Bitcoin investors have been waiting for a repeat of the 2017 rally for almost three years now - then the asset rose 20 times over the ...
Bitcoin investors have been waiting for a repeat of the 2017 rally for almost three years now - then the asset rose 20 times over the year, reaching an unbeatable high of $ 20,000. According to a recent report from Bloomberg, a number of indicators indicate that the first cryptocurrency is preparing for a new rally, which will be like the 2017 crypto boom. Bitcoin is reducing its correlation with the stock market, becoming more like gold and may become the most profitable asset of the year, the document says. In this article, we understand the arguments presented in the report and assess the chances of BTC repeating the meteoric rise that took place three years ago.
Bitcoin Secures Digital Gold Status
The report was written by Mike McGlone , Senior Commodities Strategist at Bloomberg Intelligence . He called the talk "Bitcoin Maturation Leap" - "Leap in Bitcoin Development."
A Bloomberg analyst believes that for the first time since the beginning of the year, a number of indicators indicate the possible imminent rapid growth of bitcoin. Recall that from the beginning of January to February 12, military-technical cooperation increased from $ 7200 to $ 10,200.
McGlone believes that bitcoin already has everything to become "digital gold". Amid the ongoing coronavirus pandemic, its volatility is declining and it is poised to become a more stable asset. The agency's expert predicts that the volatility of the first cryptocurrency will continue to decline further, and sees this as one of the signs of a new rally. McGlone also draws an analogy with October 2015, when all-time low volatility marked the beginning of the bull market that led to the 2017 crypto boom. The analyst expects the situation to repeat itself this time. He believes the emergence of bitcoin futures has " tamed the raging bull market in bitcoin ." And this had a positive effect on the first cryptocurrency, bringing it even closer to the role of digital gold.
The expert also notes that the volatility of the BTC in 2019 was on average five times higher than the volatility of the S&P 500 index over the same period. However, by April of this year, bitcoin quotes fell 5% in dollars since the beginning of the year, the Dow Jones - by 23%, and the S&P 500 - by 22%. McGlone believes this reflects Bitcoin's transition to a mature asset. Gold in the first quarter rose by 4%. At the same time, over the past year, the BTC grew by 40%, while the same S&P 500 index fell by 15%.
“This year, in our opinion, will confirm the transition of bitcoin from a risky speculative asset to the gold version of the crypto market,” the report says.
The Bloomberg analyst notes that the prices of bitcoin and gold are correlated and often follow each other. Moreover, recent events in the stock market show that Bitcoin's short-term correlation with the securities market is weakening, while the correlation with gold, on the contrary, is increasing. According to McGlone's estimates, the correlation between BTC and gold has been maintained for 52 weeks, reaching record levels now, and it is also twice as high as with the stock market. At the same time, gold shows the highest prices since 2010.
Correlation between bitcoin and gold according to Bloomberg. Source .
The agency's analyst believes that in an effort to deal with the economic fallout caused by the coronavirus, central banks have started to over-issue money that has been "thrown" into the market. In his opinion, bitcoin and gold will become the main beneficiaries of this - both assets will rise in value, and the number of their holders will increase.
McGlone did not give forecasts for the MTC price. But he believes that Bitcoin is undervalued in relation to some key metrics. So, for example, on April 2, one of the indicators pointed to the price of the first cryptocurrency at $ 9000, while the actual price was only $ 6600. McGlone expects Bitcoin to surpass Ethereum, XRP, and the entire altcoin market in the near future.
The expert suggested that gold could break the previous record high and soon rise in price from the current $ 1,700 to $ 1,900 per ounce. Analysts generally believe in the main precious metal. Thus, Bank of America experts predict that next year the price of gold may reach $ 3000 per ounce.
Halving BTC as the most anticipated factor in crypto rally
In his report, McGlone is silent about the most anticipated crypto event of this year - the Bitcoin halving, which is due to take place on May 12. After that, the reward for the mined block will be halved - from 12.5 MTC to 6.25 MTC. Now miners are mining about 1800 coins per day, and after halving their number will be 900. It is assumed that a decrease in the rate of coin mining will have a positive effect on the price of the asset.
Countdown to the next bitcoin halving. Source .
Investors have two main points of view on how the market will react to halving.
According to the first, halving will lead to a new rally, bitcoin will sharply rise in price and reach new highs, raising quotes and other market assets. This is exactly how the first cryptocurrency behaved after the previous two halvings in 2012 and 2016. Back then, Bitcoin entered a bullish trend about a year before the block reward cut, and a year after the halving, it reached its then price highs.
