasing user base. Cryptocurrencies have steadily been working on layer-1 and layer-2 solutions to address chronic issues such as transaction costs, sharding and scalability. And Bitcoin is no stranger to the need for this, as its core development team have been working on these matters too – in spite of BTC’s economic performance.
Twenty-Four – BTC Core still paving the way with consistency
Big Blocks? Internal implosion? Regardless of the rift-raft thrown bitcoin’s way, the day-1 core fundamentals are constantly being improved on and maintained no matter how well or fast the bitcoin value grows.
Twenty-Five – Bitcoin’s Layer-2 technologies
Addressing the multiple bottlenecks that come and serve to prevent mass adoption for Bitcoin. Its core development team have been working hard to bring forward some layer-2 solutions, which include Lightning, which boosts transaction speed, as well as Merkle trees for decreasing the demand for memory space and processing speed for processing information.
Twenty-Six- More is coming when it comes to improvements
As previously mentioned, while Bitcoin has introduced changes to its system already with the introduction of the lightning Network for processing speed, and Merkle trees. Bitcoin has a number of different improvements and features, which include: (Submarine Swaps, Atomic Swaps, Dual-funded channels, Sphinx, Neutrino, Eltoo, etc.).
Twenty-Seven – Infrastructure is being laid for Bitcoin
Lightning Network is something that is coming to far more elements of Bitcoin – especially as developers seek to put it to more thorough use, along with other products and services being added.
Twenty-Eight – Bitcoin’s Powerful hash rate
While the likes of Bitcoin SV and ABC have fought viciously over the matter of hash rate and processing power, the hash rate of Bitcoin has reached an unprecedented high.
Twenty-Nine – Hash Rate (again)
Bitcoin’s hash rate disruption is something that is quickly improving over the years. Which is great news for its pool of miners.
Thirty – Bitcoin Custody solutions
With this increased popularity among both newcomer and professionalised investors – the need for more professional accompanying services to Bitcoin investments. Specifically secure storage solutions and especially custody solutions.
Thirty-one – Bitcoin Use cases grow
Far more than just being applied as a virtual kind of money, Bitcoin has been adding to its ever-growing list of use-cases, with the lightning network being put to use as a payment and even gaming solution with the likes of Satoshi Games.
Thirty-Two – Bitcoin as a known challenger
While Bitcoin came to public attention as a booming investment market before the bubble growth and pop. These same people, along with millions more are slowly coming to the realization that Bitcoin is more than just an investment avenue, and that it has elements that are superior to other kinds of money products out there.
Thirty-Three – Bitcoin is on the rise in general
With Bitcoin’s core development team and community embracing new and innovative solutions to its currency and blockchain, it’s an infrastructure that is growing significantly and shows little sign of stopping as of yet.
Thirty-Four – The memery
Bitcoin Memes are more than just a novelty – they’re part of a very powerful marketing campaign and, let’s face it – they’re highly effective. Digital Marketing 101 teaches us that if you can create something that breaks into a viral phenomenon, then you will have obtained a reach that is well beyond just thousands.
Thirty-Five – Bitcoin Literature is emerging
Along with this viral marketing, Bitcoin literature and information about cryptocurrencies and blockchain, in general, are becoming more wide-spread. And this is helped along by intellectuals such as Andreas Antonopoulos along with Don and Alex Tapscott publishing books to that effect.
Thirty-Six – Bitcoin Education
Along with this advent of literature, memes and broader investment, Bitcoin has seen a proverbial flowering of education for those that are genuinely curious about it and the underlying technology. We’re even seeing a growing popularity of courses, not just from major industry figures, but also from established academic institutions too, such as the University of Oxford, Harvard and others.
Thirty-Seven – The rise of Sole-Bitcoin entrepreneurship
Bitcoin is more than just an industry surrounding the mining of the coin, it has allowed for allied and supply-based businesses and entrepreneurship to emerge as well. This includes a range of hard wallet and cold storage providers, custodial solutions, and even futures contract traders, as we’ll see on the market soon with Bakkt.
