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Bitcoins price rallies despite COVID Scare across the globe

What are Bitcoins?

Alexander Hamilton’s name may have been lost in the annuls of history, but he was the one responsible for the modern centralised banking system. An establishment which has survived for three centuries, its position unchallenged. That is until, in 2008 a paper was published under the pseudonym of Satoshi Nakamoto which would give the world a method of transaction that didn’t require dependence on any centralised institution, it was a distributed electronic ledger. Thus, birthing blockchain technology.

The Oddities of The Price Surge.

While the entire capital market is plunged in a state of despair following the COVID response to that point that central banks have rolled out negative interest rates to encourage spending and investment. Bitcoin on May 8th, 2020 reached a staggering

Bitcoin Price Surge Data Chart
source – Coindesk

market price of $ 10,000+ per unit and now dropped below $ 9,000 since (as of 19th May, 2020).

This phenomenon has been widely linked to distrust in centralised banking system which might be the case, but this is not the first time we have seen an untimely spike in Bitcoins’ market prices.

Scarcity renders value to almost every commodity in the modern economy.
Gold is valuable because it is scarce. Air is free because it is abundant. Similarly, currency has value because there’s not a lot of it. We end up with inflation when there’s abundance of currency bills and they end up losing their value. We saw that during the great depression. 

German Child Sitting Next to Pile of Cash Amidst Hyperinflation
Wiemar Republic Hyperinflation 1923

 

The Fear of Depression.

So how do we effectively prevent such a situation in a decentralised currency?

Just like dollar bills are printed in various mints, cryptocoins are mined. These miners perform hashing utilising heavy  processing equipment. These miners are thus rewarded bitcoins for finding new blocks. This is how every single bitcoin in existence came to be. But, this can go on and on and there can be infinite bitcoins at some point of time which would render each individual bitcoin essentially worthless. Right?

Creating Scarcity to Retain Value

No. The bitcoin protocol is programmed in a way that every 210,000 blocks, the number of bitcoins rewarded for hashing each transaction will halve. This milestone was reached on 12th May 2020. The third time rewards have been halved since it’s emergence in 2009. Which limits the total amount of bitcoins in market at 21 Million.
This primarily amounted to the sudden surge in market price of Bitcoins, to pool in as much reward as possible before the halving resulted in the

Chart showing the last three halvings in bitcoin history and the associated price surges
Prior pre-halving epochs

sudden spike consistent with prior pre-halving value surges as well.

The Distrust of Centralised Banking Institutions.

However, we must also account for the fact that Bitcoins and other cryptocoins have gained popularity amidst the COVID crisis because of the dwindling trust in the central banking systems. The Federal Reserve alone has generated and circulated more than $ 3 Trillion in a matter of weeks following the outbreak. These decisions will lead to inflation and that panic has seem a resurgence of interest in the crypto market due to it’s immunity from market corrections like these.

A Note to End on-

The resolute determination and persistent perseverance of humankind is plentifully evident through the hardship we endured through the millennia. Every time we emerge with newer, more innovative ways to take our race forward. The need of the hour in the colonial days of uncertainly and the booming intercontinental trade necessitated the establishment of central banks. Times are different now. We are living in an era where the world is much smaller and more accessible to more people. The future of Bitcoin is uncertain, but there is light at the end of this tunnel and we must not be afraid to venture deeper and further. Who knows what the future holds for us.

About the author

Sayon Bhattacharya

A student, Quant Dev, Finance & Capital Market Enthusiast, and now a blogger on The Indian Wire living in the Financial Capital of India, Mumbai. Sayon is a multi faceted individual with limitless enthusiasm to enlighten the uninitiated in the realm of Finance and Business. He enjoys sharing his knowledge and understanding of current and core happenings in these domains with startling simplicity and ease of understanding. Stay tuned to know more about the latest happenings and be up to date with the market.

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