Bitcoin adoption: Growing pains and the need for regulation
While legislation and decentralisation might not go hand-in-hand, Bitcoin adoption might thrive with more regulation.
No – this isn’t some archived article from 2017 being regurgitated for clickbait. It’s 2019 and yes, we’re still dredging day-by-day through the lifeless landscape fighting for any semblance of civilization in what feels to be a real-life Mad Max spinoff. With bigger than life characters fighting over limited resources while all trying to destroy one another. On top of it being the longest bear market in Bitcoin history, there’s also a double whammy in that the coldest winter has literally been registered in many parts of the United States to make things more depressing.
It seems the Bitcoin winter has not only stopped Tom Lee (@fundstrat) refusing to give anymore Bitcoin price forecasts on national television, but it’s gone as far as influencing mother nature herself. If this crypto winter has the possibility to go on for another eight to twelve months as some analysts predict I would ask the Bitcoin God’s to just release the damn zombies. The suffering is hitting its breaking point for many. But in times of such despair, any experienced speculator knows – this is now the opportunity to find value. We are closer to the bottom than ever before.
The fundamental picture for cryptocurrencies has never been rosier. All you have to do is stay updated on Laura Shin’s twitter (@laurashin) or informative weekly podcast to get updates from industry insiders, buy a custom Anthony Pompliano (@apompliano) t-shirt “Long Bitcoin, Short the Bankers” while wearing your skinny jeans, high tops and showing off that arm sleeve to tell Wall Street bankers you ain’t scurred.
Be sure to follow billionaire Mike Novogratz (@novogratz) on Twitter for a weekly dose of why Bitcoin is not just digital gold, but this entire space has the potential to become a digital galaxy of opportunity (see what I did there?). Novogratz a former hedge fund trader founded the first digital asset bank Galaxy Digital during the start of the 2018 recession. The stock is also a publicly traded company on Canadian TSX exchange ticker: GLXY. He was also a collegiate wrestler back in the day and can probably still tap you out.
But seriously, the fundamental picture is better than ever. Fidelity is building out a regulated digital asset exchange for its clients with a secure custody solution for 2019. We have BaKKT, sister company of I.C.E (Intercontinental exchange) that oversees and operates global stock markets like the NYSE raising over $185MM in initial round funding for its digital asset exchange plus custody and physically delivered bitcoin futures. There are rumours that Starbucks and Microsoft are part of this project as well. Every well-known asset manager is researching and doing their own due diligence in studying crypto assets. Coinbase and Gemini continue to push the envelope in coming up with institutional grade products while at the same time satisfying regulators. The infrastructure isn’t just being built in the US. In fact, the argument could be made that countries like Japan, Singapore, Hong Kong and S. Korea are all ahead of the game. The regulators of these countries have been strict in certain areas of crypto’s primarily the ICO market, however, they have been much more engaging with businesses and exchanges in providing clarity where it’s needed. This is truly lacking here by the SEC. It’s this lack of involvement and collaboration in fostering this new technology, which is keeping the institutional market place being more engaged in the U.S.
Well for bull traders it’s been more like that zombie apocalypse I referenced earlier. The catalyst was in March 2018 when Bitcoin dropped below its 200 daily moving average for the second time in less than a month the market has been a steady free fall state since marked by higher lows of each peak. To give Bitcoin some credit it held $6,000 levels for months. The bears tried breaking this barrier a number of times over the course of 2018 and the bulls managed to hold the line with every attack until it didn’t. And when this barrier broke the bear zombies came in like some episode of Walking Dead with no weapons to defend ourselves. This was lower first with sentiment then prices closely follow. Even though Bitcoin peaked in December 2017 and was falling steadily afterwards many consider the bear market beginning in March when it fell below this threshold and remained below its 200 DMA. This is not crypto unique. This is a long-term technical indicator as well in the stock market and in fact, most of the technology stocks, for example, are trading below their 200 DMA for several months now – hence CNBC and talks whether we are or not in a recession being debated daily.
The above chart is a zoomed-out Bitcoin history lesson since 2012. The chart highlights the most recent bull and bear cycles, the length of these cycles and other attributes. You can see starting from left to right that each cycle from bottom to top bitcoin surged around 12,000% since 2012. In this piece, we have dissected the 2014/2015 recession mainly because it’s alarming how similar it looks in terms of the 2018/2019 market conditions. If we believe patterns tend to repeat themselves than we can extrapolate by studying the previous recessions to come up with estimates on timing and magnitude on Bitcoin’s future. A number of black swan events could derail Bitcoin hitting its price of $340,000 per coin, however, one fact does remain true. Bitcoin has had a written obituary written more than 350+ times in its history. Yet, it remains here, thriving and continues to achieve cycle over cycle new all-time highs. It’s proving the store-of-value proposal despite the sceptics and non-believers.
We believe the target accumulation zone to be $2,500 to $5,700 based on previous market cycles and timing. There is a double bounce as well on the RSI from the previous 2015 recession to present. Yes, Bitcoin could fall lower, but you’ll never catch the bottom and sell the very top. We believe the bitcoin will cross it’s 200 daily moving average by September 2019 which will confirm the bear market over. The asset will go into its next Hyperwave cycle and by January 2021 will reach a price of 20k. At this point we expect a Wall Street FOMO bubble to take hold and make the retail trading bubble of 2017 look like peanuts. Read further below on how this fundamental picture could happen.
