The Bitcoin price this year has climbed to unprecedented levels. For newcomers to the market looking  to make a quick win, the rollercoaster of a year has probably been a  time of scratching heads and possibly a few tears shed. For the  long-term investor, however, these periods are part of the journey and  opportune times to snap up some more coins when the price takes a dip.   Despite the precautionary cries of ‘bursting bubbles’, these market corrections are an anticipated occurrence. These short-lived ‘crashes’ are momentary.  

Legislative Changes for Cryptos

Earlier this year, Japan announced  that as of 1 April 2017, the country would recognise bitcoin as legal  tender and make the provisions for administrative and accounting systems  to be enhanced for cryptocurrency transactions to take place  seamlessly. This was undoubtedly the major contributing factor to an  initial surge in the price as Japanese individuals and corporations  alike scrambled on exchanges to secure bitcoin for future purchases.  Hundreds of thousands of retailers in the area are said to be equipping  themselves to accept bitcoin payments, with a low cost airline, Peach,  becoming the first commercial carrier to directly offer consumers  tickets paid in bitcoin.  Australia quickly followed suit,  announcing accelerated amendments to legislation that eliminated the  incumbent double taxation on digital currency transactions. As it  stands, Australians using bitcoin for transactions are liable for the  10% goods and services tax (GST) plus a further 10% tax for using  ‘intangible property’ as a payment medium. Come 1 July 2017, these  transactions will only attract GST, and be exempt from further taxation,  no doubt fuelling a greater adoption of digital currency transactions.  The proactive progression by these  countries certainly paves the way for others to learn from their  integration and regulatory practices, empowering mainstream bitcoin  adoption, which naturally pushes the price higher as demand increases. Scaling Debate Resolution The scaling debate has been a  long-standing hurdle for Bitcoin growth. The decentralised nature of  bitcoin, which naturally is one of its most appealing qualities,  presents some challenges when it comes to governance of remedial action.  In an ecosystem where no single entity can dictate changes to the  framework, a majority consensus must be reached. The fact remains that Bitcoin needs  to scale from its current transactional capacity in order to meet the  demands placed on the network in terms of the growing number of  transactions, as the current block size is impeding quick and  cost-effective transactions.  Whilst several proposals have been  put forward, the Bitcoin community have yet to come to agreement on a  viable solution that satisfies the majority, while at the same time  doing what is best for the wider user base. In May 2017, at the annual Consensus conference, held in New York, an agreement has been signed by a ‘critical mass of the bitcoin ecosystem’ that set out a plan for the adoption of SegWit with a planned hard fork to a 2MB blocksize within six months. While further clarity is needed, it  would appear that we may finally come to a point of breaking the  stalemate, which will contributing factor in Bitcoin being able to  advance and reach its full potential. Economic and Political Uncertainty One of Bitcoin’s undeniable drivers  of growth are citizens who have lost confidence in their country’s  ability to maintain sound economic and political policies, and  desperately seek to establish their own sense of financial freedom  outside the manipulation of governments.  

Venezuela

Take Venezuela for example. An overly  aggressive expansionary monetary policy has resulted in hyperinflation,  which the International Monetary Fund (IMF) expects to reach an  explosive 1,660% this year. This has led to an  unparalleled economic and social crisis. The removal of the 100 Bolivar  note (the largest denomination and still worth only a few US cents)  from circulation in December 2016 alongside the lack of availability of  the planned 500 to 20,000 Bolivar notes, led to widespread chaos and  violent protests amongst Venezuelans, who for the most part were heavily  reliant on cash but were effectively left without money for weeks on  end.  It is reported that the minimum wage  is around 200,000 Bolivars, yet a single basket of groceries costs in  the region of 770,000 Bolivars, nearly 4 times the minimum monthly wage.  Whilst the government provide some subsidised basic goods, the  ‘outlets’ have become hotspots for vicious crime and citizens have to  weigh up the risks of cheaper food against the dangers that face them in  the queues. This is what happens when people reach such levels of  despair to survive. The alarming surge in crimes such as kidnapping and  murder leave most Venezuelans living in fear for their lives on a daily  basis, with little in the way of respite.  

