The collapse in bitcoin, and most other cryptos, caused many investors to leave the space – declaring bitcoin to be “dead”.
But the thing is – we’ve seen this all before. Spectacular crashes – followed by price booms – are commonplace in the crypto world.
The next bitcoin bull run is coming. The only question is when…
Bitcoin’s “bull market seasons”
Since its creation in 2009, bitcoin has been experiencing massive “bull market seasons” followed by corrections.
One of the earliest major “bubbles” in bitcoin was in 2011, when the price of one bitcoin crossed the psychologically important price of US$1.00 in April 2011, and after hitting “parity” with the dollar, bitcoin shot to US$32 in July. That’s an over 3,000 percent gain. But a violent 94 percent drop soon followed… with bitcoin correcting back to US$2 by November 2011.
We saw the same explosive activity in April 2013 when bitcoin rallied from US$12 to an unprecedented high of US$266 (a 2,000 percent gain) – thanks to expanding media coverage and new exchanges opening their doors to new groups of traders.
However, excessive exuberance in the market, combined with a self-imposed trading halt at one of the largest bitcoin exchanges of the time, Mt. Gox, contributed to bitcoin plunging all the way back down to around US$40 in May 2013 – an 84 percent drop.
But then in October, a combination of increased demand from China… positive media stories… and a groundswell of new traders joining the market pushed bitcoin’s price from around US$150 to a new high of US$1,200 in November 2013 – a 700 percent gain.
In February 2014, Mt Gox halted withdrawals completely and announced it had been hacked. An estimated 850,000 bitcoins disappearing from what had been one of the crypto world’s most popular exchanges. And in December, China’s central bank barred financial institutions from handling bitcoin transactions. The decline in the price of bitcoin lasted until January 2015, bringing the price down over 80 percent to US$152.
Bitcoin rallied a number of times in 2015 and 2016 but the last major rally in bitcoin was in 2017 – when prices went from US$980 in January to new highs of US$19,535 in December – a 1,893 percent gain. A massive wave of new investors drove bitcoin into an indisputably overbought condition, which was ripe for a cooling off. Lasting from January to June, bitcoin prices fell 70 percent and now hover between US$6,000 and US$7,000.
So what’s next?
I can’t tell you exactly when bitcoin will enter its next bull market season. We could see the crypto soar in the final months of the year… or we might have to wait a little longer.
But based on its previous patterns, the next bull season will see new price highs. A rise of the same scale that which we saw in 2013 could see bitcoin’s price reach upwards of US$60,000. If we see the same sort of growth we saw in 2017, we could see a price of around US$120,000.
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The fundamentals are in place
Bitcoin reaching US$60,000 – or even US$120,000 – might sound crazy from where we are today. But there are three reasons why I believe it’s possible…
1. Institutional money is coming
So far, institutional investors have stayed away from cryptos. That’s because there have been a lot of hurdles to overcome (for example, there are compliance requirements, legal opinions and trading guidelines institutional investors must follow).
But in recent months, we’ve seen developments that are helping to make cryptos more accessible to institutional investors…
In August 2018, Intercontinental Exchange (ICE) – the company that runs the New York Stock Exchange (NYSE) – announced it’s launching a bitcoin exchange called Bakkt. If all goes to plan, when Bakkt launches in November, individuals and institutions will be able to buy bitcoin on a platform that’s fully regulated by the U.S. government.
We could also soon see a long-awaited bitcoin exchange-traded fund (ETF) – an investment vehicle that would give investors the ability to buy bitcoin just like they buy shares of stock.
So far, a raft of ETF proposals have been submitted to the U.S. Securities and Exchange Commission (SEC), most of which have been rejected.
However, there is real hope that submissions from the CBOE (Chicago Board Options Exchange) or a rumoured proposal from Coinbase (one of the largest crypto fiat exchanges in the world) and Blackrock (the world’s largest asset manager) might succeed where others have failed.
A bitcoin ETF would provide a crucial on-ramp to institutional investors looking to have access to volatile crypto markets through the stock exchange, without having to worry about owning or storing any cryptocurrency themselves.
In short, it’s only a matter of time until institutional money pours into the crypto sector.
2. Exponentially increasing hashrate
With the price of bitcoin falling in 2018, you’d think the amount of computing, or “hashing” power dedicated to running the Bitcoin blockchain would also fall. It’s just simple economics – as the price of bitcoin falls, mining becomes harder and less profitable, so there’s a reduction in the amount of power miners are willing to dedicate to the network.
But bitcoin’s network hashrate has continued to grow exponentially throughout 2018.
So either mining infrastructure is becoming more efficient so it’s impacted less by price fluctuations, or there are miners willing to run the network – even potentially at a loss – because of their strong conviction in bitcoin.
Either of these are a bullish indicator for bitcoin in the medium to long-term.
3. Google reverses ad ban
Last year, cryptocurrency Google advertisements contributed to the buying frenzy in cryptos, particularly in the initial coin offering (ICO) markets.
But in March, Google banned cryptocurrency advertising on its site. Many feared this would prevent any sort of price recovery in 2018.
Well, Google recently announced that it will start allowing regulated cryptocurrency exchanges in the U.S. and Japan to advertise on its network again soon.
Which means it’s possible that Google advertising could once again spark another record-breaking run-up in bitcoin.
And the timing couldn’t be better. Bitcoin has rallied over and over… and after ten months of “bitcoin winter,” traders are ready to see prices rise again.
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