All time highs repeatedly smashed.
A spectacular tumble.
And a slow edging upwards, once again.
That pretty much sums up how the last month has played out for the bitcoin price. Not alone, mind you. We have seen numerous up-and-coming altcoins suffer the same ‘fate’. For newcomers to the market looking to make a quick win, it has probably been a time of scratching heads and possibly a few tears shed. For the long-term investor, however, these periods of a bit of a rollercoaster ride are par for the course, and a most opportune time to snap up some more coins when the price takes a dip.
Despite the precautionary cries of ‘bursting bubbles’, we view these market corrections as an anticipated occurrence, and fully expected when the price is testing all time highs for a number of weeks on the trot.
These short-lived ‘crashes’, as the naysayers like to call them, are just that - short-lived, and we maintain our prediction of a stable $3,000(+) bitcoin by year end as there are several underlying factors driving the demand and broader utility.
And bitcoin’s greatest value (and ergo, its price) lies in its utility.
Earlier this year, Japan announced that as of 1 April 2017 (no joke!), the country would recognise bitcoin as legal tender and make the provisions for administrative and accounting systems to be enhanced for cryptocurrency transactions to take place seamlessly. This was undoubtedly the major contributing factor to an initial surge in the price as Japanese individuals and corporations alike scrambled on exchanges to secure bitcoin for future purchases. Hundreds of thousands of retailers in the area are said to be equipping themselves to accept bitcoin payments, with a low cost airline, Peach, becoming the first commercial carrier to directly offer consumers tickets paid in bitcoin.
Australia quickly followed suit, announcing accelerated amendments to legislation that eliminated the incumbent double taxation on digital currency transactions. As it stands, Australians using bitcoin for transactions are liable for the 10% goods and services tax (GST) plus a further 10% tax for using ‘intangible property’ as a payment medium.
Come 1 July 2017, these transactions will only attract GST, and be exempt from further taxation, no doubt fuelling a greater adoption of digital currency transactions.
The proactive progression by these countries certainly paves the way for others to learn from their integration and regulatory practices, empowering mainstream bitcoin adoption, which naturally pushes the price higher as demand increases.
The scaling debate has been a long-standing hurdle for Bitcoin growth. The decentralised nature of bitcoin, which naturally is one of its most appealing qualities, presents some challenges when it comes to governance of remedial action. In an ecosystem where no single entity can dictate changes to the framework, a majority consensus must be reached. And one, to date, has eluded the Bitcoin community.
The fact remains that Bitcoin needs to scale from its current transactional capacity in order to meet the demands placed on the network in terms of the growing number of transactions. The current block size is restricted to a 1MB block, impeding quick and cost-effective transactions.
Whilst several proposals have been put forward in as many years, the Bitcoin community have yet to come to agreement on a viable solution that satisfies the majority role players, while at the same time doing what is best for the wider user base. But we seem to have made some headway.
In May 2017, at the annual Consensus conference, held in New York, an agreement has been signed by most stakeholders that set out a plan for SegWit adoption in the short-term, with a planned hard fork to a larger block size in the future.
While further clarity is needed, it would appear that we may finally come to a point of breaking the stalemate, which will contribute to a restoration of faith in Bitcoin technology being able to advance, reach its full potential, and compete with the likes of global card payment networks in terms of computational power to process transactions.
One of Bitcoin’s undeniable drivers of growth are citizens who have lost confidence in their country’s ability to maintain sound economic and political policies, and desperately seek to establish their own sense of financial freedom outside of the manipulation of governments.
Take Venezuela for example. An overly aggressive expansionary monetary policy, has resulted in hyperinflation, which the International Monetary Fund (IMF) expects to reach an explosive 1,660% this year, and an economic (and social) crisis second to none. The removal of the 100 Bolivar note (the largest denomination and still worth only a few US cents) from circulation in December 2016, without the immediate availability of the planned 500 to 20,000 Bolivar notes, led to widespread chaos with violent protests, riots and looting as Venezuelans, who for the most part rely heavily on cash for transactions, were effectively left without money for weeks on end.
It is reported that the minimum wage is around 200,000 Bolivars, yet a single basket of groceries including milk, eggs and cheese costs in the region of 770,000 Bolivars, nearly 4 times the minimum monthly wage. Whilst government provide some subsidised basic goods, the ‘outlets’ have become hotspots for vicious crime and citizens have to weigh up the risks of cheaper food against the dangers that face them in the queues. This is what happens when people reach such levels of despair to survive, crime escalates - and rapidly. The alarming surge in crimes such as kidnapping and murder leave most Venezuelans living in fear for their lives on a daily basis, with little in the way of respite considering their underpaid, understaffed and under-trained police force are woefully ill-equipped to deal with the rampant level of criminal activity as a direct result of monetary policy gone wrong.
India is another prime example, where the most recent, and possibly most extreme case of a modern-day war on cash occurred in December 2016. Under the pretence of curbing criminal action and tax evasion, Prime Minister Narendra Modi effectively wiped out 86% of notes in circulation overnight, when he announced the demonetisation of 500 and 1,000 Rupees with immediate effect. Exchange was possible, but within a limited time frame and only up to a certain amount, the rest having to be processed via a bank account. This, in a country where almost half its population has no access to formal banking, let alone a bank account. The ramifications have been nothing short of horrific for the innocents who are left with their life savings now worth literally zero.
