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Will the crypto craze continue in 2020?

Will the crypto craze continue in 2020?
The next break in 2020 is Bitcoins halving, which will take place in May. It is a recurring event in which the number of Bitcoin rewarded to miners is cut by half — from 12.5 to 6.25 Bitcoins. (Photo: Pixabay / Gerd Altmann)

Are cryptocurrencies just a fad, a bubble destined to burst or will they replace current fiat exchange practices, make the need for physical cash obsolete, even make minting money a thing of the past? That all depends on what you mean, who you ask and which period you are referring to. But for 2020, experts say there will be a rally in value, more entrants and referees entering the race, and most importantly rules for the game will come into play.

While the debate continues on whether this new type of digital coin will do away with central banks, state mints and monetary manipulation, what the future holds is dependent on understanding how it works and why it came into existence in the first place.

The original cryptocurrency and probably still the best known — Bitcoin— was created in 2008 by a bunch of anti-establishment renegades known as Cypherpunks, who disliked both big business and governments, and who wanted to do away with any interference and restrictions in the way they transacted with each other.

But the concept has evolved into something much larger and wider than just keeping the hands that exchange money away from prying eyes.

With the crypto space maturing rapidly, regulators, traders and consumers around the world are accelerating efforts to either embrace or regulate cryptocurrencies.

The pace escalated in 2019, no doubt motivated by Facebook entering the territory with its Libra project.

Luno, South Africa’s largest cryptocurrency exchange, expects to see greater adoption of Bitcoin and altcoins in 2020, continuing the momentum gained in 2019.

One of the criticisms of Bitcoin and other cryptocurrencies is the lack of opportunity to actually use them says Marius Reitz, Luno GM for Africa. Reitz says throughout 2019 this could be seen to change rapidly, with new startups such as Flexa introducing slick crypto-payment platforms for retailers and:

More importantly, there was a diverse array of retailers, both big and small, willing to integrate their services. We expect this trend to continue in 2020.”

Starbucks, which owns almost 30,000 outlets globally, has announced it will be integrating Bakkt’s crypto-payment service in the first half of 2020. Perhaps a major player integrating Bitcoin will motivate other retailers to accept crypto payments.

Bakkt got off to a slow start when it launched its Bitcoin futures exchange in September, but recently expanded its suite of products and launched new futures contracts in December on the back of steady increases during the year, including a record 2,469 futures contracts traded on 22 November.

This growth should continue into 2020 and inspire similar projects and competitors to offer new products.”

But many believe the catalyst for change was the launch of Facebook’s Libra project in 2018, which drew criticism from all sides, but despite the bashing, 21 organisations across the globe signed the Libra Association charter in October 2019 at the project’s inaugural meeting in Geneva, with Andreessen Horowitz, Vodafone and Uber among the big names.

Libra nodes which process transactions are now being run by Coinbase, Uber, BisonTrails, Iliad, Xapo, Anchorage and Facebook’s Calibra, which places it on track to deploy its mainnet (technical foundation) in 2020 as planned — regulatory concerns permitting.

With Libra planning to sign up to 80 more members to the project, its potential impact is tremendous, says Reitz. “It’s really a question of ‘when’ rather than ‘if’ and it is a game-changer for the sector.

It also provides more options to institutional investors and traders,” adds Reitz.

Cryptocurrencies continue to creep into more mainstream investment portfolios with increasing numbers of people allocating a percentage of their asset mix to this alternative class.

We anticipate that more institutional investors — banks, hedge funds, pension funds and endowments — will buy into cryptocurrencies as they diversify their portfolios, now that they finally have the professional machinery to do so,” says Reitz.

It is also expected that 2020 will bring more regulatory clarity in South Africa and abroad.

The Intergovernmental Fintech Working Group, comprising members of the South African Reserve Bank, Financial Services Conduct Authority, National Treasury and the South African Revenue Service, is expected to release regulatory guidelines for the crypto industry in South Africa.

This follows advancements in regulatory guidelines across the world, and in particular by the Financial Action Task Force, an international regulatory body of which South Africa is a member.

With more regulatory clarity, we expect more adoption of cryptocurrencies, not just by the public, but by traditional financial institutions as well,” says Farzam Ehsani, co-founder and CEO of VALR.com.

While no banks in South Africa have entered the cryptocurrency space up until now, we expect a few to announce crypto offerings in 2020 and all banks to follow suit in due course,” he says.

Internationally, a number of guidelines are expected to come into effect. In October 2019, the G7 group of nations outlined the need for stablecoin regulation and implied that guidelines may be produced in 2020, while Japan also passed a bill to reinforce its existing cryptocurrency laws which come into effect in April 2020.

How these developments will impact the crypto space remains unclear, Ehsani says, but the industry is looking forward to some clarity on how they are expected to run their business.

The next break in 2020 is Bitcoins halving, which will take place in May. It is a recurring event in which the number of Bitcoin rewarded to miners is cut by half — from 12.5 to 6.25 Bitcoins.

These are programmed to take place every four years, or once every 210,000 blocks until 2140 when all 21 million Bitcoins are estimated to have been mined.

Experts believe this increases demand for the cryptocurrency by further restricting supply. The last Bitcoin halving in July 2016 preceded Bitcoin’s epic 2017 bull run.

However, with the traditional financial industry and some of the world’s biggest technology companies now taking an interest in Bitcoin, the impact of the 2020 halving is more unpredictable than ever, with no guarantee there will be another 2017 bull run.

Simon Dingle, CEO of Inves Capital and author of In Math We Trust, says 2020 will be a significant year because of the Bitcoin halving. It’s part of the network’s automated, deflationary monetary policy.

If previous halvings are anything to go by, it will precipitate a bull market toward the end of the year.”

Earle Loxton, who heads DCX Capital, a Crypto startup that manages DCX10, an index fund of the top 10 global cryptocurrencies, agrees, but adds that their research shows a very strong correlation between the supply rate of Bitcoin and its price action.

We are very bullish on the next 12-18 months’ outlook. Whether the halving has been priced in according to the so-called Efficient Market Hypothesis rules or not, price will eventually be determined by how many Bitcoin are being sold vs what is bought across the spread,” he says.

Our logic says that after the halving there will simply be fewer sellers than buyers, fuelling the next rally.”

The virtual world began 2019 with Bitcoin at $3,843 with a daily volume of $4.3-billion. In December 2019, the price was about $7,200 with a volume of $17-billion, having peaked at $13,016.23 on 25 June with $45-billion of Bitcoin changing hands. BM

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