What else could someone holding Bitcoins wish for in the New Year? After a stretch in which the price of Bitcoin held relatively stable, the world’s first and most famous cryptocurrency has been skyrocketing! Bitcoin saw an annual gain of nearly 54 percent this year, outperforming all fiat currencies, most of which stumbled in 2016.
So what’s behind the recent surge? Cointelegraph reached out to some of the world’s thought leaders in the industry to get their opinion and predictions for the upcoming year.
World economy troubles - Bitcoin prospers
Bitcoin’s outstanding performance this year has been driven by various factors including, experts acknowledging the “halvening,” the troubling world economy represented by fiat chaos in India and Venezuela, as well as a slowing Chinese economy and a depreciating yuan.
Nicolas Cary, co-founder of Blockchain, says:
“The price performance of Bitcoin has closely tracked some macroeconomic trends including the dramatic fall in the value of the British Pound, Argentine Peso and Venezuelan Bolivar. At Blockchain, we have seen very strong growth the past quarter across our entire platform but especially on the wallet side. The company expects to hit 11 mln wallets by Dec. 31.”
According to Gavin Smith, CEO at First Global Credit, 2016 was indeed the year when the Bitcoin capital market really started to establish itself and provide holders of the cryptocurrency with various ways to generate a return on their assets - much more than the other cryptocurrencies.
“Because of this development, holders of Bitcoin and miners have been less inclined to dump their coins on the market and have instead started to use these assets to generate additional returns - often higher returns than can be achieved with conventional currencies.”
According to Smith, this improvement in the ecosystem has coincided with a loss of confidence in currencies from many smaller developing countries - a development that has seen people move some of their assets into Bitcoin to protect themselves from any potential devaluation. As a result, the combination of this reduced supply with increased demand has facilitated this year’s growth. Smith believes that this trend will continue throughout 2017 and onward.
A chance for Bitcoin to step in and create trust
On another note, increasing political instability could also serve as an impetus for Bitcoin’s rising success.
Erik Vollstädt from Bitnation says:
“We are seeing more and more political crisis in the world. Take, for example, Brexit, Trump's election, the refugee crisis in Europe and the associated fear of Islamism as well as right-wing terrorism. Every government failure is an opportunity for Bitcoin to step in and create trust instead.”
A safe haven?
Bitcoin is often considered as a safe asset. When the Dow Jones, Nasdaq and the major European indices stumble, Bitcoin steps in as an attractive diversifier, as it does not correlate with the stock market and is not tied to any single country’s policy decisions. That is indeed a great advantage in times of political and economic uncertainty.
Nicolas Cary says:
“Bitcoin is a convenient hedge for people who want to de-risk from traditional currencies. However, being safe from the whims of banks and governments, Bitcoin is still not totally immune from volatility.”
Speaking of it as a store of value, Bitcoin is measurably safer than it was 12 or even six months ago, however, the Bitcoin capital market is still in the early phase of development and, therefore, volatility remains a very real possibility.
Gavin Smith says:
“In terms of cryptocurrency alternatives, we believe that Bitcoin is by far the gold standard. The capital market ecosystem is the most well developed and the investment options available to Bitcoin holders are greater than any other crypto asset class.”
In terms of global assets, Bitcoin certainly has its place but this should be as part of a mixed portfolio - it's much easier to sustain the inevitable drawdowns in the value of Bitcoin if you are also invested in other assets that may be generating positive returns.
We love Bitcoin for Blockchain!
David Li from Onchain believes that there is a deeper reason behind Bitcoin’s success this year, which is far from the geopolitical and economic implications of recent global events.
“There is an undeniable and irreversible trend: the research and application of Bitcoin's underlying technology. Mainstream can no longer belittle Bitcoin's greatness since they will be joining us in following this trend, exemplified by numerous reports of central banks' interests in digitized fiat and private sector investment on Blockchains.”
Indeed, Blockchain technology, which powers Bitcoin and other cryptocurrencies, has come to the fore in many finance firms’ agendas because of its potential to upgrade business processes and increase their efficiency.
Operating as a distributed ledger, Blockchain allows multiple parties to store and transfer sensitive information in a space that is secure, permanent, anonymous and easily accessible.
Simplifying traditionally paper-heavy, expensive and logistically complicated processes, Blockchain technology can potentially cut costs by up to $20 bln annually by 2022, according to Santander.
