Between the bull market and the corporate bitcoin standard
Tags: Bitcoin, Blockchain, Cryptocurrency, Btc, Crypto

2020 was a turbulent year for Bitcoin as well. Corona crash, halving, and the institutional run on cryptocurrency are just three of the keywords that Bitcoiners have been driving this year. We take a look at the most burning topics of cryptocurrency №1 and realize that a paradigm shift in the financial system seems inevitable.

Quarter 1: Like the phoenix from the ashes

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

In fact, BTC recovered pretty soon and was trading at USD 6,400 on March 31 of this year, a level comparable to before the crash.

If even a global pandemic can’t bring cryptocurrency to its knees, what then? The tones from the margin are accordingly bullish.

It is not surprising, however, that financial market crashes such as the Corona crash in March of this year also drag other, otherwise less correlated asset classes into the downward spiral. After all, sales force leveraged traders to make so-called margin calls, i.e., additional capital in order to be able to maintain positions. But this requires liquidity that comes from all kinds of assets — including BTC.

Market observers had meanwhile seen it as a sign of resilience that the cryptocurrency had recovered almost completely after only two months.

Hodler hold the base

Thanks to the rapid recovery according to data from unchained capital, above all Hodlers, so-called “strong hands.” Most of the volatility came from UTXOs, who were six months or younger. In other words: Long-established Bitcoiners have not 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 has shown that central banks are only too willing to turn on the money. And with that, COVID laid the foundation for the race of narrative: quantitative easing (Fed, ECB, and Co.) versus quantitative tightening (BTC).

2nd quarter: Halving heralds a new Bitcoin era

Bitcoin halving on May 11th was the dominant topic 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 up to the year 2140. But instead of bringing fresh bitcoins into the system with a steady inflation rate, Satoshi has opted for an increasingly deflationary issue of the coins. Approximately every four years (after 210,000 blocks mined), the number of coins miners receive for successfully propagating new blocks is halved. That is, Bitcoin’s inflation rate is getting lower and lower.

On May 11, 2020, the time had come: at 9:23 p.m. our time, AntPool Block found 630,000 and for the first time only received 6.25 BTC instead of 12.5 BTC as a reward.

Before that, f2pool had provided block 629,999, i.e., 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 drops from 3.57 percent to just 1.7 percent. With every halving, the scarcity of the cryptocurrency increases again — a supply shock to which the community also ties its bullish price forecasts. The scene also sees a harbinger of an upcoming bull market in the current Halving.

Halvings and the bull market

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

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

If you consider that 88 percent of all BTC are already in circulation and the increasing shortage meets increasing demand, such bullish forecasts should not be carelessly banished into the realm of fantasy.

Great strides

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

Furthermore, the adoption curve continues to rise rapidly. In May, the number of addresses reached an all-time high of at least 100,000 Sats.

“The number of addresses holding more than 100k sats (0.001 BTC) can be seen as an indicator of the spread. On May 1st, the network hit an ATH with over 16 million addresses holding at least 100k sats,” Nuzzi wrote on Twitter.

3rd quarter: The institutions are there

The Bitcoin Narrative changes every year; However, the predominant narrative in 2020 was clearly the store of value. If you look at the expansion of the US Federal Reserve’s total assets, this is not surprising either. After all, the American central bank doubled its balance sheet compared to last year. In other words: Due to the Corona crisis, the Fed has printed as much money within a year as in the history of its existence combined. Quantitative easing, i.e., the flooding of the capital markets with money, is, however, a little tried and tested means of monetary policy, and the consequences are unpredictable.

It stands to reason, however, that the sheer amount of money will lead to inflation in the medium term. The fact that this effect has not yet materialized is mainly due to the historically low velocity of money. But if the economy recovers and liquidity seep through to non-banks as well, we could very well face galloping inflation.

This scenario is a headache for more and more hedge funds and macro investors. The ultra-loose monetary policy is pushing stock indices back to all-time highs. However, the bubble character of the capital markets can no longer be denied. And so, these days, investors are looking for protection against the devaluation of the US dollar. While gold has played this role as a crisis asset for thousands of years, there is now a new elephant in the room: Bitcoin.

2020: The year of the Corporate Bitcoin Standard

Hedge fund “legend” Paul Tudor Jones caused a sensation. As early as May, the philanthropist and billionaire published his view of things on the global economy in a letter to investors. Under the title “The Great Monetary Inflation,” Jones shows how the world economy is slowly sinking into debt. Printing fresh money is the only way out to postpone the inevitable crisis. But it could still come to a bang, and then crisis-proof assets are needed.

“I also made the case for Bitcoin, the quintessential scarcity. It is literally the only asset in the world that has a known maximum offer limit. Due to its design, the total amount of bitcoins cannot exceed 21 million,” Paul Tudor Jones.

MicroStrategy goes all in

The bombshell this year was less the financial sector than a company from the real economy. A previously solidly managed but rather inconspicuous Nasdaq company with a mediocre market capitalization of 2.7 billion US dollars. Since the beginning of August, however, MicroStrategy and its CEO Michael Saylor have been an integral part of the Bitcoin scene.

