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Roller Coaster – OR Rocket??

Christopher Long
Christopher Long

I read, with interest, a FORBES article sent out on 31st of Oct 2019 – it offered precious insights into what would propel the price of Bitcoin in 2020.

Late 2016: As an avid investor, I identified the disruptive potential of Blockchain, and started investing in late 2016. Riding its upward wave to $20,000 was exhilarating! Especially when I got my bitcoin at $1,250.

2018: My exhilaration was extinguished when Bitcoin fell by 80%, from ~ $20,000 to ~ $4,000.

But now in 2019, we’ve seen recovery of almost 200% when prices reached $12,000 in July!

Today, even with bitcoin prices at $9,000, I’m sitting on a growth of roughly 620% or an annualized growth of 93%.

With prices can moving as much as 10% in a day, one can truly understand why investing into cryptocurrencies can be a HUGE emotional roller coaster. In October 2019 alone, we saw Bitcoin prices jump from $7,500 to $10,500 within 24 hours – a 40% spike in one day!

For the last 4 months or so, this has been a common occurrence for many cryptocurrency enthusiasts. Prices see-sawed between $8,000 to $10,000. Most of the movements came from traders, and in recent months, trade volume decreased.

Crypto-data company Messari reported Bitcoin trading volume among the top ten biggest bitcoin and crypto exchanges fell to under $200 million a day. That’s a stark 20-fold contrast as compared to just a few months ago where trading volumes peaked at $4 billion a day.

So back to Bambrough, who said instead of the Bitcoin Halving effect – it might actually be Bakkt that caused Bitcoin prices to surge!

How EXACTLY is Everything Tied Together?

Firstly, the price of Bitcoin is really determined by a simple concept.

And if you can understand this and implement the right strategy, you would be able to profit from this disruptive blockchain industry.

Here’s the concept: Bitcoin price is determined by the price that someone is willing to pay, matched by a price at which someone is willing to sell. Supply & Demand.

It is possible the reason why Bitcoin fluctuates between $8,000 to $10,000, is because no fresh funds are entering the cryptocurrency market. Price is being moved by traders / investors that already know this and are actively trading Bitcoin.

Let’s Use An Analogy

Imagine I own 2 meeting rooms and 10 companies need to conduct meetings from time to time. During peak seasons, these companies bid against each other, and the prices of the rooms will increase.

However, in general, the room cost would fluctuate between $1000 – $2000 per day. Let’s call this “Example A”.

Now generally speaking, if I construct 2 meeting rooms a year, and if client companies grew by 10 a year, we would probably find an equilibrium.

After one year, there are 4 meeting rooms for 20 companies. Now let’s call this “Example B”. The price range for rooms, will hypothetically be similar for “Example A” and “Example B”, assuming each company exhibits similar demand for meeting rooms.

However, what happens if rooms are constructed only at a rate of 1 room per year? This means, next year, there are only 3 rooms to be shared among 20 companies. This is reduction in supply, and room prices will increase. Let’s call this “Example C”.

And what happens, if 20 new companies are formed and they also require meeting rooms? Now, there are 4 rooms, shared amongst 30 companies? That is an increase in demand, and room prices will increase. Let’s call this “Example D”.

Currently in the Cryptocurrency market, I believe we are experiencing Example B. Demand and supply of Bitcoin has caused prices to trade within a band. So many stakeholders are wondering, when will the price breakout upwards again? What are some potential catalysts to that happening?

The current popular opinion is that when Bitcoin halving happens next year, there will be a supply reduction, and this will push up the price of Bitcoin.

Here’s how the supply currently looks like: Miners worldwide, are producing ~1800 bitcoin per day. By Year 2020, this will reduce by half to around 900.

There’re several Price Forecasts and Analysis done. Here’s One I found on Twitter:

The price of one bitcoin is shown on the right vertical axis. The first halving happened in 2012, and price was roughly $13, and we have not seen such prices since.

The second halving occurred in 2016 at a price of $600 and we have, likewise, not seen that price levels ever since.

A very similar scenario to our “Example C” above!

Now let’s look at the angle of “Demand”. While demand has been growing, there’s been a slowdown of interest into Bitcoin. It’s especially evident, since my business is in teaching about cryptocurrency investing.

Compared to 2017, retail interest in learning about cryptocurrency has declined, while institutional interest has increased. The real world adoption of Bitcoin also remains subdued, with crypto-accepting merchants around the world being sparse.

The irony is this though – that investors should actually take advantage of the current lull, to educate themselves and start learning about cryptocurrency investing.

When the next Bull run comes, it would be sudden and quick, which might make it too late to invest then.

Institutions are making it easier for funds to flow into the cryptocurrency space, and leading the charge is BAKKT, a product of the same company (Intercontinental Exchange) that launched the New York Stock Exchange.

Bakkt aims to service the entire levels of the cryptocurrency supply chain, from mega-merchants like Starbucks to Casual Investors.

They recently announced a consumer app for bitcoin and cryptocurrency which will potentially be the catalyst for bitcoin’s next leap higher.

Starbucks As Their First Launch Partner

Starbucks, one of the original backers of this crypto project, is slated to be their first launch partner – along with Boston Consulting Group and software giant Microsoft.

This would potentially result in a fresh wave of demand and spur other companies to develop their own blockchain solutions.

In Singapore, we have Project Ubin – a collaborative project between MAS and the financial industry, to test the utility of DLT (Distributed Ledger Technology) for clearing and settlement of securities or payments. Developing a prototype for multi-currency payment network.

What’s Exciting? This network will provide interfaces for other blockchain networks to connect and integrate seamlessly.

Meaning to say, Bitcoin and other crypto-assets, would be able to interact and transact on this government-linked network, while retaining decentralisation.

Conclusion:

With rapid development in the cryptocurrency space, institutions and governments are increasing their involvement while retail investors are still sitting on the side lines.

Perhaps the ride can be overwhelming & scary, and yes, Bitcoin prices can indeed be too much of a roller coaster.

At this time, I’m personally glad to already be invested into Bitcoin, and I’ll also continue to increase my stake(s).

It’s not simply because I enjoy roller coaster rides.

It’s because, I think this seat is on a rocket, & I know exactly how to ride it – so that it can take me to where I want to be.

Want to find out more about how to invest with Bitcoin? You can register for a seat here and find out from Chris Long himself.

Christopher Long
Christopher Long
Chris holds MSc Applied Finance from the Singapore Management University and is the sole recipient of the 2015 Columbia Threadneedle Investment Award. He has been working in the banking industry as an investment banker before starting CryptoTrader.sg in 2017 Chris has a knack for simplifying the complex, identifying trends and helping people obtain investment insights. Always seeking passive income, he has achieved reasonable success investing in equity (~15% per annum), but his foray into Bitcoin and other Cryptocurrencies has reaped returns that are much higher Chris now aims to share his knowledge and help others achieve the same level of success
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