Bitcoin as inflation hedge? Billionaires weigh in as Block 630,000 approaches
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While global stocks are coming off a strong rally (in monthly terms) in April, so too are the major cryptocurrencies.
Prices for Bitcoin (BTC) rose by almost 40 per cent in that time, from around $US6,200 ($9,540) to $US8,600 ($13,230).
And with the next halving event scheduled to take place this week, prices briefly pushed above $US10,000 on the weekend.
And when the 630,000th block is mined, the reward for successfully mining new blocks will halve from 12.5 BTC to 6.25 BTC.
Just as quickly though, it slumped as low as $US8,100 ($12,460) on Sunday morning (Australian EST) before rallying slightly.
With a number of talking points surrounding the current price action for crypto, Stockhead caught up with Caroline Bowler, CEO of Australia-based crypto exchange BTC Markets, to get some extra insights on the market.
“I think the halving creates momentum and excitement in and of itself. That filters through key benchmarks which creates ripple effects across markets,” Bowler said.
“An example is the recent shift in the scale of trading on futures; on CME they’ve seen the largest volumes ever. So there’s a lot of different factors coming into play.”
According to The Block, last week’s CFTC Commitment of Traders report showed large open-interest positions on Bitcoin futures — defined as a futures position of at least 25 BTC — climbed to a new record high of 66.
The increase in futures positions followed a widely-circulated investor letter penned by US billionaire Paul Tudor Jones.
Jones argued that the unprecedented stimulus measures enacted in the wake of COVID-19 would serve to ignite inflationary forces that had long laid dormant.
And in a high-inflation environment, Jones named Bitcoin as one of nine assets that would act as an effective hedge.
Advocacy for the value proposition of cryptocurrency from another well-known billionaire served to increase the hype heading into the weekend push above $US10,000.
But just as quickly, prices slumped by 15 per cent on Sunday morning (Australian EST), from around $US9,500 to $US8,100, in the space of only 10 minutes.
The move triggered a liquidation of more than $US200m in leveraged long positions on BitMEX, the Seychelles-based exchange that facilitates crypto trading positions using up to 100x leverage.
For Bowler, the combination of all that activity is part of what generates ongoing interest in the space.
“Keep in mind this is still a new market, it’s been around for about 10 years and volatility has always been a factor,” she said.
“This is what happens, if you look at activity around previous halving events there’s excitement in the market, volume picks up and prices increase.”
And despite the weekend selloff, Bowler said data from BTC Markets showed the same patterns were being followed by Australian traders.
“We’ve had strong 24-hour volume, and there isn’t a rush to sell. If you look at the candles there’s just as much buying and selling. And if you look at our order book now, there’s proportionately more buy orders than sell orders,” she said.
“Anecdotally, we’ve seen clients who haven’t been active on the exchange for a period of time, who are saying ‘we’re coming back because we know the halving is coming, and we want to be ready and in position to trade when it comes in’.”