Less dramatic examples include the likes of China, where stringent capital controls significantly restrict the movement of money offshore to hedge against a dwindling Yuan. Or closer to home, with Brexit, a shock general election outcome, increased inflation and the Pound dipping in value. The fact remains that money remains a key component of control for governments.
Irrespective of whether you live in the doldrums of the Caracas slums, or comfortably in an apartment in Knightsbridge, your financial status is not immune to the will of the powers that be. As long as your wealth is locked up in the legacy system, financial sovereignty is not ultimately yours.
And this is just one of the reasons bitcoin holds such appeal in tempestuous economic climates. With Bitcoin, you are assured a level of financial security in that your money is removed from the coercion of the centralised system, therefore protected against the likes of political agenda, damaging inflation, demonetisation or capital controls.
An initial coin offering (ICO) is best described as the cryptocurrency industry’s equivalent of a venture funding exercise or an initial public offering (IPO), with a far lower barrier to entry. Blockchain orientated organisations are able to create a coin - a token - that investors can acquire, based on the organisations’ plans for expansion or development and a speculative future value.
In essence, it presents a new mechanism for crowdfunding, but not all ICO tokens are alike. Some may hold application value, others can be traded, and a number may represent an ‘equity share’ in the business in question. Either way, ICOs all make use of blockchain technology for acquisition and trading, and in most instances are bought using Bitcoin.
This year, and the latter half of last year, has seen an unprecedented rise in the number of ICOs being listed. Blockchain businesses are being established a dime a dozen, with a mass of use cases seeking to be developed. Even those with little more than an idea and a rough plan are raising sizable amounts of investment through their ICOs. With many millions, if not billions, already raised, and an increasingly popular trend that does not appear to have any intention of slowing, this translates into a flood of ‘new’ money into the Bitcoin and greater digital currency space, driving prices higher.
Financial institutions, historically wary about investment in Bitcoin are increasingly showing signs of interest in the digital asset as part of a diversified portfolio, hedging against underperformance in traditional markets. When compared to the performance of stock markets and fiat currencies, combined with more and more regulatory structure coming into place, it is unsurprising that institutional money has started flow into the crypto-economy.
Regulation is arguably one of the largest barriers to cryptocurrency investment for institutions.
Two nations, in particular, have been influential in this regard; Sweden and Japan.
Sweden was one of the first movers in terms of a regulated Bitcoin investment. Back in May 2015, the KnC Group launched the world's first ‘Bitcoin Tracker’, known as an exchange traded note (ETN), which is publicly traded on a regulated exchange. This represented massive progress for Bitcoin at the time, and essentially opened the market for institutions and private individuals to have regulated exposure to Bitcoin.
The ETN is designed to mirror the price movements of the underlying asset being USD/BTC and the company, XBT Provider, is required to hold the equivalent number of bitcoins for the number of ETNs issued. In other words, when a financial institution or private investor purchases an ETN, XBT Provider has to purchase the same amount of bitcoins to back up the note. Earlier this month, Hargreaves Lansdown, UK’s largest brokerage, announced their clients would be able to access the ETN via their SIPP and brokerage accounts, opening the doors for retail and institutional investment.
As mentioned earlier, Japan has played a crucial role in moving bitcoin mainstream with its stance of bitcoin being recognised as legal tender. This move has provided institutional players with the much needed vote of confidence required before they got on board. Murmurs of the likes of Russia and India looking to make positive legislative rulings in favour of bitcoin acceptance, simply adds momentum to the institutional money continuing to pour into the Bitcoin space, driving demand, and leading to a stronger, more prosperous market for all.
Perhaps this can be linked back to the fact that with growing interest, and impressive growth, media have been covering Bitcoin more and more frequently, exposing it to a wider audience. Personally, I have had more and more dinner table discussions about Bitcoin with friends, family, ex-colleagues and acquaintances, outside of the ‘cryptocurrency world’, all now showing interest in ‘getting in’. It is a scenario becoming all too familiar for many of us in the industry.
Just today, I was chatting to a colleague who commented he was stopped 4 times on the street between the office and the gym (it is not a far walk). Why? Because he was wearing our corporate t-shirt and people had a myriad of questions for him related to Bitcoin. The fact that the cryptocurrency investor base, once a place seen to comprise purely the ‘tech’ types, is growing rapidly to include a broad spectrum of people - from ultra high net worth individuals, to institutions, family offices, the previous gold bug, all the way through to the person sitting across the coffee shop from you, or even your Mum. Yes, even my Mum has bought bitcoin!
The factors I have outlined above are merely a few of the positive fundamentals Bitcoin has going for it; driving demand, expanding its utility and subsequently, increasing its value and price. So yes, I am confident when I say that Bitcoin will continue to break through all time highs and find favour above the $3,000 mark, and that is well within reach before the bells ring in 2018.