The words "cryptocurrency", "Bitcoin", "blockchain", "Ethereum" exploded in Google trends last year. Everyone is fearful of missing out and striving to know more. It's up to each person to decide whether he/she wants to get involved with this and if yes, in what way. Our goal in this article is to put together important factors which influence the price of Bitcoin. We hope that we did a decent job and that you will find this information useful.
Why such swings? Here are some evident suggestions.
1. Bitcoin's value is not a liability of any government. In fact, it a liability of no one. As a result, there are no guarantees that it won't fall to zero. At the same time, as long as Bitcoin can be bought and exchanged for other money, it will live.
2. Last year Bitcoin attracted an immense demand of institutional and retail investors. The cryptocurrency was in fact primarily used not as a medium of exchange, but as a store of value. Gaming network Steam stopped accepting Bitcoin payments in December because of extreme price fluctuations. There are further obstacles for Bitcoin transactions, such no "cancel" button if you made a mistake, not to mention low transaction speed. At the same time, Bitcoin's fast appreciation has drawn a lot of those who wanted to get on the bandwagon "to the moon" and have a fast and easy way to multiply their money several folds. Such buyers don't really care about the technological issues of Bitcoin's blockchain (the scalability problem). This, in turn, may lead to the fact that progress in SegWit and Lightening network that we may see in 2018 won't make a big impact on the price.
Note to self: At least for now it would be wise to separate in one's mind cryptocurrency as a currency, as opposed to a speculative asset.
The nature of pricing and the market talk
1. In 2017, Bitcoin had both prominent victories (Bitcoin futures started trading on CME and CBOE), and losses (China's ban, Korean doubts). It's evident that we'll continue getting the news as of cryptocurrency's wider acceptance, as of the authorities' reluctance.
2. The outcries of criticism seem to be louder in mass media than voices of believers: Jamie Dimon, Warren Buffet and other stars took great pleasure in dooming Bitcoin. The market, however, showed that it thinks otherwise, and everyone is more than happy to buy on the dips.
3. What value is fair for Bitcoin? Maybe $6,000 as Credit Suisse says? Or anywhere between $9,500 and $14,340 as according to the early adopter Trace Mayer? This seems to be pure guesswork. How to value something that is digitally produced on myriads of computers by solving mathematical puzzles?
4. Bitcoin futures launched on CBOE on December 18 closed on January 17 at $11,055. There are rumors that it's the closing of first futures that caused a bloodbath in the market: someone wanted the price lower to earn more on these contracts. For that matter, it's worth mentioning that the next Bitcoin futures expire on January 26 at CME and on February 14 at CBOE.
5. A worm in the crypto apple? Economists Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have recently released a paper, in which they explore price manipulation in the Bitcoin ecosystem. According to them, Bitcoin's advance from $150 to $1000 back in 2013 was the result of manipulation on the late Mt. Gox. Decentralization isn't fully replacing regulation - a reason to be en garde.
One of Saxo bank's "Outrageous predictions" for this year - that Bitcoin will peak in 2018 between $50,000 and $100,000 before it falls to $1000 by 2019 - doesn't look as absurd as it would only a year ago. The market is constantly reshaping itself and one has to be ready to pretty everything. Will Bitcoin's violent volatility scare hungry investors? There are serious reasons to doubt that. After all, the market capitalization isn't that great yet, while the supply is limited.