Thirty-Eight – More and More traditional finance
With the growing popularity of Bitcoin and other cryptocurrencies, we’re seeing the steady trickle in of conventional and institutional finance and investors come in. Especially as professional businesses like the Intercontinental Exchange start to provide professional services for these investors.
Thirty-Nine – the stock to flow ratio
Seeing as though Bitcoin will become increasingly hard to extract, due in part to the increasing need for hashing power from miners, but also from its in-built system of scarcity, this will create a far greater market valuation. As supply diminishes, thanks in part to halvings and fixed supply, users will help to feed demand, allowing its valuation to increase.
Forty – Bitcoin Penetration
We’re sparing you the innuendos to simply go into the fact that while Bitcoins penetration of the political bubbles like Westminster and DC remain relatively small compared to other industries. The fact that blockchain-based solutions like Facebook Libra have managed to do it already stands as a testament to what Bitcoin has, as of yet accomplished.
Forty-One – Bitcoin’s Still a Drop in the Global Financial Market
When considering just how big the stock market is or the deriatives market and real estate is – let alone the nearly $8 trillion gold precious metals market is – $BTC is still relativley tiny in market cap. Not to mention, gold is dozens of centuries old while #Bitcoin is merely a decade old and counting. The ‘programmable money’ future of bitcoin within the global monetary base has plenty of room to grow.
Forty-Two – The Sharpe Ratio
No, not the TV show, but the Bitcoin Sharpe Ratio. For some better context: the Sharpe ratio refers to the performance and rate of return enjoyed by Bitcoin investors compared to assets that have a reduced or zero risk rate investment. For Bitcoin, it enjoys a higher risk-adjusted return compared to other kinds of asset classes out there – but investors have a pretty prodigious return on investment in the best cases.
Forty-Three – Non-correlation
Bitcoin is an iconoclastic digital asset, that’s a given, but the fact that it’s simply not correlated with any other kind of asset class out there means that it can sometimes run contradictory to other assets and their performance.
Forty-Four – A Remittance killer
When it comes to international products like MoneyGram and Western Union, making use of a cryptocurrency like Bitcoin, it completely side-steps any need for a third party to instigate a payment or transfer internationally. Remittance solutions are actually an incredible valuable industry, and the fact that cryptocurrencies provide an innovative and cost-effective solution is invaluable to millions of users.
Forty-Five – Destruction as creation for ICOs and Altcoins
While we’ve seen the (very) literal ‘Tulip Mania’ of ICOs and altcoins in 2016/2017, the landscape is becoming a lot more user-friendly for new and experienced cryptocurrency users. Which is very much welcomed for all users considering the fact that it makes the crypto space easier to navigate and provides it with a greater likelihood of earning users trust.
Forty-Six – Volatility is lowering
One of the net positives in the Bitcoin world now is that we are certainly not seeing the kind of market volatility that we did in 2017 and 2018. There’s a greater sense of stability in the cryptocurrency market, and this is a welcome change for Bitcoin, especially if it sees itself being treated in the same way as a conventional currency.
Forty-Seven – Metrics going on-chain
One massive plus that we’re seeing from on blockchain and, especially for Bitcoin, is that major investors are keeping a firm grip on their holdings of BTC. This has the added plus of not contributing to market volatility due to large positions being sold off or bought up.
Forty-Eight – small denomination holders on the rise
While Over the Counter (OTC) and institutional investors are steadily emerging, we are still seeing out fair share of small denomination holders. According to the same on-chain metrics that we referenced, we are seeing an increase in the amount of users with small denominations of BTC. These range from 1, .1 (or .2 in this writer’s case) or even .01BTC being held in a digital or hard wallet.
Forty-Nine – Bitcoin’s price rise
Last month, we saw Bitcoin’s price surge upward to see one of its all time highs before slightly retreating. Even though the momentum didn’t carry there, we are still seeing some optimistic growth from the currency.
Fifty – Bitcoin on the continued rise
According to Log Log analysis from recently, which showcases logarithmic pricing, as well as time-scale, demonstrates that even though we’re seeing a slow down in the price movements of Bitcoin, we are going to see slower, reliable but continued increases in the price of BTC, and with much less volatility than before.
