Between bull market and corporate bitcoin standard

2020 was also a turbulent year for Bitcoin. Corona crash, halving, and the institutional run on the cryptocurrency are just three keywords that have been driving Bitcoiners this year. We take a look at the #1 cryptocurrency’s most burning issues and find that a paradigm shift in the financial system seems inevitable.

Quarter 1: Like the phoenix from the ashes.

Out of a bumpy bear year in 2019, the cryptocurrency price at least hoisted itself above the psychologically important USD 10,000 mark within the first few weeks in 2020. Then it went sideways for a while until the March crash put an abrupt end to the dreams of a carefree Bitcoin year. Within a week, the value of the No. 1 cryptocurrency fell by a staggering 45 percent. This event was an unprecedented damper even in the history of the volatile currency. Bitcoin then marked its low for the year at USD 5,032.

In fact, BTC recovered quite soon and was trading at USD 6,400 on March 31 of this year, a level comparable to that before the crash.
If even a global pandemic can’t bring the cryptocurrency to its knees, what can? Accordingly, the tones from the sidelines are bullish.

It is not surprising, however, that financial market crashes such as the Corona crash in March of this year also drag other asset classes with little correlation into the downward spiral. After all, sell-offs force leveraged traders to make margin calls, i.e. to inject additional capital to maintain positions. But this requires liquidity, which comes from all kinds of assets – including BTC.

Market observers, meanwhile, had seen it more as a sign of resilience that the cryptocurrency had almost fully recovered after just two months.

Hodler hold the base

According to data from unchained capital, the rapid recovery is primarily thanks to hodlers, so-called „strong hands“. According to the data, most of the volatility came from UTXOs that were six months old or younger. In other words, long-established Bitcoiners didn’t let the COVID crash get them down.

With the turbulence on the stock market came the reactions of the central banks. After all, the Corona crisis showed that central banks are all too willing to turn on the money tap. And with that, COVID laid the foundation for the race of the narratives: Quantitative Easing (Fed, ECB and Co.) versus Quantitative Tightening (BTC).

Q2: Halving heralds new Bitcoin era.

Bitcoin halving on May 11 was the dominant theme of the second quarter of 2020. With the genesis of the cryptocurrency, the supply schedule, i.e. the algorithmically determined issuance of new coins, was predetermined until the year 2140. However, instead of bringing fresh Bitcoins into the system at a steady inflation rate, Satoshi has opted for an increasingly deflationary issuance of Coins. Approximately every four years (after 210,000 blocks have been mined), the number of coins miners receive for successfully propagating new blocks is cut in half. In other words, Bitcoin Formula inflation rate is getting lower and lower.

On May 11, 2020, the time had come: at 21:23 our time, AntPool found block 630,000, collecting only 6.25 BTC instead of 12.5 BTC as a reward for the first time.

Prior to that, f2pool had tagged block 629,999, the last block of the third halving epoch, with a message that brought back memories of the Genesis block.

With the third halving, the inflation rate decreases from 3.57 percent to only 1.7 percent. With each halving, the scarcity of the cryptocurrency increases once again – a supply shock to which the community also ties its bullish price forecasts. The scene also sees the current halving as a harbinger of a coming bull market.

Halvings and the bull market

It is well known that the last two halvings have led to exorbitant bull markets. In the previous cycle, for example, the price of the No. 1 cryptocurrency rose from USD 205 (January 2015) to over USD 19,000 (December 2017) in less than four years. That represents a price gain of about 9,000 percent. Extrapolating this growth to the current cycle, Bitcoin should be worth 279,000 USD by the end of 2021.

That may sound exorbitant. However, PlanB has calculated almost exactly this sum as a possible price target for the bull market in the latest version of its stock-to-flow model. If BTC continues to behave as predicted by the S2F model, BTC will reach a value of $288,000 before the end of next year.

Considering that 88 percent of all BTC is already in circulation and the increasing shortage is meeting rising demand, such bullish predictions should not be lightly relegated to the realm of fantasy.

Bitcoins Inflation vs Time. As of press time, 88 percent of all BTC have already been mined. Source: https://www.bitcoinblockhalf.com

Big steps taken

BTC has also come a long way in its third halving epoch. As CoinMetrics‘ Lucas Nuzzi writes on Twitter, the network has processed a total of $2.3 trillion in value over the past four years. This puts Bitcoin in the same league as Visa, MasterCard and Co.

Furthermore, the adoption curve continues to rise rapidly. Already in May, the number of addresses holding at least 100,000 sats reached an all-time high for the time being.

„The number of addresses holding more than 100k sats (0.001 BTC) can be considered an indicator of proliferation. On May 1, the network reached an ATH with over 16 million addresses holding at least 100k sats,“ Nuzzi aut Twitter wrote.

Q3: The institutions are here

Bitcoin narratives change every year; however, the predominant one in 2020 was clearly the store of value narrative. Looking at the expansion of the Fed’s balance sheet, it’s also not surprising. After all, the U.S. central bank doubled its balance sheet year-over-year. In other words, as a result of the Corona crisis, the Fed has printed as much money in one year as in the history of its existence combined. However, quantitative easing, i.e. flooding the capital markets with money, is an untested means of monetary policy, and the consequences are unpredictable.

It is obvious, however, that the sheer volume of money will lead to inflation in the medium term. The fact that this effect has not materialized to date is primarily due to the historically low velocity of money in circulation. However, if the economy recovers and liquidity also trickles through to non-banks, we could well see galloping inflation.