Where Will Bitcoin Go in 2018 and Beyond?
2017 was a landmark year for bitcoin. 2018 could be the opposite, as bitcoin’s price has slumped throughout the first 8 months of the year.
What are bitcoin’s prospects for the rest of the year? Where will bitcoin go in 2019? Andrew Macdonald at CryptoBriefing.com recently tried to answer that question. Macdonald cites historical data to suggest where bitcoin could go next.
Macdonald comes up with 6 reasons why bitcoin markets are expected to be bearish in the short-term and 6 reasons why he’s bullish in the long term.
6 Reasons Why The Bear Market Won’t End In 2018
First, Macdonald doesn’t seem to believe bitcoin’s bear market is going to end any time soon. Macdonald lists six reasons why 2018 won’t be the year where the bull market returns. Instead, investors will have to wait until 2019 to start seeing gains.
You’ll find Macdonald’s six reasons below.
Historic Cycles Tell Us We Have 9 To 10 More Months Of A Bear Market
Macdonald believes historical data tells us bitcoin’s bear market will continue. The 2018 bitcoin bear market may feel like it has lasted forever, but it’s not the longest bear market in bitcoin history.
“If we use the 2014-2015 bear market as a case study,” explains Macdonald, “the bear market lasted approximately 19 months. The decline in price was close to 80% peak to valley. We have been in a bear market for 7-9 months depending on your definition, and I don’t see a reason why this cycle will be much different.”
If we’re assuming history repeats itself, then we can expect this current bear market to last for another 10 months. If bitcoin is to lose 80% of its value from its all time high in this market, then bitcoin will drop to a value of $4,000 by the end of the market.
Will we really have to wait until June or July 2019 until we see the return of bitcoin’s bull market? If history repeats itself, then that could be the case.
Hashrate Has Increased And Miner Profitability Has Dropped
Mining hashrate has tripled in the last seven months. That means the bitcoin network is being secured by three times the number of computations per second compared to seven months ago. That means a large number of new, highly-efficient mining rigs have come online.
If you are a bitcoin miner without one of those rigs, then your profitability has gone down significantly, which means you’ll need to sell more bitcoin to cover the costs. Miners are being forced to sell their bitcoin immediately after mining it just to cover their costs, creating a downward pressure on the market.
“Bitcoin mining profitability in USD per day per each transaction hash has gone down 92.6% since December highs.”
A regulated bitcoin ETF will bring a substantial amount of money into the crypto industry. Many have compared it to the first gold ETF.
However, the SEC has rejected every single bitcoin ETF proposal that it has received. Last week, the SEC delayed the decision on the latest bitcoin ETF proposal – the much-anticipated VanEck SolidX bitcoin ETF.
The SEC has 240 days after receiving the approval to make a decision. Starting from the date the ETF was posted to the Federal Register, that means we could have to wait until February 18, 2019 to receive approval of a bitcoin ETF. It will undoubtedly create a bull market when the time comes – but we may have to wait a while.
Metcalfe’s Law Tells Us Bitcoin Is Overvalued
Next, Macdonald cites Metcalfe’s Law, which characterizes network effects in technologies.
“The Network Value to Metcalfe (NVM) ratio comes out of this theory. Between 2015 and 2018 the NVM ratio stated that bitcoin was undervalued comparing the price to the amount of on chain activity, but this changed in 2018 – price started to catch up to the normalized NVM ratio.”
Today, the ratio suggests that bitcoin’s market cap is too high compared to its activity. Some compare NVT to the price to earnings ratio in equity markets. A high NVT ratio can signal high growth or a bubble. It shows the network is overvalued. In 2018, the NVT ratio has climbed from 65 to 193.
Dwindling Retail Interest
Bitcoin is facing dwindling retail interest. 2017 was the year everybody from teenagers to grandparents heard about bitcoin. People wanted to buy bitcoin. People heard about friends getting rich with bitcoin.
In 2018, there has been a sharp decline in retail interest for bitcoin. Google searches for bitcoin have fallen 90% compared to where we were in December 2017 during the height of the market. Daily visits of the bitcoin Wikipedia page have fallen from 100,000 unique visitors per day last year to 10,000 visitors per day this year.
Continued Lack Of Regulatory Clarity
The SEC has provided some regulatory clarity on bitcoin and other cryptocurrencies. We’ve had the SEC’s William Hinman declare that bitcoin isn’t a security.