Fifty-One – Less drops
Along with this more reliable surge upwards, the amount of monthly price lows has been demonstrably decreasing in frequency and intensity according to analytics. And, what’s even better news, is this is likely to continue into the future.
Fifty-Two – Self-reinforcement
Bitcoin’s underlying design means that there are attributes to it that allow for a continuous self-feeding loop which allows it to steadily become stronger, which is only going to support the levels of confidence that investors have in the cryptocurrency long-term. Which is also going to bleed over to other cryptocurrencies.
May 2020 is the estimated timeframe for the bitcoin mining block rewards to split in half. Let’s review the BTC halving phenomena.
Bitcoin Mining is Halving Soon, Here’s Why it Matters
The best kinds of events happen every four years, it seems. We need only look at the sports world to get some testaments to that effect. The World Cup taking place every four years, same with the Olympic Games.
For the blockchain world behind Bitcoin – its supporters have something to look forward to – which is the halving block rewards for miners. This won’t be the first time that this has happened; block rewards depreciated for the first time back in late 2012, having dropped from 50 to 25, and then again to 12.5 Bitcoin in 2016. The third halving event will be taking place on or roughly around May 20th, 2020.
This event will see the block rewards halved once again from 12.5 to 6.25 BTC.
It remains to be seen whether it was by pure coincidence, or a pre-meditated design choice, but the last two price cycles have been oriented around the halving of block rewards. So to better understand what we have in store for us, it’s important to take a look back at the last two halvings and the kind of impact they both had on the metrics of supply, demand and price of Bitcoin.
The goal of this is to formulate a more empirical explanation for the kind of price cycles that we’ve previously seen with price cycles. Inevitably, the aim is to offer some insight for investors curious about what’s going to be happening in the foreseeable future.
First up: the First Halving of 2012 and the Associated Retail Cycle
So why is it that it gets the nickname ‘retail cycle’? It’s mainly because at this time, Bitcoin was still on the veritable fringes of the investment market, managing to obtain its first inches of traction through its adoption from technologists and retail investors. It’s at the beginning of this cycle that the entire economy behind Bitcoin remained relatively minuscule in the minds of any investor: and hardly one they would consider as an investment opportunity.
In addition to this, before the beginning of the first halving in this price cycle kicked off, the prior cycle ended with the overall price for Bitcoin slumping by well over 90 percent: plummeting from 31 dollars to hit just 2 – all in the space of 5 months during 2011.
Fortunately, Bitcoin’s price managed to get back on track in November of the same year up to the first halving during November 2012, and continued to rise significantly over 2013 to hit a record high of more than $1,200.
If we take a look at some of the candlestick metrics from 2012 to November 2013 – we can see a pretty impressive symmetrical pattern to Bitcoin’s performance.
One of the reasons that we see this otherwise impressive surge in the price happen is thanks to the halving which occurred shortly before – with Bitcoin surging up to 13 dollars just before the halving took place, and started reaching startling highs of $1,200 afterwards.
To put this into perspective, the kind of appreciation that Bitcoin endured from late 2011 to 2013 was akin to increasing 350 to 400 times, depending on the price and liquidity you look at. Any multiplying of this value came predominantly after the halving as we can see.
While this made for a pleasant surprise for investors and technologists that newly enfranchised themselves. The rally was followed by a pretty steep recession which lasted for more than 14 months. This saw the underlying price of Bitcoin fall by more than 80 percent, before hitting strong lower supports at 200 dollars. From there Bitcoin’s price managed to consolidate around the 200-300 mark through the next 10 months.
The Venture Cycle: Bitcoin’s Second Halving
This is where Bitcoin becomes a lot more interesting to the world that previously shrugged it off during its last cycle. Hence why we ought to refer to this one as the venture cycle, predominatly because a number of venture capital firms along . with hedge fund got a first look at the meteoric first cycle that Bitcoin enjoyed.
