By Scott Tzu
Many people were unsure about the future of bitcoin after the most recent Bitfinex hack. Now, the price action pushing BTC over $600 yet again confirms to us bitcoin's viability for the immediate future. There is unwavering confidence behind the digital currency now and a clear bid for it at current prices. With the price now heading back in the same direction it was prior to the hack, we believe that confidence in bitcoin is again high and we expect The price of the financial asset to begin an assent to $1000.
Our thesis for bitcoin has been relatively simple from the get-go. We believe blockchain technology is here to stay, as it has been acknowledged by numerous central banks. We think bitcoin has the advantage of being the first mainstream digital currency, so it is going to be the most liquid and most sought after out of all of the digital currencies going forward. We think there is a need for a currency outside of the realm of central banks and we think the limited supply of bitcoin will eventually drive the price significantly higher. We don't have an enormous position in bitcoin, less than 1% of our portfolio allocation at this point, but we believe the potential for exponential gains outweighs the risk involved at this point.
Remember that the Bitfinex hack is the second most meaningful "crash" in BTC history, after the Mt. Gox exchange hack that occurred in 2014. Bloomberg reported,
Bitcoin plunged after one of the largest exchanges halted trading because hackers stole about $65 million of the digital currency.
Bitcoin slumped 5.5 percent against the dollar as of 2:30 p.m. on Wednesday in Tokyo, bringing its two-day drop to 13 percent. Prices also sank 6.2 percent on Monday, although it was not clear if that initial move was related to the hack.
Hong Kong-based exchange Bitfinex said Tuesday it halted trading, withdrawals and deposits after discovering the security breach. The exchange said it was still investigating details and cooperating with law enforcement, but acknowledged some bitcoins were stolen from its users.
After the hack, BTC dropped to under $500 and we said we were buying,
While this is definitely a step in the wrong direction for the digital currency that we are long, we look at this as a buying opportunity. We added Bitcoin last night near $500, and we will look to add today as capital becomes available to allocate.
We saw a situation similar to this in 2014 when the Mt. Gox exchange was hacked, only to a much larger degree. The hack shocked the price of Bitcoin but the currency eventually recovered to move back to two year high prices that it was at earlier this year over $700
As you can see, the price has recovered nicely again, and BTC is now once again trading over $600 per BTC. The chart below shows the recovery.
Much like technicians and chartists look for breakdowns in momentum in a stock or in a currency, we have to measure the confidence behind bitcoin in order to try and gauge where it is going to head to next. Of course, we have all seen the scenarios where if BTC is adopted as a true reserve currency across the globe that it could go to five, six, or seven figures over the course of time. While the logic behind reaching that scenario makes sense to us, whether or not it will happen in practice is another story.
What we do believe though is that in a day and age where economic stimulus is prevalent across the globe, bitcoin represents an idea that we can buy into and that we don't yet see a strong enough bear case for to not own it.
Again, we believe that since bitcoin is brand-new and an asset class all its own, confidence will be the main key to driving the price in one direction or the next. The currency showed tremendous confidence coming out of the most recent hack, and we believe will easily have a tailwind into becoming a $1000 per BTC commodity. With the recent having of miner supply, BTC should be able to catch an additional tailwind.
As we have said in the past, we believe that bitcoin will hold up over the longer-term as its own financial asset class. We have laid out the risks of owning bitcoin in the past stating that it is dependent upon the infrastructure in which it is transacted over. Given this, we still believe that bitcoin will hold up over the longer-term as its own financial asset class. As a method for skirting regulations and central banks and uniting the globe outside of the reach of Nationstates, bitcoin remains a very valuable commodity.
We think confidence in BTC will continue to push the price of the digital currency higher toward $1000 in coming quarters.
Disclosure: I am/we are long GBTC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.