Today, Bitcoin surged well above 13K$ and almost reached 14K$ mark before crashing back down below 12K$ due to a serious crash on the Coinbase exchange platform. However, this is not stopping Bitcoin’s momentum: At writing, Bitcoin has almost regained its losses and sits at 13275$.
[Oct 2019 UPDATE: After writing, BTC quickly fell from its 13K heights and traded sideways between 9K-10.5K for the following couple of months. In September 2019, it tested the 8.5K support level and then stabilized in the 10-11K zone. In October 2019, the price plunged to a low of 6.692K before shooting back up to mid 8K levels. While some believe the Bull Run is running out of breath, optimists believe this is a temporary correction. Indeed, although the price is extremely volatile, as should be expected with BTC, large drops are followed by quick recoveries to previous price levels. As of October 28th, the price is 8.5K. Further corrections are to be expected but with the 2021 halving now just months away, long-term expectation remains bullish].
It’s been an incredible few months for Bitcoin. Indeed, the king of cryptocurrencies has quadrupled in value since April and crypto enthusiasts are starting to believe that the bulls – those holding long positions – are finally back in control after a prolonged bear market (investors dumping their positions and going into hibernation).
So is this phenomenal rise in price pure speculation or is it driven by solid fundamentals?
Well, although the speculative nature of Bitcoin is no longer debatable, it would appear that the fundamentals might be the deciding factor behind this spectacular new bull run.
Indeed, from a macroeconomic and geopolitical standpoint, the world order is uncertain: the Russian/China superpowers are at loggerheads with the USA/UK/EU superpowers and nobody knows who will come out on top. The West is aging and their economies are sluggish, political tensions are high and confidence levels in both the politicians and the countries’ long-term futures are low. The East is on the rise economically but they have to deal with structural poverty, staggering inequalities and limited political freedom.
In the USA, quantitative easing – a monetary policy whereby central banks buy government bonds and other financial assets in order to inject liquidity directly into the economy – is now becoming normal policy and no longer an exceptional measure reserved for times of crisis.
10+ years of low interest rates and skyrocketing debt means that the US Dollar’s legitimacy is questioned and some – like Malaysian PM Mahathir for example – want gold to play a part in international settlements.
Further, US President Donald Trump has started a “trade war” that is having profound impacts on both the stock markets and the international balance of power.
But how does all of this impact Bitcoin you ask?
Well, people are starting to realize that the current fiat system is shaky and that the West could be headed for another economic crash.
People are also realizing that the international gold market is manipulated to keep the price artificially low. They also realize that gold is difficult to transport from one country to another and can be stolen quite easily. Gold can also be regulated by governments (made illegal even) and confiscated at any time.
In sum, people are looking for alternative methods of storing their hard earned cash and Bitcoin is filling that vacuum for 6 reasons:
1 – Bitcoin is unconfiscatable. Indeed, Bitcoin is a digital asset that is stored on an electronic wallet that can only be accessed with a secure code consisting of a dozen words. This code can be memorized and your wallet can be accessed from a computer anywhere in the world. This means you have nothing to carry or declare to customs when you travel internationally. Also, you can store your Bitcoins in an offline wallet which renders them virtually unhackable by even the savviest hackers.
2 – Bitcoin has a limited supply of 21 million coins and is as hard or harder to mine than gold. Once the 21 million coins are in circulation that means no more new coins are created to meet demand: coin holders will determine their price. Block halvings and mining rewards are anti-inflationary measures that will paradoxically create a huge increase in price once Bitcoin supply stabilizes. Rarity creates demand and increasing demand with fixed supply creates value.
3 – Blockchain Technology – the public decentralized ledger upon which Bitcoin transactions are recorded – is almost unhackable. As explained in my previous article on Blockchain Technology, the beauty of Bitcoin is that the Blockchain is available for everyone to consult and its decentralized nature makes it extremely difficult to hack. This is very appealing to those who want to secure their investments.
4 – Bitcoin is rapidly becoming a household name and retail investors from Main Street are starting to pour their money into the market. Indeed, more and more stock market exchanges are adding cryptocurrencies to their trading platforms. The ‘average Joe” is now becoming interested in this “internet money” and wants in on the action. Rising prices creates FOMO – Fear Of Missing Out – that drives prices even higher.
5 – Institutional investors are starting to place massive money in Bitcoin. As the stock market reaches all time highs, investors begin to fear that a major correction is coming. This sentiment is made worse by the uncertainty of the “trade war” situation between the USA and China. Also, Brexit is playing a part in this global uncertainty and Bitcoin is increasingly seen as a means to place money in an asset that is not subject to ordinary market forces.
6 – Facebook Libra. Like it or not, Facebook’s recent announcement that it will be launching its own “stablecoin” in the coming months has generated even more interest in cryptocurrencies. While some claim that Libra will kill all altcoins, others disagree and say that altcoins still have a long-term future but everybody is convinced that Bitcoin – decentralized, unconfiscatable digital gold – is incomparable to any existing asset class and will come out on top and ultimately its value will continue increasing.
All of these reasons lead the crypto community to make very bullish assumptions about the current bull market and the future of Bitcoin in general. Whether you believe in a 60K$, 100K$ or 1 million dollar Bitcoin in coming months/years, it appears safe to say that a major drop below 8-9K$ is not likely in the short or medium term.
However, this is Bitcoin we are talking about and the inherent originality and uniqueness of this market makes it impossible to set any predictions in stone.
This bull run based on certain fundamentals that will not disappear overnight but one must remember that the Bitcoin market is also subject to manipulation. Indeed, whales – those who own big quantities of Bitcoin – can make or break the market at a whim. A coordinated effort to dump – selling) thousands of Bitcoins at once – will cause the market to crash in a matter of minutes. We must remain cautious in our investment strategies and remember to hedge our bets. Do not place all your eggs in the same basket. Do not blindly follow the advice of internet gurus and do your research! Due diligence is true intelligence!
So: To the moon? Only time will tell…