Hitting superhero highs this week, the Bitcoin today sits around the $9,900 mark, following strong predictions just weeks ago that it would fly to $10,000 in a matter of weeks. Well, the prophecy has come to fruition and this morning it traded on the CEX exchange at $10,009. What’s the next step?
This week Finance Monthly asked industry experts about the predictions and got their take on the rising value of the golden crypto coin.
Nicholas Gregory, Founder and CEO, CommerceBlock:
Despite being slated by the likes of JP Morgan CEO Jamie Dimon as a “fraud”, bitcoin bulls have been rewarded for their faith in the cryptocurrency during its stellar rise over the course of this year.
Bitcoin broke the psychological $10,000 barrier overnight and it is fear of a bubble which now drives most of the headlines. But what these articles never make clear is that this is largely irrelevant and some, including myself, would even prefer there to be a correction.
In fact, a correction is badly needed to prevent bitcoin from being the world’s first currency whose value bears no relation to real-world concerns including currency reserves, GDP, trade deficits and economic outlook. If Bitcoin becomes detached from fundamentals, price discovery will be impossible and widespread adoption a distant dream.
But there is one group of people for whom a bubble would make no difference whatsoever.
Savvy business owners are already hedging their positions to cover potential losses. Holding short positions is typical for businesses carrying out international trade in traditional currencies, and it’s no different for Bitcoin, Bitcoin Cash or other digital currencies.
This means that fears that market volatility poses a threat to developed economies are misplaced.
The ability to hedge positions and currency risk, already widely used in global markets, rose up in the face of dwindling cynicism about digital currencies in the international business community in 2017. As companies learned more about the real-world benefits of cheap, frictionless international transactions and the blockchain that underpins it all, the crypto industry has been quick to provide bitcoin futures contracts as a way of limiting risk, allowing firms to hold and transmit revenues in bitcoin without feeling over-exposed.
It is the currency speculators of various sizes currently making all the noise. They have monopolised world attention as bitcoin’s price swings have moved them in and out of the black. As in traditional FX markets, there will be as many losers as winners amongst them.
Slowly though, innovative business leaders are wresting the focus of bitcoin away from the speculators and quietly pushing forward the crypto revolution.
Governments have woken up to its growing use, threatening one of the final barriers to its mainstream adoption – tax.
The tax status of bitcoin and other digital currencies in the UK is currently up for review. As it stands, they are not viewed as currencies but as assets subject to capital gains tax.
This puts bitcoin and others at an unfair disadvantage because those holding crypto would have to pay tax if their currency increased in value. Any move by the government to clarify this status would fire the starting gun for companies still sat on the fence.
Critics and politicians need to acknowledge that there is a gulf between the speculators and companies making bitcoin a commercial reality. Only then will the question of damage to the UK economy go away and its potential finally be unleashed.
Joe Pindar, Director of Product Strategy, Gemalto:
With so many new cryptocurrencies being launched on almost a daily basis, there is no doubt that the demand is there, with Bitcoin the prime example. There is a good chance of Bitcoin reaching higher levels, but the truth is the cryptocurrency bubble is going to burst at some point. However like all bubbles, calling the exact time it will go pop is extremely hard.
It reminds me a lot of the dot-com bubble in 1999, which companies like Amazon and Google survived and became essential to our daily lives. Similarly with the convenience and international nature that Bitcoin provides, once the hype has been removed, we will be left with the serious players, and the true value will be established.
My advice is not to jump in head first, but don’t expect cryptocurrencies like Bitcoin just to be an overnight sensation.
Luke Massie, Founder and Managing Director, Vibe Tickets:
The world of cryptocurrency is completely unpredictable, but it’s also one of great potential. Bitcoin has seen a significant surge in the past 12 months, but it definitely hasn’t reached the pinnacle of its popularity. The usability, combined with the economics and technology behind Bitcoin has contributed to the incredible growth we’ve seen over the past year.
At the moment, less than 0.003% of the world’s population own a crypto wallet. With the predicted value of $10,000 by the year’s end, there’s no doubt in my mind that the usability combined with the ‘fear of missing out’ paradigm, the price will sky rocket past $50,000 per Bitcoin.
We’ll also see a rise in popularity across all cryptocurrencies, including Bitcoin’s smaller rival, Ether. Although market capitalisation has stabilised over the last six months, it’s very likely that the value will reach $500 in the very near future.
Although cryptocurrency is still perceived as digital gold rather than cash, it is the future. I expect to see all forms of it grow exponentially as more people catch on to its tangibility and value in the real world.
Eleesa Dadiani, Founder, Dadiani Syndicate:
The process of valuing assets in most cases is arbitrary. Whilst there are formulas and processes, in the end it boils down to the opinion of one. For instance, an accountant can view an asset one way, but if that asset happens to be a corporate institution, perhaps the CEO of that institution might have a completely different view of the value. As he has a very different vantage point as to where the company is headed and we see this throughout business all the time.
