The Long-Term Bullish Case for Bitcoin (BTC)

Bitcoin

Bitcoin has been in an unstoppable bullish run since April 2, 2019. Many are quick to point to technical factors such as the huge drop from the all-time high of $20,000 as the reason for the bounce. Others say that the large short selling orders provided the fuel (short squeeze) for the cryptocurrency’s remarkable ascent. Then there are some that would claim that this rally isn’t surprising considering bitcoin’s significant fundamental developments over the last few months.

In this article, we’ll look at these fundamental improvements to argue our long-term bullish case for bitcoin.

Incremental Changes Strengthened Bitcoin’s Fundamentals

During the 2018 crypto winter, almost everyone focused on the cryptocurrency’s descent from $20,000 to $3,000. Only a handful of people reminded everybody else of bitcoin’s technological progress despite its tremendous drop in value. Some of the coin’s significant advancements include increase in hash rate, a surge in transaction volume, and a significant drop in transaction fees.

Bitcoin’s Hash Rate Almost Quadrupled After 2017 Bull Run

A hash rate is the measure of the miners’ speed to solve a bitcoin code or puzzle. The more miners joining the network to solve the code, the higher the hash rate.

During the 2017 bull run, bitcoin’s hash rate stood at 15 exahash per second (eh/s). Today, that number has risen to 56 eh/s. That’s growth of over 270% in a year and a half.

hash rate chart
Bitcoin hash rate growth | Source: BitcoinVisuals

From a business perspective, miners would only join the network if the overall outlook for the cryptocurrency would be bullish. Keep in mind, they have to spend money in equipment and power to mine blocks and earn coins in the process. Thus, they will not invest tremendous resources in mining bitcoin if they didn’t believe that they will generate profits in the long-term.

It is very likely that these miners are accumulating bitcoins at lower prices now in anticipation of the next bull run.

Transaction Volume Has Been Skyrocketing

The arrival of more miners has been coupled by a significant surge in bitcoin’s daily transaction volume. The daily transaction volume is approaching December 2017 levels.

Transaction volume
Bitcoin transaction per day | Source: Transactionfee.info

The significant growth in daily transaction volume can be a sign of either increased speculation or widespread adoption. Either way, this is bullish for the cryptocurrency’s long-term prospects.

Transaction Fees Plummeting

Perhaps one of the reasons why transaction volume is on the rise is because fees have been falling.

CryptoPriceList reports that the last time bitcoin’s usage was this high, transfer fees stood between 500 and 700 satoshis per byte. Today, that number plunged by over 95% as fees range between 15 and 30 satoshis per byte. Fundamental improvements such as the implementation of the segregated witness (SegWit) and the Lightning Network have contributed to advancements that are favoring users.

Halving Not Yet Priced In

We are about 340 days away from the next bitcoin block reward halving. Those in the know understand that this is a historically bullish event and it is a sure-fire way to significantly increase your net worth. Just to give you some perspective, bitcoin rose 10x after the 2016 halving.

Halving prices
Price surges after the halving | Source: CCN

One of the best things about the halving is that the general public has no idea what it is and how it can benefit them. According to Grayscale Investment, they were surprised to learn that many people have no clue about this event. Investors lack awareness in spite of two previous halvings. Thus, it would be safe to assume that the halving is not yet priced in.

Needless to say, you are way ahead of the curve just by reading this article.

Institutions Are Pouring in

On October 31, 2018, Morgan Stanley reported that bitcoin is no longer just a store of value but also an institutional investment class. The classification upgrade from a credible firm may have sparked the entry of other financial institutions.

For instance, Fidelity established a separate firm called Fidelity Digital Asset Services to attract hedge funds and family shops to invest in bitcoin and other cryptocurrencies. In addition, Goldman Sachs is getting their feet wet by signing up clients for their own bitcoin trading product. Lastly, the biggest institution to enter the cryptocurrency world is Bakkt.

With the entry of Bakkt, other institutions, fund managers, and even merchants now have a portal where they can buy, sell, and store cryptocurrency without running into legal troubles. Bakkt is a fully compliant platform and this opens a big door for financial institutions to invest in bitcoin.

Other places where institutions can enter the space through custodial services include Balance, Coinbase Custody, Kingdom Trust, and Gemini.

Bottom Line

Bitcoin’s rise has been impressive thus far but with strengthening fundamentals, we can only expect it to continue its surge. The incremental technological advancements, the anticipation of the halving, and the entry of big players are the cornerstones of our long-term bullish case for bitcoin.

 

Disclaimer: The writer 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.

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Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.