Crypto Week in Review: Will Rate Cuts, QE and the Halving Create the Perfect Storm for Bitcoin?
Bitcoin (BTC) is finally on an upward trend after hovering in the low $5,000 range for most of the week. Thursday, BTC surged above $6,000, and Friday morning hit a high of $6,906, ending the week up over 20%.
A look at Voyager customers’ trading habits over the last month found that despite immense volatility and sell-offs across global markets, they are buying 2.6x more than they are selling.
Top gainers of the week:
Enjin Coin (ENJ) +55.5%
Dash (DASH) +52.3%
BitcoinSV (BSV) +48.5%
KuCoin Shares (KCS) +38.3%
Zcash (ZEC) +32.1%
Rate cuts, QE and Bitcoin
After a brutal week, the Federal Reserve took a series of drastic measures to try and stabilize the U.S. economy.
So far, it was announced that;
- Interest rates will be cut to 0% for the first time since the 2008 financial crisis.
- As part of a $700 billion quantitative easing program, they will buy $500 billion in treasuries and $200 billion in mortgage-backed securities. As of Friday, they will be expanding their asset purchases to include municipal bonds.
- Thousands of banks’ reserve requirements will be cut to zero, meaning banks do not have to store any money with the Fed.
- The U.S. has entered into an enhanced dollar swap agreement with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank to increase global liquidity.
At the same time, the Government has laid out a nearly $1 trillion relief plan that will include monetary support to all Americans and small businesses, loan forgiveness, and emergency aid packages to slow the spread of the Coronavirus.
To cover the cost of these life-saving efforts, the U.S. will, of course, need to create more dollars. Although the U.S. Dollar has held strong in this economic downturn, the overprinting of dollars will likely lead to increased inflation and, subsequently, a decrease in the value of each dollar. As this situation unfolds, people may look to hedge against inflation with scarce assets like Gold, and you guessed it, Bitcoin.
Unlike fiat currencies, Bitcoin cannot be hyperinflated. Its blockchain is coded so that there will never be more than 21 million Bitcoin in existence, and there’s roughly only 2.8 million left to mine. The timing is also crucial because, in the next 50 days, the third Bitcoin halving is set to occur. At this time, the mining reward for a Bitcoin will be cut in half, ensuring scarcity and driving its inflation rate below that of the U.S. dollar.
The Business of Mining
With Bitcoin’s recent price drop, miners are at risk of being unprofitable. According to a new report from TradeBlock, the average cost to mine a Bitcoin today is $6,851, and after the halving, it could jump to $12,525.
At Bitcoin’s current price, most miners would not see any immediate return for cracking the leading cryptocurrency’s code, which means mining businesses will need to find ways to cut costs or risk going out of business.
Coindesk estimates that more than $500 million has been poured into making new, highly efficient machines that can churn out more Bitcoin for less. But, data from mining pool Poolin suggests that even the most cost-effective equipment is currently generating daily profits at a gross margin below 50 percent.
With the halving approaching, there may be a shortage of miners, making Bitcoin even harder to come by.
Get ready, the perfect storm for Bitcoin may be brewing.
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