Over 50 major financial institutions are nowadays involved with collaborative Blockchain startups, having begun researching the technology in-house, or having helped fund startups with products rooted in Blockchain.
Towards greater understanding of the magic of Bitcoin
Bitcoin, as well as its core technology Blockchain, have been getting more coverage and media exposure this year. More and more people get inspired by the idea of having a more inclusive and borderless currency.
No doubts, there is still a lot to be done on this path, but educating and socializing Bitcoin will certainly help this insufficiently understood innovation enter the public consciousness. The fact that Bitcoin has been operating for seven years now without errors or being hacked can certainly solidify trust in Bitcoin as well.
Erik Vollstädt says:
“It has proven not to be a Ponzi scheme and to be able to work on its initial volatility problems. We are seeing organic growth now compared to the bubbles of 2012.”
What 2017 brings for Bitcoin?
As we are now on the verge of a new year, it is probably only natural to think of what 2017 will look like for Bitcoin. Exactly one year ago, Daniel Masters, co-founder of Jersey-based Global Advisors' multi-million dollar Bitcoin hedge fund, estimated that the price of Bitcoin would make it above $1,100 in 2016 and then pick up speed to rise to $4,400 by the end of 2017. Well, it seems that getting to these numbers is not that impossible.
Considering where we are now, and what we have, where do we go from here? Experts believe that Bitcoin’s continued growth will depend on the factors that have so far contributed to its success.
In 2016 we have seen an increased acceptance of payments in Bitcoin by big companies and authorities and a spate of new Bitcoin products.
Nicolas Cary says:
“Bitcoin stands to make healthy gains as firms improve the applications that regular users rely on. At Blockchain, we're focused on making it simple and easy for regular people to use Bitcoin. In fact, users across Europe in 34 countries can now buy and sell Bitcoin with ease instantly. It's the fastest and most convenient way to get started. The recent gains will further stress the need for the technical community to implement scaling solutions as more people rely on the network to conduct economic activity.”
Bitcoin has gone all the way from a simple token of exchange to a genuine store of value. The Bitcoin market has resisted the Bitfinex hack in the third quarter of 2016 and re-established its upward trajectory pretty quickly after that.
Gavin Smith believes this trend will continue in 2017, and the driver for this will be new innovations that are being released that will certainly enhance the value of the Bitcoin capital market. He says:
“Bitcoin has already shown itself to be the gold standard of value amongst cryptocurrencies, exhibiting lower volatility and higher sustainable growth in the size of its market. We believe 2017 is when Bitcoin innovations will start to disrupt traditional financial markets, not just mirroring conventional market capabilities but, by leveraging off its unique properties, surpass the facilities available in traditional markets in terms of secure trading and the elimination of counterparty risk.”
David Li expects to see the worsening of all the aforementioned macroeconomic impacts and the price of Bitcoin to go much higher than the 2016 average. He also believes that the Chinese government will play a huge role in driving the price of Bitcoin higher.
“We have seen positive reports on Blockchain in multiple state media and the website of the State Council. The State Council has listed the development of Blockchain technology into the 13th five-year development plan, which is something that MUST be done. Shenzhen, the capital city neighboring Hong Kong as well as the world's electronic industry and China's innovation center, has been chosen to be China's digitized fiat trial city. The pilot demos will begin in the coming year. Once they showcase the strength of the technology, they will no longer be able to deny the power and value of its mother and best example to date, Bitcoin.”
Looking at the Bitcoin price index we all are getting nervous, waiting for that moment when it breaks above $1000. In speculating about Bitcoin’s performance in the first quarter of 2017, Gavin Smith says:
“Currently the price increase is driven overnight - from a European perspective - by far east speculators with a decline following in morning and afternoon sessions - we believe this is a classic drive to suck in outside money. Our hedge bias is very tight at the moment because we believe there is the potential for a washout back down to between $700 and $800 as overextended long speculators are stopped out.”
Gavin believes this would provide an excellent basis to establish strategic longs to capitalize on a resumption of the uptrend back to new highs - both the decline and the resumption of the uptrend occurring in Q1 2017.
At the time of writing this article, the price of Bitcoin has grown a little bit more. As Marcie D. Terman, communications director at First Global Credit, said: “All of us holding Bitcoins are going to do alright.” I couldn’t agree more. Happy New Year to you guys!