By Parke Shall
We have seen the price of bitcoin skyrocket over the last two weeks, as we predicted would happen in several of our previous articles about the digital currency. We have been on record over the course of the last 12 months stating time and time again that we thought bitcoin would have no problem once again eclipsing the $1000 mark, and now we feel as though breaking through all time highs this simply just in inevitability.
The digital currency has soared over the last two weeks on the heels of continued Chinese buying, global volatility and uncertainty stemming from several recent events. The chart below shows the digital currency's impressive run over the last year, where it has nearly doubled in value. What a year!
We believe there is plenty of price appreciation to come. As a matter fact, we had speculative targets on bitcoin in previous months so high that Seeking Alpha wouldn't let us put them in the title of an article that we wrote for fear of sensationalism. We had to settle for simply stating that we thought $1000 was achievable and now we are going to say that we see bitcoin easily running up through all time highs around $1200 over the course of the next year. Here's CoinDesk's chart of the price of BTC since its inception,
Of course, there have been estimates as high as a million dollars per BTC should bitcoin ever actually become a serious reserve currency for parties looking to escape the scrutiny and inflation of central banks across the globe. The Street reported back in December 2015,
If you are patient enough, the leverage of bitcoin is huge. We are talking about $1,000,000 (possibly more) per coin in the long run (current price is around $400 at the time of writing.) It will replace gold (which is a trillion dollar market) as a safe haven. Gold gained this status because it cannot be forged and it is scarce, durable, and fungible. Bitcoin has all those properties as well, and, in addition, it comes with an international payment/settlement network. There's no need for "bitcoin certificates" as you can directly verify your ownership by checking the bitcoin blockchain. It is extremely important though that purchased coins on an exchange are cashed out. If you do not have special equipment for this, then, at least, use bitaddress.org to create your own paper notes.
In addition to capital outflow restrictions in China, the recent run up here has been fueled by global unrest. Just last week, the Russian ambassador to Turkey was shot dead live at a news conference. The week prior to that, the Chinese captured a US drone that was in the South China Sea. Just this week, President elect Donald Trump made a comment about how the country needs to expand its nuclear arsenal until "we figure out what the hell were doing," as Mr. Trump likes to say.
When you combine this with continued pressure on the yuan in China, it makes for a perfect prescription for a rush to the digital currency. In addition, other countries outside of the United States have continued to see pressure on their respective currencies as the dollar continues to strengthen. Here is the DXY over the course of the last 12 months,
From the get go, what we always liked about bitcoin was that there is a finite amount of supply and so it may be a great case study to finally take a look at what a true market place for a currency looks like without Keynesian intervention from central banks. We have allocated a small percentage of our portfolio, about 2%, to bitcoin because of the same reasons we like to hold gold. We like them as hedges against catastrophic scenarios and we like them because there can be no real manipulation to the amount of supply that is available. Once you have your hands on gold or once you have your hands on bitcoin, you don't have to worry about dilutive effects of more product being issued.
The same risks still remain with bitcoin. The primary risk with bitcoin is that it is a currency built upon an infrastructure that must be in place in order for the currency to survive. In the event of a significant catastrophe, where infrastructure is damaged heavily, bitcoin gets quickly called into question because if you can't access or process transactions using it, all of which are done electronically, it is essentially worthless. We continue to see this as the largest risk for the digital currency going forward. This is again why we also like to hold gold. Gold is essentially our "old school" hedge and bitcoin is our "new school" hedge.
We are not looking to offload our bitcoin anytime soon. In fact, we've used dips to go in and buy judiciously. We continue to think that based on the fact that only 21 million bitcoin will be mined worldwide no matter what, that the price of this digital currency will continue to appreciate significantly in coming days, weeks, and years. We are long for the long term and predict that bitcoin will blow through its all time highs very easily in 2017 as methods for buying, selling and transacting the digital currency become more readily available to retail.
Disclosure: I am/we are long BITCOIN.
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.