Bitcoin hits all time high of $7000: More euphoria to come
Bitcoin price reached $7400 yesterday (predicted here) and it’s $7200 and climbing as I write.
The reason for the latest jump in value was in part driven by an announcement by US-based derivatives marketplace operator Chicago Mercantile Exchange (CME) Group about a plan to launch a Bitcoin futures product before the end of the year. While this seven times increase in price in less than 12 months, may seem ridiculous, the trend is your friend – until it isn’t.
My prediction is for $10 000 to be reached soon. It is a huge euphoria target and, after getting to this region, there will a drop in price.
It’s almost inevitable. And it will be scary for many holders. Weak hands could be tempted to sell all the way down to somewhere just below $5000.
The cause for the decline may be attributed to the issue of the contentious hard for from the Segwit 2X fork. This is a huge FUD event and could cause slow block times if the miners point their hash rate at Segwit 2X. Slow block times, albeit temporary, are a catalyst for the original chain to a crash in price.
My predictions are just for fun. Bitcoin always surprises both to the upside and downside, please read the disclaimer at the end of this article.
While I believe that the top for the year is not here yet, it is the question of whether we are seeing the beginning of something so fundamental that it’s hard to comprehend. Are we witnessing demand from individuals to protect their wealth for the long term?
There is evidence that while the increase in prices has been attributed to institutional demand, it is the fact that 35 000 to 50 000 new accounts are being opened on Coinbase every day.
The network effect compounds the value as new individual Bitcoin owners join. The increase in holders increases the value of the network multiplies at a much faster rate, just as we saw happen in Facebook, Amazon,Apple Netflix and Google. Mainstream acceptance is almost here.
What will not change is that Bitcoin is a new form of sound money outside the control of any government or authority.
Bitcoin: a digital version of gold
Bitcoin is hard money, it has a fixed supply. It has the properties of gold. In the same way, it is hard for gold miners to significantly increase the supply of gold when there is a price increase in gold. Therefore Bitcoin represents a great store of value like gold.
We know there can only be 21 million bitcoins. There are tens of thousands of nodes and this is highly unlikely to change. We’ve seen over the years that small technical changes are almost impossible to make.
Bitcoin is immutable. That is, it’s not going to change and the record of all transactions cannot be changed. The network is distributed and no-one can control it. There is a clever incentive structure that was designed into the protocol to keep things unchanged. The real value of Bitcoin is its immutable policy.
The new forks from Bitcoin Cash, Bitcoin Gold and soon Segwit 2X are edited versions and will never be bitcoin. They are alt coin forks and will not compete with bitcoin.
Is Bitcoin a payment network or a clearing network?
At this stage, Bitcoin does not need to be fast and it does not need to compete with debit and credit cards. But we will see the many innovations in payment systems ported over to bitcoin. For now, Bitcoin is for high value transactions only and for avoiding economic inflation from governments.
Decentralised networks are not more efficient than centralised systems by virtue of all the processing power to synchronise all the ledgers (blockchains) together. The future of Bitcoin will be as a final settlement and clearance chain.
Bitcoin serves a role very similar to interbank settlements. Rather like moving physical gold, Bitcoin competes with central bank settlements or inter bank settlements. For this task, transaction fees do not matter. Forty minutes for four confirmations does not matter.
Under the gold standard, physical gold was not moved around that much. So second layer solutions are settled finally off chain. Because Bitcoin can top 400 000 transactions a day that’s a lot of base money transactions. Far more than base money transactions that are done today.
A Bitcoin world of saving and collecting
When you buy Bitcoin your behaviour changes as you see price rise. Saving, by collecting Bitcoin, is encouraged and that encourages capital accumulation. In time, that leads to investment.
Bitcoin encourages you to think about the future rather than buy stuff for immediate gratification. Delaying consumption build tools for the future to get real productivity increases.
The long view
In my previous article I highlighted the importance of educating yourself with the eight common mistakes newbies make when starting out in Bitcoin.
The most critical mistake is a failure to store your Bitcoin securely. It’s a little technical for some. Find a bitcoiner, or attend a meet-up to get assistance.
As Bitcoin holders continue their journey through euphoric highs and desperate lows when the peri will drop 50 per cent it’s worth remembering that a new online country, a new central bank that is open to everyone is being built.
Bitcoin is like the internet, it cannot be closed down. It is sound money, it’s a store of value and it won’t go away.
Disclaimer: This is an opinion piece and is not investment advice. You’re all big boys and girls and you know to never to invest any of your cash in Bitcoin or another crypto token that you can afford to lose all of it, without worrying. This is still one giant experiment and it could fail and is a space full of scammers and pumpers. Be smart and do your own research.