The Future of Bitcoin

 

I suspect this corporate cash buying ransomware  is probably one of the key drivers behind bitcoin's recent gains. If so, (and please don't take my word for it) we can expect the price to be relatively stable in its upward movements, as these companies are likely to be holding what they can, at least in the short term. It probably won't be all that long until ransomers request Dash or Monero instead, because of the enhanced anonymity features.

However, with such gains coming so quickly, it's likely to attract mainstream attention before long, which probably means another bubble. I'm going to be watching the mainstream media to see how much attention it gets. It's possible that it might take a new high to really make it newsworthy. After all, a story saying "Hey remember that virtual money which went to $1100? Now it's going up to $630!" is a hard story to sell. My idea is that, when the mainstream media catches on, that's when I should be preparing to sell some of my stash - probably staggered, selling 10-20% at a time. If I keep my ear to the ground, and take note of when people who know nothing about crypto are starting to buy in, that's also a key signal.

 On the basis of my previous arguments against the price rising, I believe the headwinds that were holding back bitcoin will take the price up to the $1,000 mark, this year.As the title to this post suggests, there has been an awakening.I’ve casually been speaking about some tailwinds for about a year now and some of these ideas have been gaining momentum, so I wanted to summarize them here into three categories

Industrial use cases are coming to the fore

Venture capital has been pouring into blockchain and bitcoin startups at an unprecedented rate, now topping over $1bn. These startups are building out solutions which utilize blockchain technologies in industries where solutions were either not possible or financially viable.The banking sector is investing heavily in what it calls "blockchain", but is specifically avoiding using bitcoin. I personally think the tide will turn on this point, as soon as one of these projects get compromised, from a security perspective. That said, many foreign banks are investigating and using the bitcoin blockchain for innovating around their processes.I think we have to accept that we will live in a world where there is a "chain of chains", all interlinked in some way. Bitcoin may not rule the chains of the finance world, but it may act as an intermediary platform for cross-chain settlement 

The coming short squeeze

The most important driver of the pending price surge, in my opinion, is going to be what I term as the "mother&*!er of all short squeezes".A short squeeze is basically what happens when people that are short selling an asset discover that the price has risen and they need to buy (cover) to ensure they do not make further losses.In the bitcoin world, this happens under a number of scenarios.Traders and speculators who have taken a view that the bitcoin price will go lower could borrow coins via exchanges and sell those coins into the market, waiting for the price to drop to buy them back cheaper, repay the exchange and make a profit.Miners would normally want to lock in profits through "hedging", because they produce enough coins per day that they are able to pay out of their future production. However, halving day is approaching.Halving day is the day that a certain block number is reached and the rewards per block are cut in half (to 12.5 BTC per block, from the current 25 BTC). 

 This poses a problem for miners if they are trying to lock in their profits right now by borrowing and selling coins, which they intend to repay after halving day. Unless they have spare bitcoins lying around, they will be forced to buy coins on the open market if they cannot produce enough through their mining operations.It’s the same as selling crops in the futures market and then being hit by a storm that wipes out half of your fields. The only way, technically, that this doesn’t happen, is if the price doubles on halving day (it won’t).Because bitcoin trades at the margin (which means that only a percentage of the total coins issued are traded), there is less liquidity and extreme changes like a 50% drop in the rewards per block will have a more marked impact on the price than one would expect, triggering a short squeeze. 

 

Coming arms race

The realization that bitcoin is a strategic global asset will trigger an "arms race".Currently, the market cap of bitcoin ($7bn) is simply too small to facilitate a large buy of bitcoins from any governmental organization. If bitcoin started to surge globally, it could become of strategic interest to a government, and therefore other governments. I believe this would trigger something akin to a digital commodity race.Imagine if China started buying up large amounts of bitcoin – would the rest of the world governments stand idly by and watch? I don’t think so – so my prediction here is that by 2017, governments will become the largest buyers of bitcoin, pushing the price up to new highs.It’s always easy to make outlandish predictions. My goal for this post was to outline what I think the tailwinds are behind bitcoin.I don’t know if the price is going to $1,000 or $10,000 – but I do know that it is going up. If I was forced to predict, I would say that it would hit $1000+ in 2016 and $3000+ in 2017.Looking forward to seeing how this all plays out!