In an interview with Valentin Schmid of The Epoch Times, Bitcoin developer and Paxos Principal Architect Jimmy Song offered his insights into the advantages and merits of bitcoin as money, a store of value, long-term investment, and a safe haven asset.
According to Song, one of the most important aspects of bitcoin as sound money is its unique monetary policy. Unlike most assets and reserve currencies which can be manipulated and controlled, bitcoin’s maximum supply will always remain at 21 million. Because bitcoin has a fixed supply limit and demand towards bitcoin from casual investors, institutional and retail traders are always increasing at an exponential rate, logically and mathematically, the value and price of bitcoin have to increase.
Song admitted that he was first exposed to bitcoin and a new asset class in cryptocurrencies when the price of bitcoin broke the $1 mark. But, Song purchased his first bitcoin when it was valued at $30. Today, despite the recent major price correction of bitcoin caused by the Chinese government’s nationwide ban on local bitcoin exchange, bitcoin price remains above $3,600. For Song, that is a 120-fold return on a long-term investment.
“You’re not going to be able to inflate it in any way. Bitcoin is sound money because there is a fixed supply limit and demand is always increasing. That creates a really good investment, at least from my perspective, and so I bought some at around $30. I do wish I bought a lot more but everybody in Bitcoin does,” explained Song.
Hence, as many prominent and early investors in bitcoin including Tone Vays, WhalePanda, and Tuur Demeester explained, the most stable, secure, and smart method of trading bitcoin is trade less, hold longer, and do not overreact to short-term volatility.
But, apart from its limited supply, there are various aspects of bitcoin which provide the digital currency value. In a study, JP Vergne, a professor at Ivey Business School, discovered that the best indicator of the short-term price development of bitcoin and cryptocurrencies, in general, is developer activity around it. Vergne wrote:
We found that the best predictor of a cryptocurrency’s exchange rate is the amount of developer activity around it.
Bitcoin is a decentralized financial network and a peer-to-peer protocol in nature. Thus, it is immutable to attacks and operates on top of a transparent ledger. But, bitcoin’s decentralization also makes it difficult to reach consensus. It is challenging for developers to integrate innovative software such as Segregated Witness (SegWit), the BItcoin Core development team’s scaling and transaction malleability solution because almost everyone within the network including miners, node operators and developers have to agree to it.
Song reaffirmed a similar point to Vergne. During the interview, he explained that active developer activity around bitcoin which provides the network security value ultimately drive the bitcoin price upwards and provides it with fundamental value.
“Things like the Bitcoin software just aren’t smart enough to handle stuff like that. It has to be people that actually fix it and that’s what I think gives Bitcoin a lot of security value — because you have all these people watching it and not just like computer software that’s running on its own. It’s developers, it’s the people that are actually checking the code or watching the network figuring out low probability scenarios and how to immunize against those. That’s what gives it value. That’s what gives us security. That’s what makes it a great store of value,” said Song.
Bitcoin is still a $60 billion financial network. Many respected financial analysts including RT’s Max Keiser and Wall Street analyst Tom Lee believe bitcoin could evolve into a multi-trillion dollar financial network in the upcoming years, given that conditions are met and developer activity around it remains vibrant.
Cryptocurrency Analysis: Altcoins Slide as Bitcoin Rally Pauses
All of the major coins are trading lower today after a bearish weekend, as altcoins are still underperforming Bitcoin, with the market leader holding up well near its all-time high. BTC is back below the $6000 level after surpassing our long-term target last week, but it’s still well within the rising trend, despite the overbought long-term picture.
The coin found support near the $5800 level, although it spiked as low as $5600 in the bearish environment. While we advise investors to wait until the next correction with new positions, traders could still bet on a rally to new highs as long as BTC remains in an uptrend. Support levels below $5800 are found near $5400 and $5000.
