Bitcoin: I Hate It, but I Love It
The media is abuzz about Bitcoin (BTC) and the Bitcoin price, and with good reason. This cryptocurrency is revisiting a major milestone in the price, which was set in November 2013, and the developments—or lack thereof—with regards to the Winklelvoss’s Bitcoin exchange traded fund (ETF) that was once again delayed by the U.S. Securities and Exchange Commission (SEC).
Let me make it clear: I am not a fan of Bitcoin itself, but I do like and understand the merits of blockchain technology. That being said, I do not like Bitcoin because I believe this pseudo-currency is replicating the Dutch tulip bubble that finally popped in 1637. People are flocking to Bitcoin as a means of speculation. The Winklevoss twins understand this notion, and their intention of creating an ETF that tracks Bitcoin only solidifies my theory.
A currency needs to be sound, and liquid. The Bitcoin price experiences way too much volatility, and the spread between the bid and ask are way too wide to fit this bill. The Bitcoin price has little to do with the demand for the currency as a means of exchange, and instead the demand is coming from those who are speculating on the price of this cryptocurrency. In essence, bitcoins are used to speculate on the price of Bitcoin. This just lacks in logic, but then the tulip bubble and all the other bubbles that followed were no different.
Does this mean that I am bearish on Bitcoin and believe the price will drop? On the contrary, as a technical analyst who has been using price as the anchor of my investment analysis, I respect price and know that a trend can continue to drive prices higher than even the most bullish participants thought possible.
When the November 2013 highs at $1165.00 are finally and successfully breached, I believe that the Bitcoin price will surge to multiple thousands of dollars. That being said, I also do not believe that the previous high will be broken on the first attempt.
Let me also point out that the previous all-time high in the Bitcoin price was made when one bitcoin was equal in value to one ounce of gold. Gold is currently sitting at $1165.00 per ounce, and I do not see the Bitcoin price surpassing the price of gold on a sustained basis.
The scenario I see playing out is that the price of Bitcoin will hover below $1165.00 for some time, until it is finally stages a breakout at a later date. It took a lot of buying pressure to get the Bitcoin price back to this level, and it will take even more buying pressure to finally break above it.
How high can the Bitcoin price travel? This question is dependent on a successful break above the previous all-time high. If I were to speculate, and put a number on a potential price objective, I could easily see the Bitcoin price surge north of $4000.00.
What could drive the Bitcoin price this high? The Winklevoss twins are attempting to create an ETF that could be easily accessed by people using their investment and retirement accounts. This ETF will track the Bitcoin price and it will allow investors to speculate on the Bitcoin price. A surge in demand for this ETF will be like adding fuel to an already overheated market. Perfect ingredients to set off a mania.
Last Words on Bitcoin
The craze surrounding the Bitcoin price will end somewhere and some day, but it won’t end today. I fear that much higher Bitcoin prices will need to be attained before this bubble has finally reached its peak. Like the previous bubbles that popped before it, Bitcoin too will pop, prices will plummet, and many speculators will be left in tears.