If you haven’t noticed, the price of bitcoin is exploding once again.
This year its price has already risen from $3,800 to over $10,000 in just a few months, netting nearly a 300% return for savvy investors who bought early in the year.
What’s different this time?
Bitcoin’s parabolic rise to nearly $20,000 per coin in late 2017 was based on hype and speculation which is why it quickly sank 80% a year later [Full disclosure: Author holds bitcoin and other leading coins]. In 2019 we’re seeing a dramatic rise once again, but this time I believe it’s based on real product development coming to market from some of the largest companies in the world. As evidence, my company spent most of 2018 developing a self-trading platform and is currently experiencing record-high transaction volumes.
Here are the key reasons that are driving cryptocurrency prices upward and will send FOMO (fear of missing out) to all-time highs:
Consumers are ignoring crypto now, which may sling-shot prices upward.
Consumer interest and hype was what drove bitcoin’s price to all-time highs in late 2017. When bitcoin first passed $10,000 on November 30, 2017, search volume from consumer reached epic levels.
Bitcoin passed $10,000 again this July, for the first time since 2017, but consumers are displaying relatively little interest, and search levels are down significantly (see chart).
This indicates that crypto funds and other institutional investors are largely driving the price upward while consumers are sitting on the sidelines. I believe that once bitcoin passes $20,000 again, as many expect it to, increased coverage by the media will again cause Google searches to flourish, consumers to jump back in and prices to propel upward.
Facebook’s Libra will give crypto access to 2.4 billion consumers overnight.
Facebook officially announced it will be launching a new cryptocurrency, called Libra, by Q1 2020, with testing expected to start in late 2019. Facebook remains one of the largest companies in the world, with 2.7 billion active users across Whatsapp, Facebook and Instagram, and its new coin would be accessible to the users of these platforms.
The main goal of Libra is to function as currency for people who may not normally have much access to many financial services. While some are still debating the merits of its purpose and centralized structure, its announcement has put crypto back into the spotlight and helped provide expanded exposure to the industry.
Jeff Dorman, chief investment officer at hedge fund Arca commented on this new development, stating that it “immediately introduces 2 billion people to digital wallets.”
And the head trader at Kanos Capital Management, Cole Walton, stated that Libra “will be the biggest on-ramp into crypto we have seen yet, and institutional money knows this.”
Billions could flow in from Fidelity and Bakkt’s upcoming launches.
After several delays, a much-hyped cryptocurrency exchange from the Intercontinental Exchange (ICE), called Bakkt, launched UAT testing to select clients on July 22 and will fully launch in September. Bakkt is offering bitcoin futures to their institutional clients, but the big difference from other futures contracts currently available on the market is that its will be “physically settled,” meaning its contracts must settle in bitcoin rather than fiat. So for each contract, Bakkt must carry (and purchase) an equal amount of bitcoin in its custody warehouse.
Fidelity also announced recently that its cryptocurrency exchange is launching “within weeks,” and TD Ameritrade’s trading platform, called ErisX, was recently granted a critical license by the CFTC to offer the clearing of digital asset futures contracts, which will lead to an imminent launch. These institutions represent trillions in assets under management (AUM).
I believe that if even a small portion of Fidelity’s or TD Ameritrade’s AUM were to invest in crypto, or if the NYSE’s trading volume were to shift to Bakkt, then a flood of new money could push bitcoin prices to new heights.
Money could shift from gold to bitcoin.
On July 11, 2019, Federal Reserve Chair Jerome Powell revealed in a public testimony to Congress that bitcoin can be used as an alternative to gold, acknowledging that bitcoin is a “store of value.” This admission carries an enormous significance to the world’s most important central banks, labeling bitcoin as a store of value after many global leaders have stated the opposite.
Gold’s implied market cap is around $7 trillion dollars, and bitcoin is only $180 billion. In my estimation, if bitcoin became a true alternative to gold and 50% of gold investments moved to the cryptocurrency, then each bitcoin would be worth $194,000, based on an 18 million supply.
It’s also important to note, however, that bitcoin is highly volatile, and gold is often seen as a stable asset that’s used as a hedge against global uncertainty or fears of an economic decline. This volatility could deter many investors from shifting to cryptocurrencies, but as more liquidity pours into bitcoin, I think this volatility will reduce and alleviate those concerns.
Ultimately, crypto is no longer just based on potential and speculation. Large corporations are launching regulated crypto products and services in 2019 that are building a stronger technical foundation for price discovery. And even younger companies like mine are enabling exposure to cryptocurrency for retail investors in retirement accounts that didn’t exist before. Consumer FOMO will once again kick in as these projects start launching and bitcoin’s price starts reaching all-time highs. Once that happens, it could create a slingshot effect that drives prices higher, perhaps even more violently than before.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.