BT Daily News: Bitcoin could hit $100,000 by end-2024, Standard Chartered says

1. Bitcoin could hit $100,000 by end-2024, Standard Chartered says

Top cryptocurrency bitcoin could reach $100,000 by the end of 2024, Standard Chartered said on Monday, saying that the so-called "crypto winter" is over.

Bitcoin could gain from factors including recent turmoil in the banking sector, a stabilisation of risk assets as the U.S. Federal Reserve ends its interest rate-hiking cycle and improved profitability of crypto mining, Standard Chartered's head of digital assets research Geoff Kendrick said in a note.

"While sources of uncertainty remain, we think the pathway to the USD 100,000 level is becoming clearer," Kendrick wrote.

Bitcoin has rallied so far this year, rising above $30,000 in April for the first time in ten months. Its gains represent a partial recovery after trillions of dollars were wiped from the crypto sector in 2022, as central banks hiked rates and a string of crypto firms imploded.

Predictions of sky-high valuations have been commonplace during bitcoin's past rallies. A Citi analyst said in November 2020 that bitcoin could climb as high as $318,000 by the end of 2022. It closed last year down about 65% at $16,500.

In Monday's note, Standard Chartered said that bitcoin has benefited from its status as a "branded safe haven, a perceived relative store of value and a means of remittance."

Kendrick said the European Parliament's backing of the European Union's first set of rules to regulate crypto asset markets "should provide a tailwind" for bitcoin.

JPMorgan said in a note on April 5 that a technical change to the bitcoin blockchain in April 2024, known as its "halving", could boost its price by making it more expensive to produce, causing a "positive psychological effect".

JPMorgan said that cryptocurrency prices have already benefited from crypto enthusiasts interpreting the recent U.S. banking crisis as a "vindication of the crypto ecosystem". Crypto supporters say stablecoins are "less susceptible to runs", JPMorgan said.

2. What Is Bitcoin Mining Centralization and Why Is It a Concern?

When building Bitcoin, Satoshi Nakamoto envisioned a decentralized digital currency that could operate without the need for centralized institutions such as banks and governments.

Satoshi did not picture a situation where a few entities controlled a significant portion of the entire network, essentially centralizing power and influence.

Bitcoin mining centralization, a result of market competition over the years, goes against the fundamental principle of cryptocurrency.

What Is Bitcoin Mining Centralization?
Bitcoin mining centralization is the concentration of mining power among a few dominant players. Originally, anyone with a computer and internet connection could mine Bitcoin. However, the network grew with time, and as a result, mining became more competitive.

This led to the development of specialized chips known as ASICs (Application Specific Integrated Circuits), which outperformed GPUs and CPUs by being more efficient. Unfortunately, ASICs are expensive and out of reach for most people, and the fact that newer, better, but more costly versions are released exacerbates the situation.

Miners began to form pools to combine their computing power and share the rewards earned. The largest pools also acquire the latest technologies to stay ahead of the competition, which caused others who couldn't keep up to drop off.

Over time, a few large mining pools, including Foundry USA, Antpool, and F2Pool, have come to dominate the Bitcoin mining industry, controlling a significant percentage of the total hash rate at any given time. This beats the logic of cryptocurrency, which is supposed to distribute power among many players.

3 Causes of Bitcoin Mining Centralization

Several factors contribute to the centralization of Bitcoin mining. Most of these factors also apply in a typical competitive market. They include

1. Economies of scale: As mentioned earlier, Bitcoin mining is very competitive. Miners that solve complex hash puzzles and verify the most blocks stay profitable. And to do so, they need expensive specialized hardware such as ASICs. So they come together and form large mining operations to reduce costs and increase profitability.
2. Barriers to entry: Starting a Bitcoin mining company is very expensive. You'll need significant upfront capital for hardware. Yet that's not as big an issue as maintaining it since it consumes an enormous amount of electricity and can take years to turn a profit. With this in mind, it's no wonder prospective investors would opt to join established mining pools over smaller ones.
3. Legislation: In some jurisdictions, mining operations are subject to strict regulations, making it hard for people to participate. For instance, when China banned Bitcoin mining, trading, and transactions, all mining operations moved to other countries, more so to Northern America, which now accounts for almost 45% of the global hash rate.
4. Power costs: Bitcoin mining is a power-intensive operation, and the more power a mining operation has, the better chances it has to stay competitive. So crypto miners set up shop in areas where electricity is cheap. As such, you'll find mining pools forming in areas with cheap power supplies, leading to centralization.

3. UK financial watchdog to crypto industry: ‘Let’s work together’

The United Kingdom's financial regulator, the Financial Conduct Authority (FCA), wants to work together with crypto companies to develop a regulatory framework for the industry.

On April 25, FCA Executive Director Sarah Pritchard spoke at London’s City Week conference highlighting the need for cooperation on crypto regulations.

“We want industry’s input to make sure we get the future regulatory regime for crypto assets right,” she said.

“Let’s work together, to shape our rules and regulations to benefit markets, consumers and firms as crypto goes from niche to mainstream.”

She referred to crypto as a “one-time symbol of alternative rebellion,” but acknowledged that it has “become more widespread.”

“Effective early engagement supports regulations that benefit all and helps firms be prepared when regulations come into force,” she added.

Pritchard mentioned a warning issued by the FCA to crypto investors a week before the FTX collapse in early November but added, “we have always been open to innovation,” stating:

“Crypto assets and blockchain offers opportunities for more efficient and innovative financial services and products.”

The move is in stark contrast to the approach across the pond in the United States. Those in the crypto industry in America claim local financial regulators are making every effort to quash the crypto sector with enforcement actions as opposed to developing meaningful regulations in collaboration with industry leaders.

Pritchard noted the FCA’s responsibilities are limited to making sure that crypto firms that operate in the U.K. comply with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) legislation.

“Only when the government legislates will we have more powers to regulate crypto,” she added.

According to Pritchard, the FCA has supported crypto firms and has registered 41 companies of all sizes, however, nearly three-quarters of the 195 total registrations from overseas firms were rejected or withdrew their applications for a U.K. license.

Pritchard also mentioned that “tangible change” will come in the form of legislation for crypto promotions and advertising high-risk investments. Current advertising rules carry heavy punishments for companies that breach them.

“This will come into our remit once the government legislates, and firms will have four months to implement the changes,” she said. “The rules will be published after the legislation is put forward.”

The FCA has also been working closely with the government on its proposals to regulate stablecoins, Pritchard noted.

In early March, FCA officials told the government that crypto regulations were inevitable. The regulator is trying to push through the Financial Services and Markets Act which was introduced in July and amended in October to include crypto regulations.