To look at it from a mathematic rather than behavioural perspective, I propose the following: if we consider the global money supply to be around 100trillion dollars, then I ask myself, could bitcoin achieve 1% of global transactions thus 1% of global money supply? I believe it could easily achieve this within the next 3-5 years at the current rate of growth, probably sooner. We are just at the tip of the iceberg.
It is important to remember the value of money is the value of money. For instance, A marketplace that is worth 10 million dollars, is worth 10 million dollars, so if bitcoin trades at one trillion dollars – 1% of global supply – then its market capitalisation or market is worth one trillion dollars. So now it’s just a question of doing the math.
Bitcoin is currently trading at approximately $10,000, and we know that there will only be a maximum of 21 million coins mined (some are lost in circulation, some cannot be accessed due to users losing keys). So, if we times $10,000 by 21 million, we end up with $210 billion as the current market capitalisation of bitcoin. Now in order to get to one trillion, the price of bitcoin would need to be approximately 4.76x what it is now. 4.76 times $210b is $1t which means bitcoin should be trading at a minimum of $48k – that is my opinion.
Theo Valich, Head of Growth, Datum:
All speculation about the viability of Bitcoin and other major cryptocurrencies are being validated by CME’s announcement of world’s first Cryptocurrency Futures exchange. The cryptocurrency market is primarily being driven by two factors: geopolitical situation and attractiveness to the new generations of consumers: millennials and post-millennials, i.e. Generation Y.
Rise of Bitcoin value is primarily being backed by the global political situation, such as recent turmoil in Catalonia, Zimbabwe or Venezuela. Politically unstable countries are looking more forward to invest in cryptocurrencies than gold or similar assets. Thus, a national cryptocurrency could act as affordable solution to the issuance of state-controlled currency.
On the top end, progressive countries such as UAE and Singapore are either introducing or evaluating government-backed cryptocurrencies such as emCash (Emirates) or Digital Dollar (Singapore). Temasek Holdings, AAA-rated sovereign wealth fund invested in Bitcoin in 2014. Thus, Singapore’s blockchain strategy is not reactive, but a result of multiple years of evaluation.
While speculating on the value of cryptocurrencies is attractive, there’s little doubt that Bitcoin is going to go far beyond $10,000. In fact, a valuation of $25-50,000 might be reached during 2018 (but not on a such fast pace as this year), and future multiplications, or “hard forks” with Bitcoin alternatives such as Bitcoin Cash, Bitcoin Gold or “Bitcoin Something” will continue to appear. If you purchased Bitcoin in July, today your portfolio has Bitcoin, Bitcoin Cash, Bitcoin Gold and Bitcoin Platinum. Thus, a single Bitcoin is already worth more than $10,000.
Cryptocurrencies enable monetary markets to put a value of previously vague, or undefined values. Conventional fiat currencies are not suited for example, to put a value on digital data streams. Thus, so-called coins and tokens such as Datum, Litecoin, Monero or Ripple represent the simplification of future currencies based on their use. You want to become a gold vault? Bitcoin. Become a global bank? Monero. Selling your own data? Datum.
Cryptocurrencies simply represent a new asset class, with the major attractiveness being in value understandable to the new generation of consumers and investors. Millennials and post-millennials want to put a value on their life, and content created.
Ethereum at $1,000 is a matter of months. The true effect of cryptocurrencies is the new value generated. If we really simplify cryptocurrencies to the bone, they are nothing else but “crowd owned” or “crowd issued” bonds / stocks / currency.
Kerim Derhalli, CEO and Founder, Invstr:
With hedge funds and investors continuing to pile in to the volatile cryptocurrency, it seems that it could be rise by hundreds, maybe thousands, of dollars in price yet before we see a slowdown. On the one hand, analysts are extremely skeptical of an asset class that gains this much value this quickly, but on the other hand, more and more private funds and investment groups are buying into digital currencies or providing their clients the option to trade them. With it being in finite supply, the exponential rise depends on how much investors are willing to spend, and when that breaking point is.
Much of the industry talk is that the price is giving Bitcoin a new legitimacy, with a market cap now exceeding some major companies across the world. This renewed awareness, along with greater access to it through trading platforms and new trading technology, has meant a surge in interest. However, as with any commodity, currency or other instrument, it remains a risk and there’s no denying Bitcoin’s volatile past. For now, many will just see the huge gains to be made by jumping on the bandwagon – early this year Bitcoin was at just $3,000. Many hedge funds are riding the tidal wave and we’ll see many more joining in the coming months.
Even if this is a major bubble is set to burst, BTC is still considered a legitimate investment vehicle for the time being, especially as it is now being embraced and institutionalized by major banks and exchanges. It’s certainly an exciting area to invest in, but vigilant investors should take a step back and look to it as part of a broad, diversified portfolio.
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