As we enter a new year, so Bitcoin (BTC) has sliced through a major psychological landmark. Rising by almost 50% against the USD in the month of December, the latest Bitcoin bull-run has pushed through the $1,000 USD with surprising ease as trading continued in very early 2017. This demonstrates very clearly that far from being dead as all-too-often lauded by the media, Bitcoin has a key role to play within the World Economy and a major role within the new Cryptocurrency World bubbling ever-stronger deep down under the surface. So what is driving this bull-run and could it hit the all-time high of close to $1, 200 USD experienced back in late 2013?
Disclaimer: I do hold Bitcoin and the enclosed does not represent investment advice and are merely my observations of the market. The Cryptocurrency markets are unregulated and are very risky. Professional advice should always be sought prior to the consideration of any investments in the cryptocurrency space.
The bull-run has been driven by an almost perfect storm of events that have occurred in the past 30 days, which supports the underlying fundamental strengths that Bitcoin is demonstrating. Here are my top ten observations.
- There has been a series of generally very weak signals coming out of the Chinese economy, with a slowing economy, the threat of potential trade wars with the USA, especially with Trump’s rhetoric towards China – including the sub-text of his Taiwanese faux pas. The Chinese Government has been devaluing the Yuan recently and through the very re-positioning of the Yuan currency internationally has reduced its reliance upon the US currency.
- This general uncertainty has undoubtedly driven many in China to seek safer havens for investment. Bitcoin (BTC) is outside the control of governments or banks, as it is owned by no-one (which at face value for those that may be new to cryptocurrencies may sound weird but is absolutely true). With the Chinese market accounting for about 70% of all BTC mining and about 90% of all BTC trading its influence is particularly important in determining the BTC price.
- These effects in China are further compounded by the recent challenges in both India and Pakistan. The demonetization of certain smaller banknotes, to help avoid illicit activities in both these countries, has, according to various local media, led to an increase in the volume of BTC enquiries and subsequent purchases.
- Venezuela, in the face of increased economic challenges, has introduced harsher currency controls. History has already shown us how in South America there is a natural desire to convert local (weaker) currencies into stronger currencies. With severe localised inflation, local currency devalues badly every day and currency controls mean it is difficult to convert to other safer currencies. Bitcoin is often exchanged on the grey markets. We saw this in Argentina where severe inflationary pressures historically meant Bitcoin was exchanged extensively in the underground ”cuevas”.
- The Network effect – BTC has increasingly been seen within the mainstream media – especially with the recent bull-run showing a rapidly rising price. New money tends to chase the currency as a result of the FOMO effect (The fear of missing out)
- Together these short-term forces helped to push BTC through a major long-term point of resistance on the trading charts. BTC has not been above $800 USD for nearly 3 years. Many people would have been left holding BTC from previous buying decisions when the price fell dramatically following the Mount Gox Cryptocurrency exchange failure. Speculators and traders help this push on its way, leading to a “break-out” in the trading pattern – where, once this major point of resistance has been removed, prices tend to rise quickly.
- Longer-term forces are also at play, influencing the medium and long-term price of BTC. The halving of BTC production every 4 years (where the number of BTC available for mining is automatically halved) occurred in July 2016. This has meant the reduced supply of Bitcoin (BTC), which is now filtering through.
- BTC increasingly represents the digital gold standard – a safe haven when economic challenges are around – e.g. with Brexit it rose 15%, when Donald Trump got in it rose by 4.5% – with general economic uncertainty around across the globe its role as a safe haven is becoming increasingly important
- BTC represents the reserve currency of the cryptocurrency space – to get into any other cryptocurrencies – especially in consideration of the new Initial Coin Offerings (ICO’s – the IPO’s for cryptocurrencies) you typically need BTC to buy into an ICO
- Increased use cases/pilots are being seen globally that are testing via the proven BTC network.
Overall, these forces have combined together to push up the price. Could it go to through the all-time high of close to $1,200?
Whilst none of us have a crystal ball, there are plenty of current forces at play to suggest that this is indeed possible. At its peak in late 2013, there was marked volatility in the BTC price. There were also very few exchanges around and indeed one of the largest at the time, Mount Gox spectacularly collapsed – sending shivers down the BTC spine and a dramatic fall in the price. Today is a different landscape.
- There are multiple highly funded exchanges and more sophistication in the marketplace.
- Blockchain, the technology underpinning Bitcoin continues to gain traction across the Financial Services space and beyond.
Everything seems to be pointing in the right direction, however, the market is very, very susceptible to bad news. For example, in July the Bitfinex Exchange in Hong Kong was hacked – with an estimated loss of $61m. The DAO attack of June 2016 where $53m was almost lost. These left-field shocks conspire to adversely affect the value of BTC. Equally, with the Chinese market being so prevalent on both the supply and the demand side, any actions from the Chinese government in regards Bitcoin could adversely affect the price dramatically. Equally, the BTC market is unregulated and subject to dramatic manipulation by major holders of cryptocurrencies, called “Whales” not only playing the markets but playing those in it.
I do hold some Bitcoin and I will continue to hold. In my new book Down The Rabbit Hole (Discover the Power of the Blockchain) written in late October (when BTC was at $720) I predicted BTC would hit $1,000 in 2017. The forces in December were unpredictable, as is the BTC market overall. Will BTC go through the all-time high? I believe we will see this happen during early 2017 given the forces at play – but I also expect to see some shocks coming through – there always are some. The challenge is when, not if, these shocks will come.
Cryptocurrencies like Bitcoin are a Brave New World bubbling under the surface, but they are also high risk and not for the faint-hearted, but either way they are here to stay.
Author of Business Blockchain Book,