Crypto Assets Continue to Buck the Trend

Economic data released last week was worrying, to say the least. Midweek figures revealing a drop in exports from big Asian economies, such as Japan and South Korea, hit equity markets globally, resulting in the S&P 500 and the FTSE 100 both dropping considerably. From a crypto asset point of view, however, both bitcoin and altcoins have performed well during this difficult period.

Bitcoin has been in a consolidation phase, remaining steady in between $6,000 and $7,000. There has been the odd spike, both to the upside and the downside, but overall, I am happy with the solidity of the price at the moment. With the Fed carrying out its policy of unlimited quantitative easing, buying assets left right and center, I think bitcoin is going to be pushing towards $7,500 in the short term.

Quarterly musings and a look ahead to Q2 for Bitcoin

So what is coming for cryptos in this new quarter? The big event, of course, is the bitcoin halving and the reduction in block rewards is now just over a month away. The two previous halvings saw massive upward inflections in price, May’s is likely to be no different. Following the halving, I think bitcoin will reach the lofty heights of $20,000 by the end of 2020 / early 2021. This will precipitate an extended bull run, which could see bitcoin hit $100,000 by the end of 2021 / early 2022. 

There are a number of factors suggesting a price increase. Firstly, the halving of the block reward in May means that miners with less efficient equipment will fall away, leading to a drop off in the hash rate and the bitcoin ecosystem becoming more efficient. This initial drop in supply should put upward pressure on the price. Combine this with the likelihood of inflation, resulting from QE measures around the world as governments and central banks fight the fallout caused by COVID-19, and the long-term outlook for bitcoin looks pretty good.

It’s also important to note that bitcoin hasn’t actually dropped as far as global markets have in this first, tumultuous quarter of 2020. The crypto asset only dropped 12%, outperforming the S&P 500 and the FTSE 100 which were down 23% and 25% respectively.

Will Ethereum finally scale?

Ethereum is looking to implement sharding to solve its scalability challenge. This will split the network into smaller shards, enabling speedier and more efficient handling of transactions. I don’t see this impacting the price much, as the overall supply and demand dynamics, which typically lead to price changes, shouldn’t vary, but it is encouraging to see the Ethereum team looking to make large logistic upgrades. This is a smaller step in the coin’s long-term goal of moving from proof of work to proof of stake.

Ripple could make waves 

In Q2, Ripple looks to continue to provide banks and payment providers with on-demand liquidity. I genuinely believe that, if they get this right, XRP could be the first crypto asset that is adopted on a truly global scale. The ongoing lawsuit between Ripple and the SEC continues to hang over the business. Despite this, Ripple’s software developers have put forward a proposal that would allow users to send private transactions to one another using the XRP ledger. The importance of this, should they pull it off, cannot be overstated as it addresses one of the main concerns private institutions have with using crypto – transparency. If transactions  on the XRP ledger can be private this could give a great boost to the token being used by institutional investors. 

France says c’est bien to CBDCs

Lastly, no weekly newsletter is complete unless I highlight the topic of the year: Central bank cryptos. The French central bank put out a call to arms for firms to help with its research into the implementation of digital currencies. Naturally, it’s in early stages, but the Banque de France is looking to find out how interbank settlements could be carried out using blockchain technology, what the benefits for CBDCs are, and what potential effects they could have on stability, monetary policy and regulation. This is a trend that is only going to gather speed throughout the rest of 2020.

Top crypto assets traded on eToro last week (UK clients only)

1.   BTC 45.4%
2.   XRP 19.5%
3.   ETH 8.1%
4.   BCH  3.6%
5.   ADA 3.3%
6.   XTZ 3.3%

Top crypto assets traded on eToro last week (all clients – global)

1.   BTC 52.4%
2.   XRP 11.1%
3.   ETH 9.0%
4.   BCH 3.8%
5.   XTZ 3.5%
6. ADA  2.7%

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All contents within this report are for informational purposes only and does not constitute financial advice. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

Crypto assets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading crypto assets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.