The days of Bill Clinton appearing on stage at cryptocurrency conferences and Matt Damon starring in crypto exchange ads are long gone. Speculative mania has given way to more sober reflection. In the US, the energy usage of miners is under fresh attack. The White House has suggested that mining companies pay tax equal to 30 per cent of the cost of electricity they use.
Despite this, the price of bitcoin has climbed 67 per cent this year, exceeding $30,000 in April before falling back. Ethereum, the second- largest digital token, is following the same trajectory. It may be less than half its high point, but the pause on interest rate rises has lifted bitcoin’s price. A technical event known as the halving could drive it higher still.
There will only ever be 21mn bitcoin in circulation. Every four years, rewards for mining bitcoin are chopped in half. Right now, miners receive 6.25 bitcoin for verifying a new block of transactions on the blockchain. Next year this will drop to 3.125. Eventually the reward will be cut to $0. The lead-up to previous halvings has coincided with bitcoin price rises.
It is possible, however, that dwindling enthusiasm for the crypto industry will damp the halving’s impact. Venture capital funding for crypto and blockchain start-ups dropped 80 per cent in the first quarter of the year compared with the same period in 2022, according to data from PitchBook. Excitement around artificial intelligence that has lifted prices in semiconductor companies and other tech stocks has not extended to crypto companies. Regulator warnings have made banks more skittish about holding their assets after FTX’s failure.
Bitcoin was created in the wake of the financial crisis as a decentralised alternative. But the collapse of Silicon Valley Bank this year did not trigger renewed conversion to bitcoin. Lack of transparency remains a problem. So does criminal activity. Price moves dictated by technical mechanisms that create scarcity show how far the digital asset is from ushering in a brand-new financial system.
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