Finally, on August 7th of this year, the company announced that it would convert up to $ 250 million from its reserves into Bitcoin.

You sit on a “melting block of ice,” as Saylor described his US dollar reserves, and have been looking for some time for a reserve asset that deserves the name and does not constantly lose value. Saylor and the like found what they were looking for in Bitcoin. Since then, the Supervisory Board’s willingness to accumulate has no longer recognized any limits. Not only has the company already significantly increased its original USD 250 million bitcoin position to currently USD 475 million (the company now holds around 41,000 BTC). MicroStrategy even announced on December 7th that it would buy more coins on credit. With specially issued interest-bearing bonds, the company wants to raise capital for another USD 400 million coups.

Gigi: Fiat currencies cannot hold their value

The business intelligence firm is living proof that the bitcoin institutional investor tale is no fairy tale. Courageous business leaders have long recognized that Bitcoin was here to stay and that it can be exorbitantly worthwhile to be among the early adopters. It should come as a little surprise to market watchers that MicroStrategy stock (MSTR) has risen a staggering 120 percent since the BTC purchases were announced.

For me 2020 is clearly the year of the Corporate Bitcoin Standard. The last few years have been shaped by individuals who have been crazy enough to adapt the Bitcoin standard for themselves. Bitcoin is no longer a toy. Saylor and Co. have understood that fiat currencies cannot hold any value and are switching to Bitcoin as a reserve asset.

Game theory is a powerful tool. Because of course the success of the MSTR share does not remain hidden from the competition and should soon generate imitators. Since Bitcoin is an asset limited to 21 million units, early adoption amounts to a kind of land grab. In any case, these BTC are no longer available to the market, which leads us to another narrative of this year: the bitcoin shortage.

Quarter 4: Are we running out of Bitcoin?

Institutions are just one of the many classes of investors who have seen the signs of the times. Typically the year of the halving is not the year of the bull run, but rather a year of consolidation. At least that is how it was during the previous cycles.

After all, the reduced supply must first seep into the market and miners must initially liquidate more fresh BTC stocks to cover ongoing costs. Historically, however, Halving years were so-called accumulation years — and this seems to be confirmed in the fourth quarter of 2020 as well. More and more institutions are bringing their sheep into the dry and buying Bitcoin cheerfully. The 40,000 BTC from MicroStrategy alone corresponds to the total amount of newly mined BTC from 45 days.

Depending on how many BTC you consider lost, the Bitcoin hedge fund Grayscale also holds 2–3 percent of the total amount in circulation.

Gigi: “The Bitcoin Standard is already there, it just isn’t evenly distributed yet.”

Private investors also pile satoshis

Nevertheless, 2020 gave reason to assume that BTC is always distributed equally.

Because of MicroStrategy (40,000 BTC), Grayscale (520,000 BTC), and Block.one (140,000 BTC) is leading a race for valuable sats. The “stacking sat movement” is now also spreading to the retail sector.

It can be seen that retail investors are increasingly interested in ever-decreasing Bitcoin stocks on Exchange addresses. In other words: Since the beginning of the year, retail investors have been increasingly withdrawing their Sats to self-managed wallets, thus withdrawing the supply from the market. The expected increase in demand meets an increasingly scarce supply. Is this the perfect storm for the Bitcoin bull run?

PayPal integrates Bitcoin

BTC’s PayPal integration also made headlines. Since November 12 of this year, all US users can buy, sell and even pay with Bitcoin from 2021.

The move was one of the great legitimation boosts for cryptocurrency in general and Bitcoin in particular. After all, PayPal is one of the largest payment services worldwide, with 277 million users and 26 million merchants.

Not surprisingly: CEO Daniel Schulman is also a Bitcoin bull. A switch to digital forms of money is “inevitable,” said the CEO.

Bitcoiners are still skeptical about the PayPal move. After all, the payment service provider does not yet allow you to manage the coins you have bought yourself. In other words: customers can keep their BTC on their PayPal account, but they cannot withdraw it to their own wallet. One is inclined to refer to the bitcoin bon mot: “ Not your keys; not your coins.”

Conclusion

2020 was a turbulent year in every respect. That BTC as well as performs during the uncertainties of a global pandemic, as market watchers are accustomed is a strong proof of the antifragility of cryptocurrency.

Even more: the signs are more bullish than ever. After all, Bitcoin, as a limited asset with absolute scarcity, is the diametrical counter-draft to quantitative easing and unlimited fiat money. While the central banks have launched a race for the loosest monetary policy, BTC is continuing its journey as a hard money alternative to central bank money. The first big players like MicroStrategy, Square, and PayPal recognized this long ago and should benefit above average.

On the other hand, a race for digital gold is looming, which could lead to a liquidity crisis long or short. Gigi is also looking ahead positively to the coming year, the year of which is significant for Bitcoiners:

I look forward to the next year with great anticipation: 20-twenty-one, the year of the Bitcoin. […]. The bitcoinization of the world is to the fullest, just not everyone is aware of it.

It truly is the perfect storm for Bitcoin.

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