One of the biggest cryptocurrency news last week was that Paul Tudor Jones, a billionaire hedge fund manager, became one of the first institutional investors to hold Bitcoin, which is currently the largest in terms of market capitalization. Cryptocurrencies can be used as a hedge against inflation caused by large-scale banknote printing.
Jones told the client that Bitcoin reminded him of gold in the late 1970s, when consumer prices began to derail. After adjusting for inflation, gold prices did not actually peak in 2011, but peaked in 1980.
Jones wrote: “The best profit-maximizing strategy is to have the fastest horse race.” “If I had to make a prediction, I think the best target is Bitcoin.”
By the way, the 65-year-old investment manager is still a “gold fan”. He predicts that the price of gold may rebound to $ 2,400 per ounce. “If we go back to the extreme level in 1980, it may rise to $ 6,700.
The third Bitcoin halving
Another big topic discussed was the bitcoin halving that happened last Monday. This is only the third halving of Bitcoin’s 11-year history, the first occurred in November 2012 and the second occurred in July 2016.
If you are not familiar with the term, “halving” is an artificial, pre-programmed programming method that can control the supply of Bitcoin.
Before halving, every time a powerful computer network solves a complex mathematical problem, crypto miners will receive 12.5 bitcoin rewards. But today the reward has been halved to 6.25 bitcoins.
The next halving (after 4 years) limits the reward to only 3.125 BTC, and so on, until all 21 million BTC are mined. According to the data of Blockchain.com, as of last Thursday, about 18.4 million bitcoins were in circulation, which means that only 2.6 million bitcoins are to be mined.
Also supply limited crypto assets
So what will happen now? To answer this question, we need to remember that Bitcoin is as helpful as any other asset because it can reflect the relationship between supply and demand.
West Texas Intermediate Crude Oil (WTI) crude oil reached US $ 140 per barrel in June 2008, when it was believed that oil extraction had peaked. But the US mining industry has changed the situation, allowing crude oil to be extracted from areas that were previously difficult to obtain. In 2014, with the increase in U.S. production, global oil prices plummeted, and WTI is now trading at a price slightly below $ 30 per barrel, which is about 80% lower than the record high.
The price of gold benefits from the fact that we are about to mine all the gold mines in the world, or at least gold mines that can be mined using current mining technology. In the absence of breakthroughs in similar mining technologies, producers are looking for fewer and fewer mineral output returns because they spend time, money, and energy mining metals underground.
Sounds familiar? Because Bitcoin prices follow the same trajectory.
In the months after the first halving and the second halving, the price of Bitcoin has skyrocketed because people have clearly realized that at some point in the near future, new Bitcoin issuance will cease. Time will tell whether the same thing will happen this time, but I am very optimistic.
Like oil in 1890?
We talked about the supply side, what about the demand side? If almost no one has any use or interest in crypto assets, then it has little value.
Conversely, the more people use something, the higher its value. In economics, this is called Metcalfe’s law.
Considering the oil of the 19th century, people have realized and used oil for centuries, but it was n’t until the advent of cars that the battle for “black gold” really started, which made early days like John D. Rockefeller The oil tycoon became very rich.
Similarly, Bitcoin and the entire cryptocurrency are no different. This is an emerging industry, but we see more and more users are looking for ways to enter the cryptocurrency, which increases the total value. According to data from Blockchain.com, as of May 2020, nearly 50 million unique cryptocurrency wallets have been created, an increase of 10 million from a year ago.
Earlier this week, Layer1 CEO Alex Leigl commented: “Our view that the current bitcoin is the oil of 1890 is correct.”
This metaphor is convincing. It not only shows that we are at the forefront of new things and bold innovations, but also means that we may have to go through many years of innovation to mature.