However, we’re going to need more regulatory clarity if bitcoin is to achieve its full potential. Right now, bitcoin and other cryptocurrencies are in a grey area of uncertain regulation. This has led some to be wary about bitcoin – particularly institutional investors who want to limit their liability.
6 Reasons To Be Bullish In The Long-Term
Macdonald has a bearish outlook for bitcoin in 2018 and he sees little evidence to suggest a bull market will emerge before the end of the year.
However, he’s bullish on bitcoin over the long-term and he cites a number of reasons why that could be the case.
Capital Flight Away From The Chinese Yuan
Bitcoin is most useful when being used for cross-border payments. It’s increasingly being used as a vehicle for “capital flight”. If your nation’s currency is declining and you need to preserve your wealth, then you need a safe haven. Bitcoin could be that safe haven.
Macdonald cites the Chinese Yuan as one reason why he’s bullish on bitcoin in the long term.
“Most analysts can agree with high conviction that the best use case for bitcoin right now is for cross border payments – more specifically, I believe it is best used for capital flight where there are restrictions in place from an authoritarian government. This has led some to believe that the price of bitcoin has been negatively correlated with the price of the CNY. The price of CNY has been declining versus USD in 2018, which may indicate a potential catalyst for capital flight into bitcoin if purchasing power continues to decline.”
Macdonald mentions the Chinese Yuan, but we’ve seen similar activities in other fiat currencies. The Turkish Lira, for example, recently entered a steep decline due to economic instability and tariffs. Similar currency devaluations have been seen in Zimbabwe and Venezuela. The CNY market is bigger than all three of these national currencies combined, however, so capital flight from China could have a significant impact on the market.
Bitcoin Dominance Continues To Increase
Bitcoin’s dominance waned in 2017 as money poured into altcoins and ICO projects. Macdonald believes 2018’s bear market can be linked to 2017’s ICO craze:
“A strong opinion of mine that is loosely held is that the overvaluation of undeserving projects in the 2017 ICO craze is a contributing catalyst for the 2018 bear market, and that capital needs to bleed out of these over-capitalized projects back into bitcoin before we can realize the next bull market cycle.”
Many ICO coins have lost 90% of their value in 2018. As money bleeds from these coins, bitcoin’s market dominance continues to increase. Over the year, bitcoin dominance has reached a low of 33%, climbing all the way up to 51%. A 60% bitcoin market dominance rating would be ideal for a bull market.
The Block Reward Will Halve In 2020
In May 2020, the block reward for mining bitcoin will drop from 12.5 BTC to 6.25 BTC, part of the periodic halving cycle that takes place on the bitcoin network.
The block halving, according to Macdonald, is a positive signal because of bitcoin’s price history. The last times bitcoin has been halved, the price of bitcoin went up.
The reason is linked to basic economics. If you look at block rewards as “inflation” on the bitcoin network, then inflation is dropping from 3.7% to 1.79% per year. From an economic standpoint, that’s a good thing for currency holders.
ETF Approval Could Occur In 2019
ETF approval may not come in 2018, but it may come in early 2019. An ETF approval would undoubtedly spark a bull market – similar to how gold surged to all time highs after approval of a gold ETF in the early 2000s.
Increased Regulatory Clarity Will Come
Regulators can’t ignore bitcoin and crypto any longer. It seems likely that regulatory agencies like the SEC and CFTC are developing crypto-specific regulations. Increased regulatory clarity will be a good thing for bitcoin. Today, the threat of the SEC banning bitcoin trading – or declaring cryptocurrencies securities – looms over the industry.
Bitcoin Continues To Be Seen As The Future Gold
Many people – particularly young people – already see bitcoin as “the future gold”. This opinion could continue to grow over time.
Bitcoin doesn’t have to entirely replace gold. But if even a fraction of the world’s gold trading activity gets transformed into bitcoin, then it would be huge for our favorite cryptocurrency:
“A little known fact is that more and more gold is found every year and added to the world’s reserves. For simplicity’s sake, let’s say all of the gold in the world is worth $7.5 trillion USD. If just 10% of the wealth stored in gold is transferred to bitcoin that’s 750 billion USD. With a market cap of 750 billion USD, each bitcoin would be worth over $35k USD.”
“I am still bullish on bitcoin in the long-term,” explains Andrew Macdonald. According to his analysis, investors can expect more short-term pain towards the end of 2018, with bitcoin potentially sinking as low as $4,000. Over the long-term, however, bitcoin is expected to enter a bull market phase sometime in 2019 due to the numerous reasons mentioned above.