Monetary stars align for bitcoin Page 3
● It has been a landmark week for bitcoin, the cryptocurrency better known for wild speculation than as a transactional vehicle.
It joined the rest of the world’s assets in plunging in value during a mid-March stock market crash over the Covid-19 crisis. Since then it has been one of the best-performing asset classes in the world.
This week, the investment case was bolstered by three events. First, legendary hedge fund investor Paul Tudor Jones, founder of Tudor Investment Corp, revealed that he had placed between 1% and 2% of assets under his management in bitcoin.
The announcement, in an interview on CNBC, came a few days after he sent out a monthly newsletter to investors, in which he declared: “At the end of the day, the best profit-maximising strategy is to own the fastest horse … If I am forced to forecast, my bet is it will be bitcoin.”
The CNBC interview came the day before a historic event for bitcoin, known as “halving”: when the rate at which new bitcoins enter circulation is halved. This typically takes place every four years, and the latest halving took place on Monday night.
Previous halvings have led, over the subsequent 12 months, to stratospheric increases in the bitcoin price. In the years after the 2012 halving it jumped from $10 to $704.
Most notably, a year after the 2016 halving, bitcoin began its spectacular climb to the $20,000 mark, followed by an equally spectacular crash, with it eventually entering a trading band between $4,000 and $8,000 per coin. Last week it reached the $10,000 mark before falling back again, and approached that level again after the latest halving on Monday.
“That initial reaction in March was one of fear from all investors,” says Marius Reitz, general manager for Africa of Luno, a South Africa-founded cryptocurrency platform that announced this week it had notched up its 4-millionth customer.
“People had to exit their investments to pay for other more important expenses. But since then, we’ve seen traditional investors entering the cryptocurrency market for the first time in search of yields.”
Global attention
Luno is the largest cryptocurrency platform in emerging markets, and attracted global attention when it attained the second-biggest increase of website traffic across all exchanges in April, ahead of market leaders such as Binance and Coinbase. Luno is now headquartered in London, but with offices in Cape Town and Singapore.
The appeal of bitcoin right now, Reitz says, is that the Covid-19 crisis may reduce the purchasing power of fiat currency as a result of quantitative easing programmes from most central banks.
Bitcoin, in comparison, is a less inflationary currency in the sense that its rate of issue declines over time. Bitcoins are produced through “mining” — a process requiring powerful computers to solve complex computational problems, which allows validated “blocks” of transactional record to be added to a public digital ledger.
“The halving on Monday evening meant that the number of bitcoin awarded to miners for validating a block of transactions halved from 12.5 bitcoin to 6.2 bitcoin,” says Reitz. “The result of that is that only 900 new bitcoin will be produced per day, as opposed to 1,800 before Monday, so it will be twice as hard. Over time, less and less bitcoin gets introduced into the network, until we reach the maximum 21-million bitcoin, and that is forecast only by the year 2140. Currently, there are 18.3-million bitcoins in circulation and that’s roughly 87% of the total possible supply.”
This constrained supply does not save it from volatility, however.
Luno had its monthly transaction value double from February to March, before settling to slightly below the March level during April and the first half of May.
“The number of bitcoin addresses globally holding more than 0.1 bitcoin — that’s more than $1,000 — increased to over 3-million recently. That showed there are a lot of new investors in bitcoin. The market is still extremely volatile, and we are advising that people should act with caution,” says Reitz.
Meanwhile, the prospects for cryptocurrency gaining more respectability as an asset class increased in SA last month when a position paper on crypto assets was released by the Intergovernmental Fintech Working Group, made up of financial services and banking regulators, including the Reserve Bank and South African Revenue Service.
“The position paper suggests that crypto assets be accommodated within the existing South African regulatory framework, whilst ensuring that sufficient safeguards be implemented,” wrote law firm Webber Wentzel.