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Given the decline in cryptocurrency markets over the past week, it might be a good time to put things in perspective about the recent slump. While the usual advice about “zooming out” during a bear season is little convenience, it can be comforting to know that many of the Bitcoin metrics are still on the way up.
Here we take a look at the relative size of the crypto-economy, some technical historical patterns, rising institutional investor interest, and demographic shifts that, despite the occasional slump, point to a bright future for Bitcoin.
The imminent halving
In May 2020 the next Bitcoin halving will take place, lowering the mining rewards from 12.5 BTC per ten-minute block to 6.25. Historically, Bitcoin rose after halving in 2012 and 2016, along with temporary spikes in the lead up to events.
A fundamental effect of halving is to reduce the supply of new coins. If demand remains unchanged, the Bitcoin price is likely to rise.
“Should” never means “will”, but in May 2020 it will be more difficult to mine Bitcoins. The graphic below shows no significant effects on the price, as a large part of the halving knowledge is already baked in. But every time the supply of a coveted asset is curtailed, prices can rise to reflect a new equilibrium.
It can’t happen overnight. But a longer-term perspective is often appropriate.
Bitcoin price history, on a logarithmic scale. Via Insider-Pro.
The dot-com bubble vs. Bitcoin pop
It’s interesting to compare the tech bubble and Bitcoin. If we think of December 2017 – January 2018 as the peak of the largest Bitcoin bubble, it pales in comparison to the highs and lows of the dot-com bubble in 2001.
On March 10, 2000, NASDAQ hit an all-time high of around $ 7 trillion. Crypto’s current market cap is around $ 213 billion, with Bitcoin accounting for just over half of that.
Courtesy of Internet History Podcast, which depicts the boom and bust of dotcom
The dot-com bubble was also a very American phenomenon as Bitcoin hit the shores of many jurisdictions. The natural conclusion is that when crypto is or has been in a bubble, it has been relatively weak.
There are a few other numbers worth mentioning to illustrate just how early bitcoin and crypto are in their evolution. The US stock market was worth by the time the Bitcoin euphoria burst in January 2018 around $ 30 trillion. Gold is worth roughly $ 8 trillion. Forex trading has a daily value over $ 5 trillion.
Crypto’s $ 213 billion market cap is nowhere near these kinds of numbers. Assuming that Bitcoin could one day act as an alternative to gold, as proponents have long argued, the asset still has plenty of room to grow.
Institutional investors are in a crypto arms race
Whether we see the gradual growth in capital inflows in Funds from Grayscale, the analysis company The TIE adds institutional clients Like hedge funds for its customer base, Big Money is increasingly interested in cryptocurrencies as an investment vehicle. Even Goldman Sachs considered Opening a bitcoin trading desk (although the company denies it).
The low early interest in Bakkt’s start Bitcoin enthusiasm subdued, but a physically settled futures market is a big step forward for the industry. With all the institutional interest in crypto, however, the most seismic shift in the industry could be due to demographic changes.
Millennials … From vegan tacos to Bitcoin
One at the end of 2017 opinion poll Blockchain Capital Commission found that millennials prefer cryptocurrencies over the stock market. 27 percent of millennials surveyed would prefer to receive $ 1,000 in Bitcoin versus the same value in stocks. Thirty percent preferred Bitcoin to government bonds, 22 percent preferred Bitcoin to real estate, and 19 percent to gold.
These numbers speak for themselves. While 42 percent of millennials said they were at least familiar with Bitcoin, it was only 15 percent of those over 65. As millennials become a more important part of the economy, they will likely make cryptocurrencies mainstream.
And since the infrastructure around cryptocurrencies makes it easier to access them, this demographic change could lead to a significant increase in the use of cryptocurrencies in the next ten to twenty years.
While the recent Bitcoin dip wasn’t pleasant, it needs to be put into perspective in relation to an asset class that still appears to be on the upswing.
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