Crypto Adoption is Spreading Like Wildfire; Where is Bitcoin Headed?
Crypto markets turned heads this past week following a rare surge in trading volume on virtual exchanges. In a matter of days, the cryptocurrency market capitalization ballooned by over $16 billion, offering the first convincing sign of 2019 that the bears were breathing their last gasp.
While it’s still too early to definitively declare crypto bottom, news surrounding adoption and legislation suggests it really won’t matter in the long run. That’s because the worst bear market in crypto history has not slowed down the adoption of bitcoin and other digital assets. Quite the contrary – it may have created a sense of urgency for people looking for the right time to invest.
The Virus is Spreading
Anyone doubting the growth and widespread adoption of bitcoin/crypto should take heed to the following developments (all in the past week, no less):
- The University of Michigan is planning to increase its investment stake in a crypto fund set up by Andreessen Horowitz. U of M began investing in the fund, called A16z, last summer.
- Pantera Capital has already raised $125 million for its third cryptocurrency fund. The impressive fundraiser is indicative of high demand from wealthy investors and family offices.
- As Hacked previously speculated, the new Samsung Galaxy S10 will feature private key storage for cryptocurrencies. Samsung is known for being ahead of the curve when it comes to emerging technology.
- Wyoming has passed three cryptocurrency bills designed to lure investors and businesses to the state. One of the bills, SF0125, recognizes digital assets as property and provides banks with an avenue for becoming crypto custodians.
- Thailand has announced that it will legalize security token offerings (STO), a new funding mechanism set to replace initial coin offerings. The plan was reported by the Bangkok Post.
A special thanks to Anthony Pompliano for summarizing these updates in his weekly crypto roundup on Twitter.
Of course, these recent developments are only the tip of the iceberg for crypto adoption. Digital assets have made more progress within institutional circles in the past eight months than at any point in the previous nine years. Case in point:
- Intercontinental Exchange has partnered with Starbucks, Microsoft and several investors to establish a new cryptocurrency operation called Bakkt. The platform’s first order of business is to launch a physical futures market for bitcoin in the near future.
- Fidelity Investments will officially become a crypto custodian by the end of March.
- Fidelity and Nasdaq Ventures are among a handful of investors to have contributed to ErisX, an up-and-coming cryptocurrency exchange geared toward institutions and individuals.
- Nasdaq is also planning to launch its very own bitcoin futures market. We are still awaiting details.
- Total investment in Grayscale cryptocurrency products reached $359.5 million in 2018. Two-thirds of the capital raised in 2018 came from institutions.
- Morgan Creek Digital recently announced that two Virginia pension plans have become anchor investors in a $40 million crypto venture-capital fund.
Read our latest Week in Review: Crypto Spring? Bitcoin on Track to Snap Six-Month Losing Streak Following Spectacular Week.
Where is Bitcoin Headed?
Unlike the 2017 bull market, fundamental news surrounding bitcoin adoption has not translated into higher prices for the commodity. The chasm between positive news flow and the underlying price reflects a weakening of investor morale during the bear market. Long-term holders and bitcoin whales have also stayed on the sidelines for much of the downtrend, which led to a sharp drop in circulation/trading volume in 2018. This appears to be changing as the whales begin to reactivate their long-dormant accounts.
Bitcoin’s circulating supply has been gradually rising since the summer, culminating in a large influx between December and January. Basically, accounts that haven’t traded in a couple of years began transferring coins from their wallets to digital currency exchanges, conceivably for the purpose of trading. In mid-January, we predicted that this would lead to a major price swing at some point in the near future. The rationale: a similar influx of coins preceded two major price swings in 2015 and 2017.
At the time we reported these developments, it wasn’t clear whether the previously dormant account holders would emerge as buyers or sellers. While the jury is still out, the latest upswing suggests that downside risks are beginning to fade.
In terms of where bitcoin is headed, we often talk about the importance of the December high ($4,200) in determining the bullish/bearish outlook. If bitcoin has in fact bottomed, then a return above $4,200 is considered more likely in the short term because it means selling pressure has been absorbed by the latest influx of coins/capital into circulation. But if bitcoin risks further downside, then $4,200 could prove to be an elusive barrier. Another reason why $4,200 is so critical: bitcoin derivatives.
To confirm its bullish intentions, bitcoin would eventually need to climb above $5,500 and eventually $6,800. That’s a tall order given current market conditions. In the author’s view, bitcoin will undoubtedly return to these levels; it’s only a matter of when. If you share the view of crypto analyst Murad Mahmudov, a bull rally probably won’t happen until next year. If you’re Weiss Ratings, 2019 is the year to invest because bitcoin will reach new highs before December 31.
Investors should also monitor bitcoin’s progress above the December low ($3,100-$3,200, depending on the exchange). For the past seven years, bitcoin has produced higher lows six times. On that basis, one should expect that 2019 won’t produce a low quite as bad as last year’s.
Recap of bitcoin’s yearly lows:
- 2012: $4
- 2013: $65
- 2014: $200
- 2015: $185
- 2016: $365
- 2017: $780
- 2018: $3,200
- 2019: ??
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.