Will bitcoin go up: the fundamental bull case for BTC
By A.G.
12:18, 22 June 2020
Crypto market overview
After the rollercoaster ride through most of the early 2020, the cryptocurrency market stabilised following the Bitcoin halving. The last few weeks have been quite unspectacular, with limited substantive developments. Decentralised finance applications, like Compound, are gaining traction and a few DeFi coins have been listed on Coinbase.
The more meaningful development has been the emergence of Tether (USDT) on the back of political tensions between China and Hong Kong. The market capitalisation of Tether has increased by 50 per cent in the last three months, passing Ripple (XRP) as the third biggest cryptocurrency. Analysts at Bloomberg expect USDT to eventually overtake Ethereum (ETH) as the second-largest crypto asset.
It is also curious to see that Ethereum is becoming a scaling solution for Bitcoin with the introduction of Wrapped Bitcoin (WBTC). WBTC is an ERC-20 token that represents bitcoin and can be used on the Ethereum network and in various dApps. At the end of May, $34.7 million worth of bitcoin was locked on the Ethereum blockchain, compared to just $8.3 million on Lightning Network.
What is your sentiment on XRP/USD?
The latest BTC price analysis
After its run to $10,000 ahead of the halving, BTC has been trading in a narrow channel. It made several futile attempts to break through the $10,000 resistance in the last month. At the same time, we continue to see price support just below the $9,000 level.
Historically, BTC has been a highly volatile and speculative asset, with a usual 7-day average volatility of two to four per cent. As prices stabilized in the last month, 30-day volatility came down to 2.4 per cent and is currently close to its 2020 low. Low volatility makes the coin less attractive to day traders and speculators, who are typically able to take advantage of significant price swings.
Reduced interest from traders has had a knock-on effect on trading volumes. Daily trading volume on June 19 was $19 billion, according to coinmarketcap data, down from $39 billion 30 days ago. In the last seven trading days, BTC experienced two lowest trading days of 2020.
Will bitcoin go up in the near-term? Many believe that reduced trading volumes, lower volatility and less interest from day traders present a challenging short-term backdrop for BTC.
.png "Will bitcoin rise")
Will bitcoin go up: price drivers for 2020 and beyond
“Will bitcoin go up again?” and “how high will bitcoin go?” are just some of the questions commonly asked in the community. Fundamentally, there are several long-term drivers of BTC value. Decentralisation, inflation protection and institutional money flows are widely cited in the space. Generational trends, however, are discussed less often.
So, will bitcoin rise above its all-time high? Let’s run through the main fundamentals behind the bullish case for BTC.
Decentralisation and censorship resistance
Bitcoin is decentralised and can’t be censored or influenced. As instances of political censorship and government-imposed capital controls increase around the world, these fundamental characteristics become more valuable.
Inflation protection
The inflation narrative is quite common in bitcoin circles and has been adopted by some institutional investors and hedge fund managers. The Covid-19 pandemic has only made it more potent. Faced with unprecedented economic challenges from the virus, governments around the world responded with massive monetary and fiscal stimulus. In the US, the government has so far approved close to $3 trillion in economic stimulus.
At the same time, the Federal Reserve has been providing trillions of dollars in liquidity through various repo and direct market operations, coupled with a $2.3 trillion effort to lend money to small and medium-sized businesses. In just three months, the Fed balance sheet grew by close to $3 trillion, unprecedented expansion in such a short time.
Will bitcoin go up if this level of stimulus results in substantial inflation and currency devaluation? Probably. Bitcoin is deflationary and has limited supply as only 21 million can ever be mined.
Institutional participation
Institutional participation in the cryptocurrency space has grown in recent years. We have also seen the financialisation of bitcoin as it slowly transitions to a distinct asset class. Introduction of crypto derivatives and crypto custody services for institutional investors have been essential pillars of this transition.
Earlier this month, Fidelity Digital Assets, released a report on institutional investment in bitcoin. It surveyed close to 800 hedge funds, family offices and other institutional investors. The report found that the number of investors trading bitcoin futures has more than doubled in the last year and that over 80 per cent of participants found “something appealing about the asset class.” Furthermore, over 35 per cent of institutional investors see bitcoin as an uncorrelated asset to add to their portfolios.
The popularity of the Grayscale Bitcoin Trust, the first publicly quoted trust for bitcoin, is further evidence of institutional interest. The assets under management have nearly doubled this year. Since Bitcoin’s halving on May 11 to end of May, Grayscale purchased more than 150 per cent of all mined bitcoins and it appears that this trend has continued into June.
Millennials and generational wealth transfer
Multiple studies showed that we are nearing the greatest generational wealth transfer in history, from Baby Boomers to millennials. In the next 25 years, up to $68 trillion will change hands between various generations.
Millennials are the leading advocates for bitcoin and other digital assets. According to a recent survey by a fintech news site, which polled 4,852 participants across 17 countries, over 51 per cent of millennials trust bitcoin more than big banks. The study also found that 59 per cent of millennials expect bitcoin to see mass adoption in the next decade, and 44 per cent expect to buy some in the next five years.
A different poll conducted on behalf of Blockchain Capital showed that roughly 18 per cent of millennials own some bitcoin. As a comparison, around 37 per cent of millennials own stocks, indicating their preference for bitcoin over traditional assets.
Based on the investment preferences of millennials, the upcoming wealth transfer is likely to be a long-term bullish catalyst for bitcoin.
Supply constraints
As demand for bitcoin increases due to the factors discussed above, the supply is likely to be limited. Only 2.4 million coins are yet to be mined.
A recent analysis done by a blockchain analytics firm shows that only 19 per cent of the total outstanding bitcoins are actively traded. Over 60 per cent are held for long-term investment purposes and almost 20 per cent could be permanently lost.
A report from Glassnode confirms this data, showing that more than 60 per cent of available bitcoin hasn’t been moved in a year, a 4-year high.
BTC predictions from analysts: will bitcoin continue to rise?
Bitcoin is a highly volatile asset and nearly impossible to predict. Many price forecasts over the years turned out to be wildly off the mark. How much will bitcoins be worth in the future is, therefore, anyone’s guess.
PlanB, creator of the highly accurate stock-to-flow bitcoin price model, last week suggested that the current S&P 500 level implies a BTC price of $18,000. His analysis is based on correlation and cointegration between the S&P 500 and bitcoin.
Research from Bloomberg noted that "Bitcoin is mirroring the 2016 return to its previous peak. That was the last time supply was halved, and the third year after a significant peak." The analyst says that "Bitcoin will approach the record high of about $20,000 this year, in our view, if it follows 2016's trend."
Earlier this year, Tom Lee predicted that bitcoin prices would double in 2020, from around $7,000 at the end of 2019, and reach $25,000 by 2022.
Some are, of course, less bullish. Nouriel Roubini, a long-term bitcoin bear, reiterated his call that it is worthless, as recently as May.
While it might be clear that BTC is valuable, and fundamentals are supportive, most price predictions should be taken with a grain of salt.
Read more: Most traded crypto in June 2020: are we in the altcoin season?
Markets in this article