So, in 2013 and 2017, bitcoin grew by 12,000% and 13,000%, respectively. According to similar optimistic estimates, the coin will now cost between $ 20,000 and $ 400,000 within a year after the halving. It is important to understand that if the predictions come true, bitcoin will not grow overnight, because after halving, many miners may start to disconnect from the network en masse, and it will take time before they return. Therefore, the price growth will stretch for a year and a half.
According to the second point of view, which seems more likely to us, the expectation of halving is already included in the current price of the coin, and a reduction in the block reward will only lead to the final departure of small miners and further consolidation. There are arguments for this opinion.
So, recently passed halving of the most famous bitcoin forks - Bitcoin Cash and Bitcoin SV - have not yet led to the growth of coins, miners have only redirected their resources to mining Bitcoin. Halving on the Litecoin network in August last year also did not help the coin rise in value. But in any case, most experts are optimistic and believe that bitcoin has already hit its bottom at $ 4,000, and up to halving, the coin is expected to grow.
“This is what I think about bitcoin. The halving in 2020 will be similar to the halving in 2012 and 2016. According to the S2F model, I expect a tenfold increase in price (these are rough estimates) 1-2 years after the halving. The event will confirm or refute the S2F models (Stock to flow - the author's own model of the post, which displays the dependence of the coin price on the rate of its emission. - DeCenter). I hope that this halving will help us better understand the basic principles and network effects of the network, ”the well-known crypto trader PlanB shared his forecast. In September last year, by the way, he predicted the price of BTC after the halving at $ 385,000– $ 425,000.
Investors are definitely gearing up for halving. So, at the end of March, several large crypto exchanges, including Kraken, OKEx, Bitfinex, Paxful, eToro and Luno, reported a surge in both new users and trade volume. The growth is impressive: the number of users of the Bitcoin platform Paxful has doubled, and the number of Americans on eToro has grown by 221%. Exchange officials believe that investors see bitcoin as a “defensive asset” during the crisis.
“I have not experienced such a large organic interest in Bitcoin among people far from cryptocurrency since the beginning of 2017. Yesterday, three of my old friends, whom I had not spoken to for several years, individually consulted with me about buying their first bitcoin, ”Ari Paul, a well-known crypto investor, co-founder and chief investment officer of BlockTower Capital, said on Twitter.
According to Glassnode , the number of active addresses on the Bitcoin network has been growing since the beginning of the year and has reached the indicators of July 2019, when the market was booming and the price of BTC reached $ 13,000. New investors are clearly entering the market.
The number of active addresses on the Bitcoin network according to Glassnode. Source .
Don't Expect To Wake Up As Crypto Millionaires
The crypto world has changed a lot since 2017. Now it is a serious market, officially recognized by the authorities. Bitcoin is still the main cryptocurrency, but there are already many projects with better scalability and speed of blockchain networks that can attract investors. The infrastructure is almost complete in the industry, institutional players, derivatives, and developed regulation have entered the market. Bitcoin is still a high-risk volatile asset, but much more regulated than it used to be. If a new crypto rally happens, it will be very different from the previous ones.
A key factor in the rise in bitcoin prices during the 2017 crypto boom is the growth of user interest. The rally was fueled by a large number of inexperienced retail investors entering the market who do not want to miss their chance to become millionaires. Then, for the first time, the broad masses of users far from the crypto world learned about bitcoin.
This time there is no need to expect crowds of neophytes. First, the cryptohype has already passed, and people are unlikely to fall into the same "trap" again. Secondly, many newcomers in 2017 became disillusioned with cryptocurrencies, and some of them lost funds in early 2018. Thirdly, now are not fat times, but the most serious crisis since the Great Depression - most are not up to risky investments.
Will crypto enthusiasts have enough strength to overclock the price of MTC without a massive influx of new users? We think that they will be enough to raise the price of the coin by 50% or even 100% within a year or two, but no more. These are great numbers, but not at all the rally that many expect.
Here we will make a reservation: if the price of military-technical cooperation overcomes the psychological boundary, for example, $ 15,000 or $ 20,000, the number of those wishing to get rich on cryptocurrencies may start to grow again. If Bitcoin surpasses the previous high of $ 20,000 and rises higher, the market could again be chaotic with inexperienced investors looking to hit the jackpot. This is likely if the first cryptocurrency starts to rise in price during the economic recovery after the pandemic - for example, early next year.
In fact, the price of MTC is now determined not by correlation, the number of users or halving. It is much more influenced by the effectiveness of measures against the pandemic, the depth of the recession and the pace of market recovery, the position of regulators in relation to stablecoins, exchanges and decentralized cryptocurrencies.
Moreover, it would be better for the adoption of cryptocurrencies if there were no sharp rallies. Any explosive rise in prices will inevitably lead to a new fall, which will be as unexpected as the previous ones. As a result, inexperienced investors will face even more disappointment in the industry. For better acceptance of cryptocurrency, calm growth is much more profitable.
