Last week I was honored to participate in the first Consensus cryptocurrency virtual conference, hosted by CoinDesk. In recent years, the annual gathering – attended by the world’s largest crypto and blockchain companies, experts, entrepreneurs and investors – took place in New York, but in an effort to curb the spread of the coronavirus, everything has been moved online.
I was impressed by CoinDesk’s ability to adapt to unforeseen circumstances, and I want to thank them for the opportunity to participate.
No doubt many were disappointed with the loss of the personal Consensus experience this year, but I think it could have turned out for the better. Attendees were able to listen to all free panels and seminars, and from the safety of their own homes. This possibly allowed speaker thoughts and ideas to reach even more crypto investors than it otherwise would. You can watch the replay by clicking here.
Paul Tudor Jones Adds Bitcoin to His Portfolio
One of the biggest revelations from last week is that billionaire hedge fund manager Paul Tudor Jones has become one of the first institutional investors to participate in bitcoin, the largest digital currency by market cap, as a hedge against inflation-induced inflation printing huge money.
Jones told clients that bitcoin reminded him of gold in the late 1970s when consumer prices started to fall off the rails. Adjusted for inflation, the price of gold peaked not in 2011, but in 1980.
“The best strategy to increase profits is to own the fastest horse,” Jones wrote. “If I am forced to anticipate, bitcoin will be my best.”
The 65-year-old silver controller remains a fan of gold, incidentally, he predicted the metal could rally to $ 2,400 per ounce and possibly $ 6,700 “if we went back to the extremes of 1980.”
Third Bitcoin Hedging happened last week
Another big topic of discussion was the bitcoin halving that happened last Monday. The first is only the third such halving in bitcoin’s 11-year history, the first taking place in November 2012, the second in July 2016.
In case you are unfamiliar with the term, “halving” is an artificial, pre-programmed means of controlling the supply of bitcoin. It “pumps the brakes” on issuing and circulating new units of the cryptocurrency.
Before halving, crypto miners were rewarded with 12.5 bitcoin each time their powerful network of computers solved a complex math problem. Today, though, that prize has been cut in half to 6.25 bitcoin.
The next halving will limit the prize to just 3.125 bitcoin, etc., until all 21 million bitcoins are mined. As of last Thursday, there were about 18.4 million bitcoin in circulation, according to Blockchain.com, meaning there are only 2.6 million left to earn.
Act Fast, Supply is Limited!
So what’s happening now? To answer that, I think it is useful to remember that bitcoin is like any other asset, in the sense that it responds to supply and demand dynamics.
West Texas Intermediate (WTI) crude hit $ 140 a barrel in June 2008 when oil exploration was thought to have peaked. But the U.S. fracking industry changed the game, allowing raw to be extracted from previously inaccessible areas. Global oil prices fell in 2014 as U.S. production increased, and today WTI is trading at just under $ 30 a barrel, about 80 percent off its record high.
Gold prices have benefited from the fact that we are close to depleting the world’s gold deposits, or at least those that can be developed in practice using current mining technology. Short of innovating in a similar “fracking” process, producers are looking at less and more reward in mineral output for the time, money and effort they spend digging the metal from the ground.
Sound familiar? It should, because bitcoin prices have followed the same path.
In the months following the first and second suspensions, bitcoin prices rose as it became very clear that new bitcoin announcements will end at some point in the near future. Time will tell if the same thing will happen this time, but I’m very bullish.
Just like Oil in 1890?
That’s just the supply side. What about the demand side? If many people have no use or interest in an asset, then it has little value.
Conversely, the more people use something, the greater its value overall. In economics, this is called the Metcalfe Law. Consider oil in the 19th century. Humans have been aware of, and indeed have used, petroleum for centuries, but the scramble for “black gold” didn’t come until the advent of the car, making some early oil barons like John D. Rockefeller extremely wealthy.
Again, bitcoin – and cryptocurrency as a whole – is no different. It’s a nascent industry, but we’re seeing more and more consumers find their way into digital currencies, which raises the total value. According to Blockchain.com data, just under 50 million unique crypto wallets were created in May 2020, a change from 10 million just a year earlier.
“We’re right where oil was in 1890,” said Alex Leigl, CEO of Tier1, during our panel discussion on Monday.
The analogy is compelling. It suggests that not only are we at the forefront of something new and bold, but that there may be many years of maturation and innovation ahead.
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