Cryptocurrency market value jumps $35bn in 24 hours led by surge in bitcoin
On Thurdsay April 30, 2020 the entire market value of cryptocurrencies increased by $35bn (mcap as of 04/05/2020 is $243bn). This was mainly due to Bitcoin which by 29/04/2020 reached a price of $9,388.30 up from $7,746.90 on 28/04/2020, a 17% increase. By 01/05/2020 Bitcoin was at $8,821.60.
The other 2 main cryptocurrencies traded, Ethereum and XRP, also showed signs of gains during this major market event. Ethereum increased to $212.00 on 01/05/2020 from $196.55 28/04/2020, up 12%, and XRP was up $0.21782 from $0.21453, a 2% increase.
Speculation was that this was largely due to QE efforts from central banks however, reports indicate that this was due to ‘bitcoin halving’. Bitcoin halving is an event that occurs every four years in order to keep the cap at 21m. (This cap is there to ensure that bitcoin remains a deflationary asset i.e. its buying power increases over time). Previously miners received 12.5 per block mined and from May 2020 they will receive 6.25.
The law of supply and demand states that a decrease in supply will generate an increase in the price of a traded instrument or commodity because the demand will increase. This is what happened in April. Investors scrambled to purchase as many bitcoins as they could speculating that with a decreased supply over the next four years the traded value of bitcoin may increase which will act in their favour.
There has been a significant retracement in the markets over the past few weeks, however, markets are still struggling with oil prices and economies that are far from being fully functional. What happened with bitcoin is an indication that investors are looking for more creative ways to diversify their portfolios, which suggests uncertainty is still very much at the forefront of investors’ minds but it also means they are open to new or more creative investment ideas at this point in the cycle, and that can be an opportunity for smaller and mid-cap companies.