4/8/2024 - Economy and Finance

Bitcoin reaches new highs

By Horacio Gustavo Ammaturo

Bitcoin reaches new highs

Contrary to the predictions of some financial leaders, such as Warren Buffet or Bill Gates, the investment alternative designed during the millennial generation and closely followed by all its successors, surpassed its all-time highs, passing $72,000 per unit.

A bit of history.

Introduced by email to a group of cryptocurrency fanatics in November 2008, it took three months for its first block, "the genesis", to be "mined", as its enthusiasts call the computer function of calculating the algorithm that gives rise to its registration and which evokes a parallelism with the mining industry, perhaps appealing to the collective unconscious, to relate it to something solid as a metal and valuable as gold .

Unlike fiat currencies such as the dollar or our peso, which are backed by central banks, bitcoin is backed by an immutable and extremely secure computer protocol, which contains a record of every transaction in a distributed, decentralized and public ledger.

When bitcoin is transferred, a digital record of that transaction needs to be validated and added. And this is where miners come in. In addition to helping with its generation, they legalize and audit bitcoin transactions and, as a reward, receive bitcoins as payment.

The promises of finiteness (fixed amount) and increasing difficulty of "production" (halving) were enough for its value to evolve from pennies in its early days until it reached parity with the dollar for the first time on February 9, 2011. This served as an impetus and in June of that same year it reached a value of 10 dollars.

The road traveled from those cents to these tens of thousands was long and winding, with prolonged highs and lows, however, the fundamentals that were presented since its conception remain unchanged and solid, finiteness and difficulty.

The finitude is clear. Only 21,000,000 bitcoin (BTC) will ever exist.

What is halving?

Let's take a closer look at how increasing difficulty or halving is proposed, which means halving in allusion to mining productivity, which is equal to doubling the demand for processing capacity for its computation.

The bitcoin protocol provides for a total of 32 halving events. So far they have occurred on three occasions, November 28, 2012, July 9, 2016 and May 11, 2020.

From that initial reward for mining bitcoin which was ₿50 for processing a code, increasing difficulty brought it currently to ₿6.25. The final halving will occur sometime in the year 2136, and the reward will be reduced to 0.00000001 ₿. The last bitcoin will enter circulation four years later, in 2140.

Sometime in April 2024, the reward miners receive for mining bitcoin (BTC) will drop from ₿6.25 to ₿3.125, with major consequences for the world's most valuable digital currency.

Same cost, half the production.

Currently bitcoin mining demands expensive efforts, with razor-thin margins , depending mostly on the cost of energy. Losing half of the revenue overnight would be a nightmare for any business.

As in all other economic activities, what productivity fails to solve, price has to solve.

At every previous halving opportunity the miners, who ultimately are the ones keeping bitcoin alive, have been the investors who gambled by hoarding a digital asset, even when the price of the proceeds was insufficient to meet the processing costs.

So far it has been worth it, just by calculating that from the first bitcoin to date, its value increased by 116,425,096%.

How much more could it appreciate in value?

Generally speaking, the value of a thing is a subjective matter, that is, relative to the people who rate it. The utility, the desire, the fashion or the interest it arouses are determining factors in defining it.

If we analyze the subjects who will make the decisions,

Future investors are more familiar with cryptocurrencies than with promissory notes or checks, so widespread in other generations and now out of fashion.

They dislike a banking system that is not very inclusive, expensive and restrictive.

They suffer from financial intermediaries who charge commissions, overlapping one after the other.

They question the slow-motion politics that arrives late and consumes more than it contributes.

And they are beginning to see the effect of devaluation on sovereign currencies, reducing the purchasing power of their income and savings.

Without meaning this as a recommendation, but only as an observation of the profile of investors today and in the future, it is likely that, in the long term, bitcoin will consolidate as a store of value,

because they know it, they have seen it grow, they feel part of this alternative, it solves operational aspects that traditional proposals have pending, it is transnational, so its frontier is the world, its adoption as a means of payment would reduce intermediaries and mainly, its issuance is predictable, therefore no one could manipulate its monetary base in the future.

Something difficult to understand for other generations that grew up among folders, papers, notaries and queues at bank counters.

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horacio gustavo ammaturo

Horacio Gustavo Ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

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