Compared to the first quarter of 2020, global cryptocurrency exchange Phemex reported a 465.2% rise in trade volume in Q1 this year. Additionally, the exchange saw a 156.9% increase in the number of traders compared to Q4 2020. The cryptocurrency space has been growing at a breakneck pace over the last year, and though a multitude of factors contributed to its growth, some are more significant than others.
Decentralized finance or DeFi is the biggest buzzword in blockchain, and some believe its growth over the last year is what propelled Bitcoin to its current all-time high. Total ETH locked into DeFi platforms grew from under $700 million in early 2020 to nearly $60 billion this year – and it just keeps growing. However, it’s not the only reason behind blockchain’s fame today.
In 2017, Bitcoin touched an all-time high value of over $20,000 before quickly dropping back under the $10,000 mark. The rise in price had come from an ICO-fueled bubble, and once scams became more rampant, Bitcoin became a lot less valuable. However, this isn’t the case today. From institutional adoption and CBDCs to yield farming and non-fungible tokens, the blockchain industry’s recent growth very much stems from tangible value.
The blockchain industry still has a reputation for being associated with multi-level marketing scams and other dodgy business models, and this fear is incredibly detrimental to the industry’s growth. The Singapore-based Phemex was launched in November 2019 to address this very problem, led by a team of ex-Morgan Stanley veterans with the goal of becoming the most trusted and transparent cryptocurrency exchanges in the world.
Phemex quickly rose to become one of the top derivatives exchanges in the cryptocurrency space, with a peak ranking of #4 on CoinMarketCap. Through its ethos of transparency and excellent communication with its community, the platform recently crossed 1 million users – a major milestone for any cryptocurrency exchange worldwide.
The number of active Bitcoin addresses has effectively doubled since last year, and people are buying and talking about digital assets more than ever before. Phemex isn’t the only cryptocurrency exchange benefiting from this recent public interest, and there are many reasons why people are becoming more interested.
Last year, Bitcoin also underwent its periodic halving event, which takes place every four years. The halving was designed to ensure a steady supply of Bitcoin into the market by slashing the reward for submitting valid blocks in half. The most recent halving saw the mining reward cut from 12.5 BTC to 6.25 BTC, and since Bitcoin has a fixed supply cap, the network will only mine the last token a century later.
There are many theories as to how halving events affect the price of Bitcoin. Proponents of the efficient markets hypothesis believe that since the event’s arrival is known, it is already priced in, though empirical evidence suggests otherwise.
During the last two halvings, Bitcoin’s value was not immediately affected. However, while last year’s supply halving took place in May when Bitcoin was still worth under $10,000, BTC value shot up to its new all-time high by the end of the year and is currently chasing a new all-time high above $55,000.
Similarly, during the 2016 halving, Bitcoin was trading at around $650, and while its rise to over $20,000 spanned more than an entire year, its value had once again rallied to a new all-time high. While this flies in the face of the efficient markets hypothesis, there is an explanation that makes sense.
Bitcoin miners have to sell BTC to cover their operational expenses, and since they receive less Bitcoin after a halving event, each BTC token needs to be more valuable to remain profitable. This value transition doesn’t happen quickly and results more from progressively higher selling prices over a long period, covering miner costs in the long term.
Speaking of long-term growth, stablecoins are also on the verge of being ready for mainstream use, with countless projects attempting to steal dominance away from Tether (USDT), the most popular stablecoin by market capitalization. However, international regulators and policymakers are still yet to establish a robust framework for their use, and organizations like the G7 and the FATF (Financial Action Task Force) have outlined the risks of poorly regulated stablecoins to national economies.
Additionally, with many projects like Polkadot and Cosmos touting interoperability features are interfacing with the Ethereum network, enabling DeFi to function within a more diverse marketplace in the near future.
Blockchain has already ventured beyond the scope of most cryptocurrencies, spreading into all kinds of new applications across various industries. Soon, we might even see national governments begin issuing cryptocurrencies in the form of CBDCs (Central Bank Digital Currency), which are state-backed tokens pegged to the value of their fiat currency.
Though Bitcoin is at its all-time high, there are still many more peaks to climb. What was once considered a fad is proving to be humanity’s best solution to a broken centralized financial system. The last decade has been testing for blockchain, but even if the current level of interest is only sustained, the technology has passed this test with flying colors.