This resulted in them really buying into the concept of digitalized / decentralized money the Bitcoin espoused. Meaning that far more speculative investors started entering the market during this cycle.
In addition to these individual investors, a good number of crypto-related hedge funds were established and started doing business; and while a good number of these would prosper over this cycle, a large number of them were unable to survive the crash that followed shortly thereafter. Even with the crash, there were more than 150 that continued on to the next cycle at least.
It’s over this cycle that Bitcoin managed to substantially rise from the beginning of November 2015 when the second halving price cycle got started. It’s during this span of 8 months that this rally continued well ahead of the July 2016, when the halving would take place.
This same cycle and surge continued on for a span of 24 months, much akin to the previous cycle, until Bitcoin managed to reach its all time record high of more than $19,892 in December 2017 (Price Source: Coinbase)
The lion’s share of this appreciation, even with the rally before July 2016, came after the halving event. Ahead of this, Bitcoin only managed to reach $650, before managing to go parabolic to $19,000 and beyond.
Once again, Bitcoin’s valuation increased only threefold before the halving took place, with the majority being after.
As many of us know by now, this meteoric upward surge was followed swiftly by a year long recession for Bitcoin. This saw its price plummet by more than 80 percent, before hitting a stong lower support of $3,000. Over the next four months, Bitcoin’s price consolidated around the $3,000-$4,000 range.
The Institutional Cycle: The Third Halving Phase
Bitcoin’s price managed to bravely continue trading upwards, hitting its upper supports of $5,000 back in April 2019, and has since pushed beyond this to reach over $9,000 and peaks of over $10,000 in what can almost be described as the beginning of a brand new halving cycle.
One of the things that makes this (most recent) cycle so unique is the kind of relationship it has with institutional investors compared to previous ones. In prior investment cycles, not a single major name participated in them – until this one. Some of the big examples of this dramatic shift come from businesses like Fidelity, which will be coming out with its own crypto trading solution in the future.
JP Morgan, and its CEO, Jamie Dimon have also been subjected to a pretty interesting ‘about face’ on the prospect of involvement with cryptocurrencies. Dimon himself made sure that no-one was unsure of his position regarding Bitcoin in 2017-18, calling it a fraud on a number of occasions. Since then, JP Morgan has begun running tests of its own crypto known as JPM Coin
The likes of Facebook, Google and Twitter also having imposed bans on the advertisement of cryptocurrencies in 2017/18 have made pivots of their own. None more than Facebook which has been planning (and struggling) its own stablecoin solution – Libra – in conjunction with a substantial amount of globe-trotting institutions.
While the solutions brought forward by both JPM and Libra don’t directly support Bitcoin. They represent a change in the proverbial winds for investment for cryptocurrencies that were previously at the very edge of the investment fringe just years before.
With this new pool of institutional investors and regulators comes an increasing degree of skepticism when it comes to the wide array of projects, cryptos and businesses out there looking for investment. These same investors are likely taking time to consider whether they should be supporting/investing in a decentralized or distributed currency like Bitcoin, or submit the control of currency to major corporations and financial institutions.
The Mining Halving Cycles: The Shape of Halving Cycles
Here are some of the major findings that we’ve managed to see from the previous cycles.
First Halving: (28th November, 2012)
Price rally: Increased four-fold before halving before increasing in value by 350-400X
Rally Duration: 12 month rally before halving and increased valuations 12 months after (24 months)
Post Rally Decline: – Yes, Bitcoin declined by 0.83 times its value before accumulating at around 200-300 dollars for around 10 months afterwards.
Second Halving: (9th July, 2016)
Price Rally: Bitcoin managed to increase in value three-fold before the halving took place. After this, Bitcoin’s value increased by more than 90 times.
Rally Duration: Appreciation began roughly 9 months before the halving took place. Once the halving happened, price appreciation increased for 16 months after.
Post Rally Decline: – Yes, Bitcoin slumped over a span of 12 months, shrugging off 0.84 times its value before consolidating at a strong range of around 3 to 4,000 dollars; more than 10 times its previous accumulation/lower support threshold.