BTC/USD, 4-Hour Chart Analysis
Altcoins are trading well below their respective all-time highs, as capital has been flowing towards Bitcoin in recent weeks, but most of the major coins are still in long-term uptrends, with only ETC looking suspiciously week. Dash is the best performing currency of the day, as it surged off the $265 support, while Monero, Litecoin, and NEO are also among the relatively strong coins. Ethereum hit a one-month low below the $285 support, while Ethereum Classic, Ripple, and IOTA are all performing weaker than the broad market. Let’s see the short-term charts of the altcoins.
Notable Bitcoin Price Growth Events in October
October has been an interesting month for Bitcoin, with growth of about 40% so far, breaking a market cap of over $101,881,681,652.
But if you are looking at Bitcoin long-term, this is more than just numbers now. Yes, Bitcoin did experience some explosive growth this month (and has been this entire year), but we shouldn’t let that distract us from some of the main components that will fuel Bitcoin’s growth in the long-term.
- Not only did the price break $6,000 per Bitcoin for the first time ever, we started to see Bitcoin’s market cap rate surpass that of big banks such as Goldman Sachs ($93 billion) and Morgan Stanley ($89 billion). While comparing the market capitalization of a cryptocurrency with that of publicly traded companies doesn’t make much financial sense, it’s entertaining to watch financial institutions stress out about Bitcoin.
For example, the CEO of JPMorgan Chase Jamie Dimon can’t stop talking about Bitcoin and venting his frustration with the topic by calling Bitcoin a “fraud” and threatening to fire any employee trading it for the simple reason of “being stupid”.
We also saw Goldman Sachs state that Bitcoin is not the “new gold” in terms of currency, calling it volatile and the methods of storage vulnerable. Goldman Sachs also stated that precious metals like gold are still the best way to store value-long term. While this may be historically accurate, the world hasn’t seen anything like Bitcoin before. Understanding Bitcoin’s growth a matter of equipping yourself with the perspective and ideology that Bitcoin (or if/when whatever cryptocurrency evolves to take its place) can play a substantial long-term role in how society views money.
Traditional financial institutions such as investment banks are at an interesting point. Cryptocurrencies such as Bitcoin and Ripple are inherent threats to the very foundation that these multi-hundred-billion dollar companies operate on, and they can’t be defeated because of their decentralized nature. Additionally, many of the same banks that are threatened are also investors looking to reap the rewards of Bitcoin’s explosive growth, and also are incubating similar blockchain concepts to not get left in the dust.
- People are starting to look at Bitcoin as an oasis of solidity in an otherwise tumultuous alt-coin market.
In September, we saw an unprecedented crackdown on ICOs and alt-coins by government entities. China and South Korea outright banned the sales of ICOs, and the United States warned investors to be skeptical. While there are hundreds (soon to be thousands) of dubious ICOs, this crackdown did have effects on how investors view legitimate alt-coins. For this reason, many investors flocked to Bitcoin and were able to enjoy some solid growth in October.
So, that brings up the question of whether Bitcoin will be a source of stability in the future. Although the price has gone up a lot this month, that doesn’t make it any less volatile.
- Bitcoin still has a long way to go. One of the key pieces of news in October that influenced the writing of this piece was the prediction that Bitcoin will hit $27,000 in four months by an avid cryptocurrency investor and enthusiast called Trace Mayer. While Twitter is filled with all kinds of Bitcoin hooplah, Mayer’s prediction was based on a simple 200 day moving average. This 200 day moving average would put Bitcoin well over $27,000.
Four months is close enough in the future to anticipate, so I’m really interested to see where BTC ends up between then and now. The counter-argument against this would be that Bitcoin may just be experience a state of exponential growth and will cool off, but that’s what people have been saying for years.
It’s also important to note that Bitcoin’s main competitors for value storage and a medium of exchange are the US Dollar and gold. Bitcoin was able to earn a market capitalization of over $100 billion in just a few short years, but this hardly holds a candle to its competitors. The US Dollar money supply circles around $12,500 billion. All the gold that has ever been mined is worth around $8,000 billion.
