The Future of Cryptocurrency: Analyzing the Impact of Bitcoin Halving, Ripple (XRP), and Spot Bitcoin ETF on the Crypto Market

The world of cryptocurrency has been on a rollercoaster this week, with bitcoin breaching the $31k mark. Ripple (XRP) was ruled as not a security by the court, in a case filed by the SEC. Blackrock and other traditional finance companies, refiled their Bitcoin Spot ETF. And then we have the Bitcoin Halving in 2024. These developments have led to a flurry of discussions and debates within the crypto community, all centered around one burning question: Will Bitcoin surge again? In this edition of The Fintech Chronicler we do a technical price prediction of the crypto space, taking Bitcoin as the sample.

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What a week it has been in Crypto.?On one hand there were several Crypto Exchanges which re-listed Ripple after the US Court ruled against the SEC that XRP was not a security (but Ripple isn’t totally out of the woods). The the SEC accepted BlackRock’s filing for a Spot Bitcoin ETF. All of this has had a positive impact on the market cap of Cryptocurrency, with Bitcoin rallying above its $31k mark, in a long while.

But deos this imply that there is an upward rally? Before we jump that gun, The Fintech Chronicler tries to understand the long term impact of this,a s well as the Bitcoin Halving due in 2024 on the future price of cryptocurrencies.

Read on to know more about this esoteric asset class.

Disclaimer: I held about ?60k worth of bitcoin & ethereum till 2022. And while I have not entered the crypto market again, I do plan to soon. But views here are not influenced by that, and are purely academic.

Brief History of Cryptocurrency

Lets start at the very beginning. (References to the sound of music are purely coincidental, nothing to do with my playlist).

First and foremost, cryptocurrencies are a form of digital currency that is not regulated by any central authority. The term "cryptocurrency" first appeared in the 1980s, when the technology was still in its infancy.

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?A paper under the alias Satoshi Nakamoto appeared in 2008. It laid out a process for generating a digital currency that could function without faith in a central authority. The paper by Satoshi Nakamoto is widely regarded as the impetus for the emergence of digital currencies.

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Bitcoin, the First Decentralised Currency, Goes Live in 2009. People who want to move money internationally without dealing with banks or governments started flocking to this cryptocurrency.

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It was the first and only cryptocurrency available in early 2010. It cost only a few cents back in those days. Many imitators of Bitcoin appeared during the subsequent years, and their prices fluctuated in tandem with Bitcoin's. the largest of them being Ethereum.

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By the beginning in the latter half of 2017, cryptocurrencies experienced unprecedented growth. This led to a peak of $820 billion for the global cryptocurrency market cap in January 2018, before it promptly crashed later that month. The cryptocurrency market, however, has continued to expand even throughout this downturn.

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Undoubtedly, 2017 was jam-packed with interesting happenings. There has been a rise in the number of schemes and scams aimed at cryptocurrency investors as the value of Bitcoin and other cryptocurrencies has increased dramatically.

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Why Bitcoin Matters

Although Bitcoin, the first decentralised cryptocurrency, has been the topic of several discussions and debates, its exact moment of mainstream adoption remains elusive. Many people think its peak was in 2017, when its value jumped from $1,000 to $20,000 before plummeting to under $10,000.

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Cryptocurrency exchanges, which allow users with varying levels of technical expertise to purchase and sell Bitcoin and other cryptocurrencies, are credited by some as the primary cause of Bitcoin's meteoric rise in popularity.

?Whatever the case, it's apparent that Bitcoin's popularity will only increase as more people learn about the values of decentralisation and anonymity that it represents.

History of Bitcoin and Ethereum

Ethereum, an open-source blockchain platform, enables decentralised smart contracts and cryptocurrency exchange. Where Bitcoin served as digital money, Ethereum aimed ot become digital monetary and commercial system.

Ethereum blockchain apps have several features. Ether (ETH), Ethereum's native coin, purchases blockchain transactions. Cryptocurrency exchanges impact the coin's value. ERC-20 tokens, another Ethereum asset, can only be traded for ETH. Ethereum's blockchain uses Solidity. The nonprofit Ethereum Foundation manages the project.

In November 2013, Vitalik Buterin delivered a white paper describing Ethereum, which was created by several people. Buterin's revolutionary work inspired others to finish the project. Ethereum inventors include Vitalik Buterin, Gavin Wood, Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, Jeffrey Wilcke, Joseph Lubin, and Mihai Alisie.

