Dienstag , 23 Juli 2024

Bitcoin: Is the perfect storm brewing here?

Bitcoin had lost around half of its value from its all-time high in 2022. However, after a long sideways phase, it recently managed to break above $30,000. In the run-up to the next Bitcoin halving in April next year, there now seems to be plenty of room for upward movement, especially as more and more investors are able to trade cryptocurrencies more easily and securely.

Bitcoin: Like a phoenix from the ashes!

After the devastating crash of the cryptocurrency Bitcoin from over $60,000 to under $16,000 almost exactly a year ago, some bankers from the financial sector establishment were already speculating on a foreseeable end to the unloved decentralized currency competition. This crisis was also fueled by the spectacular bankruptcies in the United States: from FTX to Silicon Valley Bank and Signature. But once again, things turned out very differently: Bitcoin, Ether and co. recovered significantly. Bitcoin is now trading at over $34,000 again. The initial trigger for the rally in recent months was the applications by various issuers in the USA for the approval of ETFs on Bitcoin. Since then, investors have been speculating that the approval of structured products in the US would lead to a noticeable increase in the availability and acceptance of Bitcoin and Co. as an independent asset class.

The “new normal” in investor portfolios

But this is just the tip of the iceberg when it comes to the acceptance of digital currencies and tokens. A lot is actually happening in the traditional banking sector. More and more established banks such as the venerable Luzerner Kantonalbank, Zuger Kantonalbank and St. Galler Kantonalbank are now also offering customers the opportunity to trade and hold digital assets. Thurgauer Kantonalbank is also considering the topic. In Switzerland in particular, cryptoassets are clearly becoming the new normal in investors’ custody accounts.

Also on the rise in Germany

What is happening in the banking country of Switzerland also seems to be emerging in other European countries. Baader Bank is currently trying to position itself as a multiplier in the German banking landscape. The Munich-based bank has created a white-labeling solution that allows other banks to offer trading in a variety of digital currencies securely and easily to their customers. The first neobroker is already using this service. Private investors can trade 33 cryptocurrencies via finanzen.net zero and store them directly in their online custody account. Almost a year ago, Baader Bank also announced that it would offer crypto trading by taking over account and custody account management in the smartbroker’s B2B2C model.

Many banks are waiting in the wings for crypto trading

And there’s more: according to Andy Flury, founder and CEO of Wyden, retail banks across Europe are currently working on integrating trading systems for digital currencies. He should know, as Wyden supports both Luzerner Kantonalbank and Baader as customers for its trading platform for cryptoassets. A total of 10 banks now use the Swiss company’s trading system. Wyden is one of the leading operators and developers of trading platforms for digital assets for institutional clients. Wyden operates software for trading cryptocurrencies. This system can be fully integrated into a bank’s infrastructure and, in combination with safekeeping, custody and risk management, enables professional trading in the same way that market participants are accustomed to for all other financial products. As with currencies, equities and derivatives, financial institutions can trade and hold this new asset class for their end customers and for their own business.

Europäische Zentralbank Frankfurt Main Skyline Nacht Lichtermeer
Graphik: In the financial metropolis of Frankfurt, too, more and more banks are turning their attention to cryptocurrencies and want to provide their customers with easy and safe access to Bitcoin & Co.

This also includes order and execution management, but also orchestration with the risk management and treasury of the respective bank. At a recent event in Frankfurt, Flury mentioned that talks are currently underway with a handful of banks across Europe about future connections to the crypto world. If this assessment proves correct, millions of end customers will sooner or later have secure access to purchase Bitcoin via their bank. Initial experience from the retail sector has shown that 10 to 15 percent of end customers are crypto-savvy. Bitcoin & Co. are thus losing their fear. In Europe, investors no longer have to resort to unregulated platforms on the internet such as the bankrupt FTX.

New investors for the crypto market

This steadily growing acceptance of cryptoassets by traditional banks has been triggered by the realization that good money can be made with trading fees for digital currencies. This is because they are definitely higher than for other asset classes. If this customer potential is tapped and secure and simple bank-regulated access is created for private investors via their bank, this could mean further price potential for digital assets and especially for Bitcoin.

The US authorities are still critical of cryptocurrencies

This banking trend in Europe is also supported by the launch of the EU’s Market in Crypto Assets (MiCA) regulation. The MiCA regulations provide the necessary legal certainty in terms of consumer and investor protection, which is essential for banks. This has given Europe a regulatory edge over the USA. The US, on the other hand, is still struggling with how to classify the issue of cryptoassets in regulatory terms. Legislators there still seem to be in shock from the bankruptcies, bad luck and mishaps of last winter. The SEC there is considered to be extremely critical of crypto anyway.

Bitcoin: Will halving provide the next push?

In addition to the wait for ETF approval in the USA and the aforementioned increasing acceptance and integration of digital assets into the traditional banking system through clear regulation, there is another reason for investors to turn their attention to Bitcoin. A so-called halving takes place at regular intervals. Based on Bitcoin’s hard-coded algorithm, the reward for miners who virtually mine Bitcoin with their computing power is automatically halved. The next halving of these rewards is scheduled for April 2024. So far, all three previous halvings have seen very significant positive swings of between 9,589% and 724% at the following high. This is a logical reaction on the part of the miners: as they only receive half as much for “mining” in US dollars, it makes economic sense for them to hold back the newly mined Bitcoin until the value continues to rise. The higher the demand that then meets a dwindling supply, the stronger the price movement could be. So far, at least, this speculation has paid off.

Is the perfect storm coming for Bitcoin?

Of course, no one can predict whether the swings will be just as huge this time. What is different this time, however, is the enormous increase in acceptance of Bitcoin. The dirty toy of a few computer nerds has become a recognized asset class that more and more investors are taking into account in their investment strategy. Is the perfect price storm brewing for Bitcoin if even more investors can now trade Bitcoin more easily via their bank? And is this potential additional demand now coinciding with the upcoming Halving? We will see what the coming months bring before and after this date.

Please note: Investments in the capital markets are associated with a high level of risk. Investors can lose all of their capital – and more. Remember to do your own due diligence! The content of this website is intended exclusively for readers who are permanent residents of Germany. The German disclaimer applies (see below).

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Graphics: Das Investor Magazin, Pixabay



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