India

India is another prime example, where the most recent, and possibly most extreme case of a modern-day war on cash occurred  in December 2016. Under the pretence of curbing criminal action and tax  evasion, Prime Minister Narendra Modi effectively wiped out 86% of  notes in circulation overnight, when he announced the demonetisation of  500 and 1,000 Rupee notes with immediate effect. Exchange was possible,  but within a limited time frame and only up to a certain amount, the  rest having to be processed via a bank account. This, in a country where  almost half its population has no access to formal banking, let alone a  bank account.  This is just one of the reasons  bitcoin holds such appeal in tempestuous economic climates. With  Bitcoin, you are assured a level of financial security your money is  removed from the coercion of the centralised system, therefore  protecting your wealth from political agendas, damaging inflation and  capital controls. Increased Inflow of Institutional Money Financial institutions, who are  historically wary about Bitcoin are increasingly showing signs of  interest in the digital asset. When compared to the performance of stock  markets and fiat currencies, combined with more and more regulatory  structure coming into place, it is unsurprising that institutional money  has started flow into the crypto-economy. Regulation is arguably one of the  largest barriers to cryptocurrency investment for institutions. Two  nations, in particular, have been influential in this regard; Sweden and  Japan.  Sweden was one of the first movers in  terms of a regulated Bitcoin investment. Back in May 2015, the KnC  Group launched the world’s first ‘Bitcoin Tracker’ known as an  exchange-traded note (ETN), which is publicly traded on a regulated  exchange. This represented massive progress for Bitcoin at the time and  essentially opened the market for institutions and private individuals  to gain a regulated exposure to Bitcoin.  The ETN is designed to mirror the  price movements of the underlying asset being USD/BTC. The company  offering the ETN, XBT Provider, is required to hold the equivalent  number of bitcoins as the number of ETN’s issued. In other words, when a  financial institution or private investor purchases, XBT Provider has  to purchase the same amount of bitcoins to back up the note. Earlier  this month, Hargreaves Lansdown, the UK’s largest brokerage, announced  that their clients would be able to access the ETN via their SIPP and  brokerage accounts. This has opened the doors for retail and  institutional investors to gain a regulated Bitcoin exposure in the UK. As mentioned earlier, Japan has  played a crucial role in moving bitcoin into the mainstream. This move  has provided institutional players with the much-needed vote of  confidence required before they got on board. Russia and India are  looking likely to be the next countries to announce positive legislation  after an increase in interest within the regions. This will further  stimulate institutional investment into Bitcoin, leading to a stronger  and more prosperous market for all. Mainstream Momentum Perhaps this can be linked back to  the fact that with growing interest, and impressive growth, the media  have been covering Bitcoin more and more frequently, exposing it to a  wider audience. Personally, I have had more and more dinner table  discussions about Bitcoin with friends, family, ex-colleagues and  acquaintances, outside of the ‘cryptocurrency world’, all now showing  interest in Bitcoin. It was this month that the Wall Street Journal mentioned Bitcoin on  its front page, highlighting that Bitcoin has had a strong 2017. This  mainstream recognition for Bitcoin’s performance has been long awaited  and will be a stimulus for continual momentum. It was only 2 years ago that most of the mainstream news stations  were reporting Bitcoin’s demise. What a turn of events it has been. The factors I have outlined above are  merely a few of the positive fundamentals Bitcoin has going for it.  Driving demand, expanding its utility and subsequently, increasing its  value and price. So yes, I am confident when I say that Bitcoin will  continue to break through all time highs and find favour above the  $3,000 mark before the bells ring in 2018.  Disclaimer: Although I am employed by Bitstocks,  a cryptocurrency market investment advisory and trading firm, no part  of this article should be construed as financial advice. Cryptocurrency  is highly volatile and you should never invest money that you cannot  afford to lose. I hold bitcoin in my personal capacity.  

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