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Buterin launched the blockchain project, including Ethereum, during a 2014 Bitcoin conference in Miami, Florida. Later that year, the project performed an ICO and raised millions in ETH for development. The asset sale sold almost $18 million in ETH between July 22 and September 2, 2014, utilising Bitcoin as the preferred payment option.

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Buyers of ETH tokens in 2014 had to wait until the Ethereum network launched on July 30, 2015 to transfer or use them.

Ethereum's blockchain launched in July 2015, but it took years to finish. Frontier, Ethereum's first blockchain implementation, hosted smart contracts and PoW mining but just started the chain. The network's introduction let people to build nodes and mining equipment.

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Since Ethereum's launch, Byzantium, Constantinople, and the Beacon Chain have modified the blockchain. Each release changes blockchain functionality. Beacon Chain switched from PoW to PoS. Formerly Ethereum 2.0. After Byzantium (in preparation for the PoS transition) and Constantinople, Ethereum blockchain mining payments were cut from five ETH to three ETH.

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Ethereum's PoS switch to boost scalability is a key blockchain update. Many Ethereum-based blockchain applications have been created throughout time. During the 2017 CryptoKitties craze, the network struggled.

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In 2020 and 2021, Ethereum-based decentralised finance (DeFi) schemes attracted attention, however hefty network costs exposed Ethereum's scalability issues. Ethereum will scale better as it moves to the consensus layer and PoS.

Ethereum's blockchain launched in July 2015, but it took years to finish. Frontier, Ethereum's first blockchain implementation, hosted smart contracts and PoW mining but just started the chain. The network's introduction let people to build nodes and mining equipment.

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Since Ethereum's launch, Byzantium, Constantinople, and the Beacon Chain have modified the blockchain. Each release changes blockchain functionality. Beacon Chain switched from PoW to PoS. Formerly Ethereum 2.0. After Byzantium (in preparation for the PoS transition) and Constantinople, Ethereum blockchain mining payments were cut from five ETH to three ETH.

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Ethereum's PoS switch to boost scalability is a key blockchain update. Many Ethereum-based blockchain applications have been created throughout time. During the 2017 CryptoKitties craze, the network struggled.

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In 2020 and 2021, Ethereum-based decentralised finance (DeFi) schemes attracted attention, however hefty network costs exposed Ethereum's scalability issues. Ethereum will scale better as it moves to the consensus layer and PoS.

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DAO hack

Some Ethereum blockchain updates were purposeful evolutions, while others were responses to unexpected events. The DAO fork attempted to prevent a DAO hack. The DAO was a decentralised autonomous organisation (DAO) in early cryptocurrency.

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For more on DAOs, read What is a decentralised autonomous organisation and how does it work?

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The 2016 Ethereum blockchain-based DAO was a decentralised autonomous organisation fund. Users can trust the DAO's code, which is public and verifiable, rather than the organization's members. In summary, DAO cash contributors exchanged ETH for DAO tokens. Token holders voted on how the DAO spent its funds. Based on ETH's 2016 US dollar valuation, the DAO received roughly $150 million in ETH.

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The DAO was hacked in 2016, stealing approximately 3.6 million ETH. Ethereum's crisis response was divided. Users updated the Ethereum blockchain to undo the assault. Opponents stated this violated blockchain's immutability premise.

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After the incident, the Ethereum community supported the hard fork to update the network. The hard fork established two blockchains with different native assets. Ethereum's blockchain split to recover stolen assets. After Ethereum was forked, the new asset and blockchain became Ethereum. Ethereum Classic (ETC) is the blockchain's origin.

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Ethereum's Merge Upgrade: Proof-of-Work to Proof-of-Stake

Ethereum's designers and developers suggested and implemented the long-awaited unification of the Beacon Chain's consensus layer with the Ethereum mainnet execution layer due to PoW mining's environmental impact. Eth2 went where? The Ethereum Foundation rebranded Eth2 as the consensus layer to prevent scams like swapping ETH for ETH2 tokens.

SEC Vs Ripple (XRP): The case against unregistered tokens

All of this attention did not go unnoticed by the regulator, specifically by Gary Gensler, the chair of the US Securities and Exchange Commission.

The SEC's long-standing three-part mission—to?protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation—remains its touchstone. And Gary Gensler felt several cryptocurrency, with the exception of Bitcoin, undermined their efforts to reach their goal.

And so from the end of 2021, the SEC started firing their arrows, by filing cases against wha they perceived as unregistered tokens.

The first of which happened to be Ripple.

