The rack for the Bitcoin price is still a long way to go. Bloomberg concludes this in a new market report ‚Crypto Outlook – October 2020 edition‘.
What makes the authors so bullish on BTC? Let’s take a look at the most important arguments.
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Bitcoin price history
Historically, Bitcoin as an asset tends to ‚add a 0 to the price‘, according to the authors.
In 2017, the price initially went through $10,000 (and eventually even $20,000). This was followed by a 70% correction to almost $3,000 by the end of 2018. This was followed by a consolidation phase.
That seems to be a repeating pattern. In 2013, the share price reached a level of $1,000, before correcting and consolidating 80%.
Is history going to repeat itself and will Bitcoin Era put another ‚0‘ behind it over the next 5 years?
The chart below shows the 260-day volatility, which is on a downward trend. Bloomberg therefore plotted the historical (statistical) volatility. This is a standard deviation based on Bitcoin’s return over the past 260 days.
Bloomberg’s analysts suspect that the price goes first out of bottoms. Even below the previous low (37% in 2016).
As the demand for the asset rises rapidly, the likelihood that the price will grow exponentially increases.
Bigger market cap, rising demand
According to the report, the fact that a listed company such as MicroStrategy invests no less than 425 million dollars in BTC is perhaps an error of assessment.
It could also mean a new chapter for the adoption of Bitcoin. Central banks even bought up 20% of the stock in 2019. However, the Bitcoin market is many times smaller than the gold market: 9,000 billion dollars versus ~190 billion dollars. Even Tesla’s market cap is twice as big.
One big difference: Tesla shares can be split and Bitcoin cannot. The stock is fixed at 21 million. Inflation decreases every four years. The current inflation rate is 1.8%.
In the Bitcoin market, we see a party like Grayscale taking in a substantial amount of BTC. They now own 2.5% of the total stock.
According to Bloomberg, Bitcoin is currently too small a beer for central banks or large institutions such as pension funds to include in their portfolio. But as demand increases, Bitcoin can turn out to be the digital version of gold.
More demand for stablecoins
Another trend in the market: the demand for stablecoins will have risen sharply in 2020 and this will continue in 2021. The total market value at the beginning of October was 16 billion dollars, while at the beginning of the year it was still 4 billion dollars.
Tether plays a certain role in the market. Binance is the largest stock exchange on the market and its largest pair is the BTC-USDT pair. More supply of USDT also pushes up the price of Bitcoin.
In the rapidly changing Bitcoin market, it is important to be able to get in and out quickly. USDT fulfills that role. However, the pressure from the authorities is increasing. For example, the European Union wants stablecoins to comply with the same rules as fiat money like the euro.
So what will ‚trigger‘ the Bitcoin question? That question must largely come from the ‚big boys‘.
According to Bloomberg, Bitcoin is currently developing as a digital version of gold. They point to the increasing correlation between the two assets.
When the first Bitcoin futures were launched by CBOE at the end of 2017, BTC showed little or no correlation with gold. Meanwhile, the correlation has risen to 0.44 on a scale of 0 to 1. See the chart below.
The first Bitcoin ETFs are emerging on certain smaller exchanges. The US regulator SEC does not want to go that far yet. Recently, they have indicated a future in tiered equities.
The first gold ETFs were launched in 2004. It’s only a matter of time before the first Bitcoin ETFs appear on the Western stock exchanges.
The trend set by Bitcoin cannot be reversed, concludes Bloomberg Intelligence.
Wild price forecasts are a feature of the Bitcoin market. We are familiar with Plan B’s stock-to-flow cross asset model, which predicts a final price of $288,000.
In the short term, it’s a question of whether the price breaks through the resistance zone at $11,000 or whether the gap at $9,600, which has been hanging over the market for some time, is filled.