This means that Bitcoin, this innovative new technology with exponential growth is only around 1% of its two main competitors. This leaves Bitcoin a long way to grow, and I personally don’t think it’s going to slow down anytime soon.
By all means, this isn’t a conclusive argument for where Bitcoin’s price will end up. These are just a few points I want to bring up regardless of whatever you choose to do with your money.
There are a handful good of arguments on both sides of the Bitcoin growth discussion, but it all comes down to how well you can either respond to short-term events, or how cemented you are in your long-term beliefs.
Personally, I don’t recommend day-trading or trying to “game” exchanges for the simple fact that losing money sucks, and this is an easy way to lose money.
However, what I can advocate is the thorough research of the fundamental factors influencing the growth of particular cryptocurrencies and how the world responds to it. For example, in October we saw investment banks start commenting more about Bitcoin (which at the very least hints at more media coverage), how many users decided to stick with Bitcoin instead of liquidating for fiat during rough alt-coin times, and some explosive growth that backs up the lofty price goal assumptions by crypto enthusiasts.
We Have to Talk About Bitcoin Again
It hasn’t been a day since our last bitcoin article, but the world’s leading cryptocurrency has soared to fresh all-time highs yet again. This time, prices approached $6,200 for the first time ever.
Bitcoin’s Bull Market
BTC/USD touched a session high of $6,180.00, bringing its total market cap to $103 billion. Prices were last seen hovering around $6,100, according to Bitstamp.
The rally on Saturday came less than 24 hours after the bulls tested the waters near $6,000. Analysts are almost certain that prices can still go higher, making a compelling case for investors who are still on the sidelines of the crypto rally. FundStrat Global Advisor’s Tom Lee believes prices could top $25,000 over the next five years. In fact, he says this is a conservative estimate.
Bitcoin’s epic run has dwarfed Wall Street’s post-election rally, and has defied repeated warnings from big banks and policymakers.
Bitcoin Gold’s Private Fork
Coinbase made a startling revelation Friday in its FAQ section, where it claimed that Bitcoin Gold (BTG) has already privately forked. The private fork occurred “at a point known only to the Bitcoin Gold development team.” The newly minted digital currency will be made publicly available when the Bitcoin blockchain reaches block no. 491,407. That’s estimated to occur Wednesday.
Bitcoin Gold isn’t your typical fork in the traditional sense of the term. The Wednesday fork date is when the first Genesis block will be mined. The Bitcoin network will have no part in this process whatsoever.
Market participants are still skeptical whether BTG is legitimate. The code has not been made available, and its developers have already mined tens of thousands of blocks.
BTG’s reluctance to release its code publicly is a “major security risk,” according to Coinbase. As such, the U.S.-based exchange will not support the new coin. The broker remains committed to adding support for the Segwit2x hard fork in November.
“After the fork, we will enable access when we have determined each blockchain is secure and stable,” Coinbase Dan Romero said in a blog post earlier this month. “We expect this to happen within a few days after the fork, but it may take longer if additional risks emerge.”
Featured image courtesy of Shutterstock.
- Cryptocurrency Analysis: Altcoins Slide as Bitcoin Rally Pauses October 23, 2017
- Trade Recommendation: Stellar October 23, 2017
- Crypto-Friendly Japan Mulling ICO Ban? October 23, 2017
- Trade Recommendation: Lisk October 23, 2017
- More Powerful than an Emperor October 23, 2017
- Small Cap Trading Frenzy Drives Penny Stocks In October October 23, 2017
- Asian Market Update – Monday: Tokyo Gains after Election Landslide, Minor Losses in China, S. Korea October 23, 2017
- Ether Prices Fall Below $300 Amid Technical Breakdown October 23, 2017
- Buy FDS, PPC, BERY, and IIVI for the short-term October 22, 2017
- Notable Bitcoin Price Growth Events in October October 22, 2017
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