Is Ripple a security? The answer is not so straightforward

After three years of litigation, a federal judge ruled that Ripple Labs, the creator of the Ripple blockchain, did not violate securities laws by selling the network's XRP token to the general publicm, but the same curtesy didn’t extend to institutional investors.US District Judge Analisa Torres' main reasoning was that institutional investors were more likely to be aware of XRP's securities-like traits when being pitched by Ripple back then, whereas so-called programmatic investors, who buy XRP directly on a crypto exchange, like retail traders, were less likely to be aware of this. Since it lends credibility to either side of the security-or-not debate, this decision might be seen as a victory by both Ripple and the SEC.

It's not so easy to generalise Ripple's move as good news for the cryptocurrency market as a whole. First of all, it was determined by how well retail investors back in a time period that concluded in 2020 understood crypto. Bitcoin's value was a small fraction of what it is today, and regulators were just beginning to form opinions on the industry.

XRP Price Prediction

Ripple XRP token surged 70% on the back of this verdict.

Several exchnges like Gemini rushed to re-list XRP on their platform, providing it with some much needed liquidity relief. The relative strength index places the momentum on ripple at 89, making avery bullish case for the token.

And experts predict it will soon cross the $1 mark.

Spot ETF : What are they?

The other bullish news was something a lot more technical. Spot ETFs for Bitcoin. I ad to dig around Investopedia for a day to understand what all this meant. Here is what I found.

Brokerages provide bitcoin exchange-traded funds (ETFs) on standard exchanges. These ETFs are designed for regular investors and those unfamiliar with cryptocurrency.

A regular ETF is linked to Bitcoin futures contracts, allowing investors access to Bitcoin without trading it. Investing in a Bitcoin ETF cuts complex storage and security issues for cryptocurrency investors.

But a Spot ETF, lets you trade on the current price of the underlying asset.

Why the Bitcoin ETF trade as Trusts

Why does such an instrument make sense? Well, you might have heard the saying “not your keys not your crypto”? That’s because owning crypto means you need ot ensure it is kept safe from malicious attacks. The most popular way being setting up a hardware wallet, not the most user friendly product made out there.

But with Spot ETF because you don’t need to take the hassle of storage, you can invest on the upsides, without taking up the headache of securing your investments. For a fees, the ETF will do that for you.

Blackrock, WisdomTree : How can they win the SEC with their Spot Bitcoin ETF

The SEC however has always been sceptical of Spot ETFs, because they believe, rightly so, that it can be misused by price speculators.

Impact of Spot ETF in the price of Bitcoin

Gold prices rose by 16.84% in the eight years before the GLD, the Gold ETF, was created. Ten-year rates, meanwhile, fell by 33.55 percent. Gold prices grew by 286.90% in the eight years since the ETF began trading, while ten-year rates decreased by 61.65% during the same time period.

So if history is any teacher, that could potentially mean, Bitcoin could rise by 2.8 times its current price in the coming 5-8 years? Or faster??

Analysts at JP Morgan though aren't convinced.?

Bitcoin Halving: What is it?

The halving of the mining incentive is a significant milestone in Bitcoin's network. As of the year 2023, the reward for validating a transaction on the network is 6.25 Bitcoin (BTC). Come 2024, the block reward will be halved, to 3.125 coins.

Mining is an important part of Bitcoin’s Decentralised architecture. To verify the transaction, the node performs several checks. These include checking the transaction's validity parameters and length. Approved transactions are added to the blockchain and publicised to other nodes. And the nodes partaking in this exercise are rewarded with new bitcoins. This process is known as Mining.?

Impact of the upcoming halving on the price of Bitcoin

There are others who anticipate a substantial boost in Bitcoin's value as a result of the halving, reasoning that the lower inflation rate will lead to greater demand. Some have argued that the price of bitcoin won't change because the halving is already included into the market.

It don’t think it will be that straightforward. And its because of the big E.

Energy Crisis.

Electricity is getting more and more dearer. Agencies world over want us to switch to a green source, yesterday. Add to it, that mining will now consume that much more energy. That can’t be good. Especially if they aren’t able to produce enough new bitcoins to, literally, keep the lights on.

I think, we will see a number of small time miners liquidate, partially or completely, some of their stash of bitcoins to keep the operation going. This additional inflow of bitcoins, along with the Spot ETF, could result in more supply than demand?

So, would I rush along to buy some bitcoin? Maybe, but only because I believe in the promise of decentralised finance!

That is all for now. Next week, we shall hit closer to home, to see how ONDC has been changing the retail landscape in India.