Bitcoin Rises on Basic Supply Economics, Not Just Facebook Libra Waves

Bitcoin Rises on Basic Supply Economics, Not Just Facebook Libra Waves

People, Bitcoin is on a roll – now excess of $11,500 per unit. TC Daily summarized excellently thus:

The price of Bitcoin has surged to more than $11,000 for the first time in 15 months. The cryptocurrency gained more than $2,000 over the past week; up from $8,500 at the start of June 2019. Coinbase chart shows the currency traded around $11,100 on Monday. Although the digital currency has been gaining value in recent months compared to last year, the latest bull run is buoyed by news of Facebook’s new digital currency, Libra. Libra has been dubbed a game changer for the finance world, and its announcement has made cryptocurrency traders optimistic about Bitcoin’s future. (TC Daily newsletter)

Sure, there is hard truth there that Facebook Libra has brought legitimacy to the whole construct of cryptocurrency and blockchain even though Libra is not necessarily a Bitcoin ‘competitor”, rather Naira, US dollars and other fiat currencies.

But if you really want to know why Bitcoin is rallying, look at economics. By 2020, there will be the great “halvening”  Simply, the supply of Bitcoin will drop by a factor of two. When that happens in any instrument, price typically rises. Under this construct, Bitcoin is viewed from the angle of an investment asset, not as a means of exchange. In other words, you buy and hold for it to appreciate in value before you sell.

  • Bitcoin traders are anticipating an event known as “the halvening,” where the rewards to so-called bitcoin miners are cut in half.

  • Currently, the number of bitcoins rewarded to miners stands at 12.5. By May 2020, the reward will be cut in half to 6.25 bitcoins.

  • Traders see the potential for upside with such an event, as it causes supply to dampen, bumping up the price of the digital asset

This deviates completely from Facebook Libra which does not have that characteristic as Libra does, nor appreciate in value, since it is pegged to a basket of fiat currencies which are largely stable. So, linking Bitcoin rise to Libra, while evident, is largely technically uncorrelated when you consider that Libra and Bitcoin do not belong to the same asset class. Bitcoin is like your IBM stock while Libra is your US Dollar: within a short time window, that dollar retains its face value while the stock can rise and fall.

Bitcoin price today

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