By Scott Tzu
In today's article, we wanted to look at why lower volatility for bitcoin is a great sign for those that own it and the one thing that we think can cause bitcoin to appreciate exponentially higher in the coming years, after it breaks through all time highs this year, which we predict.
Bitcoin has certainly been the story heading into 2017. The digital currency is now over $1000 per bitcoin, approaching record levels near $1163 that the digital currency hit back in 2013.
The surge in bitcoin pricing has come mostly from China, as the country has put capital controls in place and also has seen the yuan devalue by about 7% over the last 12 months, an astonishing amount when it comes to a foreign currency.
Though BTC is still far more volatile than most conventional currencies, it has been far less volatile over the last year, showing confidence in those that hold the digital currency. Exchange blowups and stories of hacks don't create the same panic that they did a couple of years ago. People are starting to buy, and hold, bitcoin.
In terms of breaking through new highs, the recent technical surge in the currency and the break through the $1000 mark simply has us and the market believing that it can break through all time highs and continue moving higher this year. A lot has happened in the three years since bitcoin was at these levels prior. We have seen several bitcoin exchanges blow up, we have seen volatility in the global currency market and we have seen major companies in major banks start to look at Blockchain as a form of currency. Focus has always turned to bitcoin, whether it was after the Brexit vote or after the U.S. election.
Over the last three years, bitcoin has undergone a seismic shift in confidence, lacking in confidence after the first exchange breach and coming full circle with renewed confidence into this year. It is this confidence that has propelled the currency back over $1000 and it is the same confidence that we believe will move it to all-time highs easily this year.
From these all time highs, where can we go? Is bitcoin capable of moving even higher? What would spur such a rise in demand that bitcoin can be expected to move to $2000, $3000, or even $5000? We think we know.
Right now, bitcoin is still a relatively esoteric instrument. It is not like a stock or an option or a traditional currency pair that can be easily traded through whatever brokerage platform you have or whatever trading account you have set up. It can't be transacted physically, like cash or gold, and not many people understand what it is or how it works. When accessibility and understanding are both finally addressed on a mainstream retail scale, we believe that bitcoin's price is going to continue to surge upward and eventually, at some point, create some sort of buyers' panic.
Let's face it: the addressable market for bitcoin users is extraordinarily small. It is pigeonholed to those that have at least a rudimentary understanding of how the digital currency works and those who have the technological savvy to install a bitcoin wallet and begin to transact bitcoins, using a broker to purchase and sell them. Coinbase has done well to be the first app that makes it simple for its users to buy and sell bitcoin. As more and more companies moving forward make bitcoin more and more accessible, we expect to see the overall user base for bitcoin expand significantly, causing a marked shift up in the currency's price.
Also on the radar to help bitcoin go mainstream are a couple of items.
First, there is going to be a bitcoin movie, "Banking on Bitcoin," released in January. Econotimes reported,
A feature film on bitcoin titled 'Banking on Bitcoin' that showcases the digital currency's evolution, is scheduled to be released in selected theaters on January 6, 2017, along with Video on Demand (NASDAQ:VOD) release.
The movie will illustrate the growth and development of bitcoin, which is the most disruptive digital invention since the internet. It will have an in-depth coverage of important players in the industry including Charlie Shrem, bitcoin advocate, founding member of Bitcoin Foundation and co-founder of BitInstant; Cameron and Tyler Winklevoss, co-founders of Gemini; Barry Silbert, founder & CEO of Digital Currency Group (DCG); Erik Voorhees, CEO & founder at ShapeShift.io; among others. It will provide an insight into how these bitcoin veterans think this revolutionary cryptocurrency technology will shape their lives.
Second, there are going to be new bitcoin ETFs that trade on major exchanges, tracking the price of bitcoin. These ETFs will likely become popular instruments not only here in the United States, but also internationally. In order to create their asset base, they are all going to have to purchase bitcoin as well and this is just a small example of how mainstream popularity would cause an influx of buying. Believe it or not, even though bitcoin has been around for a little while, we are still in the prehistoric stages of the currency right now. That's why we continue to add, regardless of whether the price is at $800, $600 or $1000. We believe price appreciation in the future will be so significant that the small changes in the currency price now that represent 20% or 30% here and there will be irrelevant.
We also believe that once bitcoin's price becomes major media news and we see real buyers' euphoria come in, that the price of bitcoin will undergo a buyers' panic type moment that will drive the price up probably far too soon, far too fast. This will not likely be a 2017 event, but we can look out two or three years when bitcoin starts to get even more traction and easily construct this type of scenario in our heads.
The beauty of bitcoin is that there is a finite supply of them. This is what creates significant price appreciation when there is real demand and this is what is going to, and already has given bitcoin, value. The fact that the Federal Reserve cannot go out and print more bitcoin is going to make it a commodity to hold onto because as more market participants get interested, the demand-side of the supply and demand equation will cause a real price appreciation, real quick.
We are long bitcoin and we anticipate that once the mainstream catches onto the digital currency that it will continue to go parabolic in terms of its value. The fact that the amount of bitcoin in supply will never change and that the production of bitcoin will slow exponentially give this digital currency real strength and set it up for extremely aggressive price appreciation when there becomes some legitimate public interest with retail investors and average people going out and buying the digital currency.
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.