Third Halving: (Estimated to take place around 20th May, 2020)
While a certain amount of this remains theorizing, we are currently seeing an impressive rally over the course of 13 months; managing to push above its previous lower supports of 3-4,000, hitting upper supports of nearly $10,000.
There are some pretty interesting numbers and recurring patterns from the halving cycles that we’ve seen so far. But there’s one question that remains the most outstanding of them all. And that’s why the vast majority of the rally happened after the halving took place as opposed to before?
These occurances are not spontaneous; they’re well known and considered deeply by members of the Bitcoin community. As a result, markets are quick to anticipate the kind of impact that it will have on supply and demand. But with that said, you would think that Bitcoin and its associated markets could then consolidate long before the halving; rendering its impact a lot more muted.
One of the more obvious answers to the above-mentioned questions would, however, be that with a cut to block rewards, investors would see this as a critical buy time. With Bitcoin being injected into the ecosystem at a reduced pace, this could cause reactionary buying? But it’s worth digging into this a little bit more.
Supply and Miner Revenues
The price of any asset, regardless of what kind of market they’re situated in, will always inevitably balance out supply and demand after a while. As previously, and briefly discussed, one of the primary explanations for why Bitcoin’s halving results in a higher over time is the fact that it’s supply-side oriented, and hinges on miner activities.
These miners play a major role, on account of the Proof of Work consensus system that Bitcoin hinges on; confirming transactions within the network. Having successfully confirmed transactions, these miners are then rewarded with new minted Bitcoin for their efforts.
This effectively makes them marginal suppliers that often hold or sell off the newly minted Bitcoin that they earned, effectively adding it to its total circulating supply. With any halving that takes place, the amount of new Bitcoin that miners contribute to the economy at large diminishes. As a result, users within the community will demand a higher price for it.
This is the same kind of logic behind trading as a whole; if there’s a smaller pool of Bitcoin, buyers will shell out even more money.
One of the other components that comes into the equation of supply that isn’t the subject of much discussion. These same miners actually provide two kinds of revenue – the new bitcoin that they ‘mine’ along with the fees of any transactions that they confirm.
The latter is actually more interesting to discuss – especially considering the fact that once all 21 million Bitcoin have been mined and added into circulation, transaction fees will be the only source of revenue for these miners.
While these transaction fees originate from peer to peer transactions in the existing BTC supply, there’s really no difference in the perspective of miners as a source of revenue. Miners are just as likely to sell any Bitcoin that they obtain in order to cover the expenses they accrue over time, such as staffing (if they’re big enough), electricity, hardware, etc.
One of the equations that can help to get to the bottom of the matter of marginal supply is likely the following:
Marginal Supply = Miner Revenue = Bitcoin Mined + Transaction Fees
The Daily Amount of Bitcoin Mined
Before the first halving event, there was a daily mining volume of more than 7,500 Bitcoin being mined on a daily basis and added into the total circulating supply. Once the first halving occurred, this decreased to around 4,000 in the same duration. With the having of 2016, this same daily amount decreased to 1,900-2,000. With the next halving, this will depreciate to roughly 1,000 Bitcoin per day.
If we look at the same in terms of US Dollars, and we see a very different kind of pattern and picture. When the first halving took place, the price of Bitcoin was roughly $13, with the daily supply reduced to 4,000 BTC. In Dollars, this equated to a reduction in the supply worth $52,000.
When the second halving took place, the price of Bitcoin was $650 when it happened. Meaning that the supply fell by more than 2,000 BTC (1.3 million dollars).
So hypothetically, if Bitcoin’s price remains relatively static up to the beginning of the next halving, meaning that it hangs around the $10,000 mark. At that kind of price, the reduction in daily supply hits 1,000 BTC, which amounts to $10 million
With these kinds of numbers, that’s a reduced supply with a price tag of roughly $300 million. And over the span of a year, that’s more than 3.6 billion dollars.
Reduction in Bitcoin Liquidity With Halving
This overally drop in marginal supply has a knock on effect to the underlying liquidity. But how do you actually go about measure it? The best way is through an inflation rate for Bitcoin, which directly compares the newly included supply with the total circulating supply, but still doesn’t offer a meaningful metric.
