Bitcoin will undoubtedly ease it’s way into the mainstream consciousness through the local Australian media tomorrow as its price point passes the massive $1,000 (AUD) psychological barrier. Not only is this a significant feat in its own right, but it represents an 82% rise since April 18, 2016 and a 27% rise since last Friday, June 10 2016. Yet, according to so many financial professionals
“Bitcoin Is Dead, Long Live Bitcoin”
This rally cry has long been heard down the Walled Streets of New York, and the trendy bars in the city of London and Frankfurt.
Indeed, the website “Bitcoin Obituaries”, details every “Bitcoin Obituuary” since its inception in 2009. To date, there have been 106 obituaries in leading media articles. And yet the grandfather powerhouse of the cryptocurrency paradigm goes on rising. Why?
Image : Bitcoin Obtiuaries
Here are 6 possible reasons, which have combined together to create an almost perfect storm driving the recent dramatic rise:
Perceived Enhanced Economic Risks in the global financial markets:
a) Brexit – the very recent UK national newspaper polls ahead of next week’s national referendum into the issue have suggested the majority of Brits now want to leave the European Union. This has sent cold artic winds through the western economic world, and most notably through the currency markets. Whilst polls are far from the final indication of the Brexit result, it shas sent deep uncertainty into the financial markets
b) China is facing uncertain economic challenges. With some rumours of the potential of corporate defaults and the rumoured devaluation of the Chinese Yuan, additional shudders of risk have been sent throughout financial markets. By itself, this is concerning, however, it is exacerbated when we consider China accounts for around 80% of globally traded bitcoins and an estimated 85% of mined bitcoins .
Combined, these two negative effects have already seen a flight to gold – the traditional safe haven. But the flight to bitcoin has caught many off-guard and its power goes a little deeper.
Once you have bitcoin in your possession, you have the capacity to transfer them easily to another global address with your funds usually able to be used in an offshore location in under an hour. Although it may not be legal in the certain jurisdictions, this capital flight is an easy option to execute. Increased economic risks drive this flight of capital to safer havens.
But why should bitcoin potentially be seen as an increasingly safe haven?
The increased demand for Bitcoin and other crytpocurrencies
c) With the ever increasing use of Blockchain, fuelled by over $1.2bn of Venture Capital funding, new products and proofs of concepts are being developed, supported by increasing corporate experimentation. Whatever the use case within the Blockchain space, the applications are, by necessity, fuelled by crytpotcurrencies. For every transaction that needs to be carried out, a Bitcoin or similar crypto currency needs to be used. This is increasing the underlying demand for Bitcoin .
d) The ever increasing range of developing crytpotcurrencies. There are so many different crypto currency coins in the market at the moment, many with great underlying technology, others as marketing gimmicks and unfortunately some as outright scams – so be careful if you are considering investing into this space . As an indication of this diversity check out Cryptocompare for the top 450.
Many of these alternative coins (“altcoins” as they are known) have generated significant interest from the media and beyond in their own right – especially such coins as Ethereum and the recent DAO. This increased demand for additional cruptocurrency coins has fuelled additional pressure on Bitcoin.
To buy these alternative cryptocurrencies you typically need to exchange them for Bitcoin through the numerous global cryptocurrency exchanges. Bitcoin is the gold standard of the cryptocurrency world and its usage will continue to grow as increasing demand is seen for other crytpocurrencies.
The imminent reducing supply of Bitcoins
e) On July 10th the number of Bitcoin that can be mined annually will be halved. This was written into the very DNA of Bitcoin itself back in 2009 when it was first launched. This has been specifically been designed to restrict the supply of Bitcoin, which will always be finite in number (only 21 million coins will ever be issued). This reduced supply from July 10 was always expected to lead to a rise in the price ahead of the “halving” as it is called.
f) the final effect is FOMO – the fear of missing out. It often becomes a self-fulfilling prophecy that if people see an ever increasing run of profit being made in any financial space, they want to get aboard before the runaway train runs out of steam; fuelled by the fear of missing out on healthy returns, in other words, greed. As to whether this strategy is correct or not is open to debate, but mainstream media will only fuel this growth further by the headlines that make news – like passing through the psychological barrier of $1000 AUD. Of course there is no guarantee that the trend will continue – but as the great share trading mantra goes – the trend is your friend; but as to whether a bull trend is full of bull remains to be seen, and as Warren Buffet once said be fearful when other are greedy and greedy when others are fearful, so experienced traders will love new, naive entrants into their brave new world .
Overall therefore, we can see that there are a range of external economic drivers that have worked together with core underlying cyrptocurrency drivers associated with the increased interest in Blockchain to create a perfect storm driving the price of bitcoin up.
What is particulalry noteworthy, however, is that bitcoin appears to be being increasingly used by many as a safe haven in turbulent economic times. Next week’s Brexit referendum results will undoubtedly be the first true test of this ever increasing status.
“Bitcoin is dead – long live Bitcoin!” This old dog still has a heap of life left in it and maybe some finance professionals should instead actively embrace and understand the power of the cryptocurrency world. It’s brave, it’s new and it’s a world of disruption – and it’s looking at the finance sector right now with salivating molars.
DISCLAIMER: The above should not be viewed as investment advice. The author of this article holds bitcoin and a range of other cryptocurrencies. Cryptocurrencies are very risky and can be extremely volatile. Professional advice should always be considered before any form of investment is considered in Cryptocurrencies, which have unique and unregualted risks associated with them.
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