Bitcoin Surges on Tensions
Bitcoin has surged past US$11,000 for first time since March 2018 on the back of geopolitical tensions, and the upcoming “halving” of the Bitcoin mining reward. After jumping 10% on the weekend analysts are noting the emerging optimism on cryptocurrencies after Facebook announced the ‘Libra’ digital coin.
The growing optimism among traders is that Facebook’s adoption of crypto is part of a wider trend among multinationals adopting digital currencies. However, the more fundamental underlying reason to why bitcoin is showing a re-emergence is the currency’s next ‘halving’ occuring in May 2020, which will constrict supply.
Bitcoins assigned value is speculative however, constricted supply of the currency which is fundamental at deriving a price point is generated through a computer which executes bitcoin-mining. Mining, in the bitcoin sense, is when computers validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. As such, a computer which solves the puzzle and clears the transaction is rewarded – through bitcoins. The technology is designed to half the value of the reward every four years to limit inflation – currently the reward is 12.5 BTC however, with the halving to occur it will subsequently become 6.5 BTC.
While traders have cited the halving of the mining reward being priced into Bitcoin, others have blamed geopolitical tensions for the renewed interest in the cryptocurrency. Tensions between the United States and Iran, as well as its’ ongoing trade war with China have been causation for the run on the speculative safe-haven currency.
Recent focus has been drawn to Facebook as developments regarding its newly announced cryptocurrency, Libra, have stimulated regulators and investors alike. Regulators are approaching the new technology with notable caution fearing the implications of a monetary revolution. The innovation is being driven by the United States biggest technology companies – Visa, Mastercard, PayPal, Uber and eBay.
The Bank of England governor Mark Carney said that he would approach Libra “with an open mind but not an open door”. Whereas domestically, Philip Lowe the Reserve Bank governor, said that there would be “a lot of regulatory issues that need to be addressed”, whilst also stating that Australian consumers already have access to payments in real-time. Either way it is clear that the emergence of cryptocurrencies continues to become more prevalent, breaking down traditional regulatory frameworks and keeping regulators on edge.
“We’re seeing technology companies beginning to function as banks, and banks as technology companies” says Medcraft, now director of financial affairs at the OECD.
Analysing the Bitcoin-US Dollar pair, Bitcoin is currently in the middle of sustained upward momentum, having enjoyed 13 bullish days out of the last 14. The currency has recently broken the US$11,200 mark, a key resistance level, after testing the level for the third time in the last three days.
At this point, Bitcoin is the world’s largest digital currency by market value and has climbed more than 250% from its local low of US$3,122.34 reached in December. John Todaro, director of digital currency research for TradeBlock, commented upon the bullish news affecting the asset class, albeit not peak 2017 levels, “I still think retail investors are primarily on the side lines, as Google search trends for bitcoin still remain well below the peak levels seen in 2017”, “This will likely change in the next 3-6 months”.
By Sydney Robertson
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