Just a few years ago, Bitcoin investors had bold revolutionary plans for the digital coin. The virtual currency run on a decentralized digital ledger without middlemen was poised to overthrow the central banking system. While the global financial system’s impact on Bitcoin remains a debatable issue, cryptocurrencies and fiat money have developed a cozy co-existence.
More recently, the BTC to USD exchange rate has been growing steadily; yet for the foreseeable future, Bitcoin’s volatility will continue to make price forecasting challenging. Although Bitcoin’s volatility has declined in recent months, investors still expect the rollercoaster ride to occur. Recently, one such investor Tom Lee has stated on CNBC that the end of 2018 could become explosive for Bitcoin’s value. Whether we will witness another big break of Bitcoin remains to be seen, but what are the factors that can influence its price?
BTC is Ready for the Mainstream
The fiat and crypto worlds are slowly converging. Services are making it easy to exchange crypto and fiat currencies, with some platforms even offering free and instant conversions. BeeLand, CoinLoan and Nebeus are among dozens of new P2P lenders providing fiat loans in exchange for cryptocurrency as collateral. On their part, some crypto exchanges are creating liquidity by using fiat assets as collateral.
Through these lending and trading activities, BTC and USD are interlinking the crypto and fiat markets. Once the USD interest rates are high, lenders will go to the crypto P2P lending market (and vice versa) to lower their cost of borrowing. In the near term, this competition is likely to lead to a tighter but negative price correlation between these fiat and crypto majors.
Institutional investors are also entering the market and bringing liquidity, while mainstream investors are starting to add Bitcoin and other cryptocurrencies to the alternative asset class of their portfolio. Far from the envisioned cryptocurrency takeover, international financial regulators were among the first to predict a converging crypto and fiat world ahead. Because cryptocurrency transactions are faster and cheaper, IMF chief Christine Lagarde foresees global finance and trade becoming more efficient. An increasing number of investments creates more trading opportunities between crypto and fiat, especially BTC and USD.
Before Bitcoin can serve as a universal payment system, it needs to be more stable, says former PayPal CEO Bill Harris. Since falling through $7,000 in February from its $20,000 December high, the BTC price has been jumping between spikes above $7,000 and declines towards $5,000. The most recent slumps were triggered by the SEC declining the Winklevoss twins’ ETF in July and postponing a decision on the VanEck ETF to September.
At the moment, the 30-day average volatility of Bitcoin has declined to 3.36 percent from a 252-day average of 5.02 percent. 30-day BTC/USD volatility, meanwhile, has declined 6 points from the 60-day average to 3.41 percent. However, implied volatility – a more accurate measure of pricing – indicates higher Bitcoin’s volatility in the short term.
Another indicator that more Bitcoin volatility is ahead comes from investors sitting on the fence. Bitcoin futures prices for the fall months are in the $6,400 range, implying stabler pricing ahead. A levelling of the BTC/USD price is also observed. Toward the end of August, the BTC/USD 100-day moving average is $7,459, down from the 200-day moving average of $9,278.
Is Bitcoin priced fairly?
The much debated issue of whether or not Bitcoin is in a ‘bubble’ weighs heavily on the future BTC/USD price. If it is, BTC/USD would likely tumble to 2017 lows below $5,000.
Is Bitcoin in a speculative bubble? By end-August, one Bitcoin was trading at $6,753 while one ETH cost $277. Bitcoin serves principally as a store of value and investment vehicle. As such, the coin is viewed as a speculative investment like tulips in the 17th century in Holland and Internet stocks in the 1990s.
Utility tokens, in comparison, are also used to perform functions on a Blockchain platform. By adding smart contracts to Bitcoin’s Blockchain architecture, Ethereum created a platform in which digital transactions activated by utility coins could execute diverse business functions. This, as well as Ethereum moving towards a more efficient consensus and mining protocol called Proof of Stake, has made ETH the leading currency of the productive crypto economy.
Future of BTC/USD
Bitcoin still offers unique advantages of decentralization, anonymity, and security. As it grows stronger as a payment system, it will compete with hundreds of new cryptocurrencies, including utility tokens.
Bitcoin will continue to attract more speculators, while more participants in these digital economies will naturally engage in hedging arrangements. So far, all indications are that the BTC to USD pair will no longer be black sheep but be present on the market like EUR to USD.
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