This is mainly because a large section of the Bitcoin supply is not technically liquid – they have held in a number if investors wallets for months, even years.
One of the other kinds of metrics we could use is a comparison of the reduced liquidity due to any of these halvings with the daily exchange trading value. Sadly, the trading volume that is reported by cryptocurrency exchanges tend to fluctuate depending on the exchange you’re using as a reference point. Meaning that they’re not inherently reliable.
One of the studies Bitwise provided for the US Securities and Exchange Commission demonstrated that a staggering 95 percent of the trading volume on exchanges should be treaded as suspicious to a certain extent.
With reference to metrics from CoinMarketCap, more than 2 million Bitcoin-related trades on crypto exchanges take place on a daily basis. With the current block reward rates that miners enjoy, the equates to 2,000 BTC being added to the liquid supply of Bitcoin every day. Taking this to over spans of time – that’s 60,000 new Bitcoin entering into liquid supply monthly, and nearly three-quarters of a million every year.
What this also means is that the market has all the capability to absorb over 2.75 million BTC into its annual liquid supply. With the halving of these block rewards next year, and the reduction of this circulating supply to 1,000 BTC being mined daily, this would lower the supply to 2.365 million. Roughly, this equates to a 13 percent reduction in annual liquid supply.
Conversely speaking, if we are to regard the reports that 95 percent of reported trading volume is suspicious, then this actual volume would be a lot closer to 100,000. And with the next halving, this would cut down the annual supply from 830,000 to just about 465,000; meaning an annual reduction of 44 percent in the liquid supply.
Transaction Fees and its Impact on Marginal Supply
Let’s go onto talk about the second element of miner revenue. Ever since 2015, Bitcoin’s accompanying network has been responsible for the processing of more than 100,000 transactions on a daily basis. The network managed to hit an all time high of roughly 500,000 transactions back in December 2017. The transaction volume fell significantly after this peak was reached, before rising steadily once again over the course of both 2018 and 2019.
Bar the 12 month span between 2017 and 2018 when transaction fees exploded over this same time, the underlying chart demonstrtes the kind of daily transaction fees have stayed below 200 BTC fortunately. Over the course of 2019, daily transaction fees have averaged at around 70 Bitcoin.
We can theorize that transaction fees also represent a pretty strong correlation when compared to bitcoin’s price whenever it rallies – these transaction fees (when measured in BTC terms) have managed to increase with the price of Bitcoin.
When comparing the amount of Bitcoin mined along with the transaction fees allows us to get a better understanding of miner revenue, along with the daily marginal supply they introduce to the community.
Any new bitcoin that’s mined has been the primary source of revenue for miners historically speaking. Even now, transaction fees that come from an average transaction volume of 70 BTC per day are still virtual small potatoes compared to the 2,000 new Bitcoin that’s mined on a daily basis.
On the other hand, as we begin to see an upward trend in the number of transactions, and block rewards continue to undergo halving, only a few years separate the time when miners will come to think of these transaction fees as their prime source of revenue.
Price, Supply and Demand
We have already managed to dig into the field of supply to an extensive degree. Now we’ll go ahead and do the same with demand.
Bitcoin, as it’s commonly known as being, is the most popular iteration of a digital, decentralized, monetary network. Unlike any other kind of social network out there that operates with indirect sources of revenue (the most common of which being advertising) – Bitcoin actually has a direct relationship with its miners.
The number of users in the Bitcoin network can be calculated easily by looking at the total number being activated (which rose to more than 40 million with break-neck speed), with a further 8 million users being added in this part of 2019 alone. The network has exploded dramatically since it was first introduced.
According to Metcalfe’s law – the value of a network is actually proportional to the square of its nodes.
Considering the fact that there is a limited supply of these coins, it’s pretty straightforward to see that Bitcoin’s price will continue to rise with relativity to the growth of the network as a whole.