Millennial and Generation Z – they understand all things digital. This demographic is defined as anyone born between 1981-2000’s for Millennials and early 2,000’s to current for Generation Z. Each of these generations is expected to be larger than the baby boomer generation. These generations grew up with Wi-Fi everywhere, smartphones, social media, advanced gaming/computing and YouTube for their news. They also grew up during the 2008 recession and experienced first-hand the fall of banking greed as their parents lost homes, jobs and a cushy lifestyle. They don’t trust churches and governments. They consider digital goods to be as tangible as something you can feel and touch. They will have relationships with artificial intelligence and robots in the future and virtual reality so advanced the internet won’t be a 2D screen, but a 3D world. They will accept the proposition that collecting digital scarcity goods should be part of every portfolio strategy. They will look at digital commodities like Bitcoin as better than Gold. You can transact act with it digitally. It’s much easier and portable when inside a digital world. The majority of this demographic will demand remote working opportunities as they don’t want to be held down in any one particular location. They will demand borderless money to transact on top of. Bitcoin has censorship resistant qualities and it’s decentralized like Gold because it isn’t controlled by any one organization or government, which will appeal to them. Digital scarcity and collectables will have intrinsic qualities to this generation due to the economic fabric they will be interacting in. Bitcoin was invented on the internet. It makes sense there should be a borderless currency and these generations will be big proponents of no more walls and borders. Borderless money will be a catalyst towards this.
Every 4 years the block reward that goes to miners for doing the “accounting” and “security” legwork on the Bitcoin blockchain gets reduced by half. The game theory behind this is when you have an asset which is fixed in supply, rewards get cut by 50% every 4 years and demand is steady or climbs you have all the ingredients for a market to allocate more electricity and computing resources to compete for those diminishing block rewards. Bitcoin is the first to create digital scarcity and the reason why many people feel Bitcoin is to Gold as the smartphone was to landlines.
It is estimated that anywhere from 20% to 30% of Bitcoin’s are lost forever from the early days when it was worth less than $10. People from 2009-2011 who were mining Bitcoin lost hard drives over the years because they had no idea someday in the future those cheap coins would end up being worth a fortune. There are so many stories of IT workers who used to mine bitcoin’s in the early days when you could off a laptop accumulating thousands to only disregard the hardware into a trash bin’s later because either they either forgot or the coins weren’t worth anything yet. So even though the supply cap of Bitcoin is 21 million the reality is that there will be much less once all the Bitcoin’s get printed in decades to come.
If Bitcoin is going to $340K that’s a $5.4T market value considering lost coins. But how?
Gold has a $7.7T market cap. Many of the attributes that make Gold, um, Gold also are engrained in the coding of Bitcoin. Both are scarce, decentralized (not owned by anyone central authority) and censorship resistance (you can’t counterfeit Gold or Bitcoin). The advantages of Bitcoin over Gold are that it’s lighter weight. You can carry billions of value worth on a thumb drive vs. where Gold you need advanced storage, military and billions in security infrastructure to safely protect the world’s gold. Yes, Gold has industrial uses, however, those uses don’t justify a 7.7T market valuation. Most of the value is tied up in speculative trading on markets. So, Bitcoin at $340,000 and say 17,000 Bitcoins would put us around $5.5T. Still less than Gold but definitely a competitor.
Offshore banking is an important function to the financial markets. Geographic diversification is an important strategy for wealthy individuals looking to protect their assets as well as corporations needing capital access globally and out of reach from certain regimes. There is a stigma that it is only used for illegal activity (evading taxes), but there are legitimate and business use cases for such a setup. This network is estimated to be around $20T of assets deposited in offshore global banks.
So, if Bitcoin could gain 10% of the combined Gold + Offshore business that puts Bitcoin at a price of around $180,000 per coin. How do we get to the final $140,000 push? Well that’s easy. We haven’t even gotten to the Wall Street money, retail investors, pension funds and many more billions that could easily flow into this market.
So, as you can see with a generational mindset ship coupled with more familiarity and comfort with this technology it’s not difficult to dream of Bitcoin hitting $100k, $300k or even magnitudes higher. But like any dream it could come crashing down like a house of cards.
If you study the chart below you will see the bull and bear market cycles tend to repeat themselves in patterns. Bitcoin has gone through +80% drops in the past over the past 10 years and has always rallied back to all-time highs within a few years. If Bitcoin simply follows the 2014-2015 pattern of high to lows and then to highs again $340,000 per coin is technically within reason. The fundamentals are achievable as well, but it will require a combination of government and corporate support to allow for growth like it did for the Gold market bull boom in the 2000’s.
There is one thing for certain. Wall Street loves to create bubbles. The Wall Street bitcoin bubble of 2021 will make the retail bubble look like a walk in the park. It will be a combined generation shift, bitcoin economics and traditional industry giving up market share to this new technology. All of this will lead to a six-figure bitcoin price. The question you have to ask yourself is: If you can’t handle the 80% drops do you deserve the 1000x gains?
While legislation and decentralisation might not go hand-in-hand, Bitcoin adoption might thrive with more regulation.
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