On Dec 10, bitcoin hit a high near $19,870. It then abruptly reversed course for several weeks, bottoming out under $7,000 near the end of the first quarter. With the cryptocurrency having recovered to nearly the $10,000 mark, the question on everyone’s mind is whether or not it will continue to recover. So will Bitcoin hit 15,000 again?
Let’s look at some predictions.
The Analysts Weigh In on Bitcoin
Last week, Warren Buffett bashed bitcoin during a CNBC interview. Then again, he also bought into the newspaper industry just a few years ago. Everyone’s wrong sometimes. Indeed, venture capitalist Chamath Palihapitiya said Buffett was dead wrong and compared the cryptocurrency to gold.
And so goes the conversation about bitcoin projections: hardcore believers and hardcore skeptics going back and forth… and back and forth.
In fact, new research from the San Francisco Federal Reserve showed that bitcoin’s reversal as it neared $20,000 was a result of the launch of a futures market, as those skeptics could put their money where their pessimism was. According to an Economic Letter from the San Francisco Fed, on Dec 17, the Chicago Mercantile Exchange introduced bitcoin futures, and the subsequent price fall doesn’t seem to be a coincidence.
“Before December 2017, there was no market for bitcoin derivatives. This meant that it was extremely difficult, if not impossible, to bet on the decline in bitcoin price,” the researchers wrote. As you can see on the chart, bitcoin reached its high on Dec 16.
“With the introduction of bitcoin futures, pessimists could bet on a bitcoin price decline, buying and selling contracts with a lower delivery price in the future than the spot price,” they added.
After drawing this connection, the researchers also addressed bitcoin predictions. Where is the cryptocurrency going? “This is a very difficult question, and we do not pretend to be able to forecast bitcoin prices, nor will we offer any guesses.”
But they did outline several factors that will affect the price of bitcoin going forward, mainly the transactional demand — which will be affected by the availability of other cryptocurrencies and the acceptance of bitcoin by traditional financial institutions — compared to supply.
The Bottom Line for Bitcoin
In light of these factors, I believe bitcoin will indeed recover to the $15,000 level.
As the researchers point out, the factors that caused the significant decline in value are a standard response to the introduction of a futures market. They were not a reflection of the a shift in supply or other fundamental indicators. For instance, word on the street is that Goldman Sachs has plans to set up a crypto trading desk. This indeed would drive the transactional supply that actually affects the price of bitcoin.
Put another way, I don’t think investors should waste any more time watching from the sidelines and wondering. Buy in and enjoy the ride.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