Any kind of asset that has a stable price clearly demonstates that it has utility as a medium of exchange and more. But with the increasing price of a scarce asset, we see a respective increase in investor interest in it as a store of value. And this is exactly what leads to demand for it exploding.
There has since been more evidence on the influence of demand on a price, with correlations being seen in a correlative fashion with increases to blockchain activity. Transaction activities on Bitcoin always undergo patterns of ebbing and flowing in correlation with price.
It’s worth noting that we are looking at the number of transactions, and not the underlying dollar value of these same transactions.
2020 Bitcoin Mining Halving Explanation Recap
So, let’s go ahead and use the kind of evidence that we’ve accrued so far in order to formulate some kind of explanation for these kinds of price cycles.
Considering the growing narrative of Bitcoin as some kind of Digital Gold has gained an increasing amount of momentum, the demand for Bitcoin has risen unsurprisingly. This is demonstrable from the increasing number of digital and physical wallets, transactions, searches as well as media coverage on a broader basis.
According to some of the halvings that we’ve seen from the Bitcoin community, these cycles have undergone the following phases.
- Pre-halving – The halving event results in an understandable reduction in the liquid supply of Bitcoin (this is still hard to measure due to the trading data being broadly unreliable). Bitcoin price ends up undergoing a sustained rally in anticipation of the halving event.
- After Halving – This increase in the price of Bitcoin attracts an increasing demand from investors of all kinds including VCs, institutional buyers, hedge funds, etc. This increased demand exceeds expectations, as the price continues to surge upwards after the halving takes place. This increase in demand comes from a rising price which was grossly underestimated in prior cycles.
- Pricing Bubble – This increase in prices fosters a broader Fear Of Missing Out (FOMO) among buyers and attracts a higher volume of speculation among investors. A bubble forms around the value as they hit record highs. These speculative prices cross the threshold between the stable and unsustainable, with the bubble inevitably bursting.
- The Crash – This price crash results in a respective reduction in investment demand, much in the same was rising prices lead to a respective increase in demand, with a number of investors leaving the pool.
- A New Base – Bitcoin manages to find a stable price point, consolidate and find equilibrium at the price of this marginal supply. It then forms a brand new base that is otherwise higher than the previous cycle base.
- And Back to Stage One
It remains important to clarify here that this kind of logic hinges on the overt demand that is conjured up by Bitcoin as a kind of Digital Gold in the mind of investors, as well as its already known position as the first crypto asset.
One of the points of contrast to consider is the function of Litecoin, which is a hard fork derivative of Bitcoin. Its own kind of halving is pretty interesting to keep an eye on as it lacks a generally strong narrative and demand, especially in comparison to Bitcoin. As a result of this, Litecoins cycles have not followed the same kind of pattern.
Markets are highly febrile, volatile and yet, highly intelligent things – they learn and evolve – with these two cycles, there are subtle differences between the two. The next halving cycle will be interesting to keep an eye on.
Since the dawn of time, money has been a means of exchanging items and goods of value for a standardized amount in which two or more individuals agree upon. And for the last two decades, digital ecommerce’s pipedream reality could phase and upgrade into a new existence of virtual commerce. With just one whitepaper, one piece of software and the world to use – in just one decade Bitcoin changed the game and will continue changing the monetary standard. Programmable money is the next wave in the fight for the future of finance.
This resourceful guide on Bitcoin was created to help you master the crypto ₿eginnings of bitcoin. From learning what bitcoin is and its econimically-valued cryptoasset-nature, to tips on buying bitcoin to how the price of bitcoin works, the goal if giving a non-gawdy genwuine guidepost of the gusto behind bitcoin’s glow was started here. Learning about the historical bitcoin price timeline of events and forecasting compounding catalysts of bitcoin’s growth were the cherries on top, as any and all bitcoin price predictions may be hard to fathom but the cryptocurrency phenomenon is amongst us all and the world is watching the ways of Bitcoin.
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I’m Aziz, a seasoned cryptocurrency trader who’s really passionate about 2 things; #1) the awesome-revolutionary blockchain technology underlying crypto and #2) helping make bitcoin great ‘again’!