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Bitcoin Optimist: A Financial Perspective

An important threshold is very close to being crossed.

Current Price: November 16th, 2016

The most recent high has almost been cleared, and Bitcoin volume has broken through a new barrier. On 11/16/16, over $10 billion in trading volume stretched across China. Three of their exchanges broke $3 billion in volume over a 24 hour period. I’ve never even seen one exchange break $3 billion, much less three. Because of this, I was not surprised when the worldwide price went from $700 to $750 in just a few days. If buying volume like this persists, I wouldn’t be surprised if the old high from 2013 was taken out in haste. It’s a reach, I know, and I’m not guaranteeing it, nor making that call. I’m just saying that based on my interpretation of the chart, it wouldn’t be a shocker. With that said, it could very well settle below that point.

Ever since the bear market turned bull, the trajectory has been up, and each new high has eclipsed the previous. There’s no longer a sell-fest weighing down the market. It’s just been “Buy Buy Buy,” except at a steadier and more sustainable pace than, say, the exponential price rise in November of 2013. This price pattern has been far more smooth. Historically, Bitcoin has had exponential rises, only to fall by 80–90% or more. It has an unsustainable super spike, loses steam, and sheds most of the gains. This time around, it spikes, slowly drops, recovers, gradually moves back up, and continues to test old highs.

After the parabolic rise in 2013, Bitcoin shed over 80% of its value and lingered in the bottom-dwelling, $200 — $300 trading range for about a year. Sentiment was extremely low at this time. The market orders were all “Sell Sell Sell.” Eventually though, the sellers were no longer in control of the market, and Bitcoin finally broke out of this trading range by topping out at roughly $486 on November 4th, 2015. The price quickly dropped back into the low $300’s and lingered in the $300’s and $400’s until the end of May, 2016; at which point, it broke out on the upside and surpassed the previous short-term high of $486. My initial hunch after the price broke through the initial, $300 threshold was that the bear market was over. This second breakout only reinforced that thought.

The new high topped out at about $760 on June 20th, 2016, before falling back down to $553 six weeks later. The price has been lingering up ever since. We’re now extremely close to breaching that $760 mile marker, and if history is going to be of any indication, a new high should be made relatively soon. I should also point out that after both new highs were reached, neither corrected below the previous breakout price point: $300ish for the first breakthrough, $480ish for the second. A telling, bull-market signal.

This rally really shouldn’t be a surprise though. It already went through that brutal bear market, and sentiment has since recovered. Blockchain is all the rave, exchanges have become more legitimate, security has improved, press coverage has increased, infrastructure continues to be built, technological advancements have been made, investors have poured into the industry, financial institutions are in the fray, governments have begun regulating, we’ve all learned a little bit more, and quite frankly, the chart looks sexy. Bitcoin has been growing up, and perhaps its potential is being realized.

With that said, I don’t dare speculate what the new high will be for this “Digital Gold.” I couldn’t possibly know this, and I’m of the belief that predicting specific prices at precise dates is a fool’s game, therefore, I refuse to participate. All I can say is if current Chinese volume remains, the sell orders should be gobbled up like PacMan, and this could spark a new upleg in the price per Bitcoin. That would be a terrific 3 year anniversary.

 

The Industry

Over the past seven years or so, I’ve casually observed and learned about the financial markets, and I’ve read many financial and investment-related books and articles. So when Bitcoin popped onto my radar during the Cyprus crisis (bail-in, haircut, or whatever you want to call taking the depositors money), I immediately recognized the value and need for the decentralized currency. I’ve been following it ever since. I followed it through the first Chinese buying bonanza when the first batch of companies began accepting Bitcoin as a payment method; including Microsoft, Dell, Expedia, and Overstock. I watched the price rapidly descend after the Mt. Gox exchange lost a ridiculous number of Bitcoins. I saw BitPay, Coinbase, Circle, BlockChain, BitFury, Xapo, Blockstream, and Chain become major players in the ecosystem. I was mesmerized after I saw ChangeTip build a network allowing users to transfer Bitcoin over the most popular social media outlets; including Facebook, YouTube, Twitter, and Reddit. I grew disgusted with the scammy nature of alt-coins and alt-coin exchanges. I painfully glanced at Coinmarketcap, Coindesk, and Bitcoin Reddit on a daily basis while Bitcoin was trending in the $200’s. I was in awe after watching Andreas Antonopolous educate the Canadian Senate. I found it pretty cool when Tim Draper cleaned house during the first Bitcoin Silk Road Auction and when Barry Silbert’s 2nd Market took down the second. I was ecstatic when I learned about 21 Inc’s plans and their record-setting investment round. I rejoiced when Bitcoin finally broke through the $300 threshold. I’ve been watching the Bitfinex saga and I’m eager to see what happens with Segregated Witness. I guess you can call me a Bitcoin junkie.

Going forward, there’s a lot to be excited about, and this only adds to my bullishness. The number of legitimate ways to purchase Bitcoin has expanded, we could be inches away from stock market money funneling into the ecosystem, large mining farms are sprouting up, multiple micropayment options are being developed, and secure hardware wallets such as Trezor and Ledger exist. In addition, there has been over $1.3 billion invested into Bitcoin and Blockchain related companies. The New York Stock Exchange and Nasdaq have both made investments in Bitcoin-related companies. Large financial institutions such as VISA, Mastercard, and Goldman Sachs have investments in the space. GBTC already exists on the stock exchange. CME Group just launched a Bitcoin pricing index. Circle, Gemini, Coinbase, and others have been tapping into new markets. BitPay, Blockchain, Chain, Blockstream, and other Bitcoin heavyweights continue to progress the advancement of the technology. OpenDime is an amazing concept. The Lightning Network sounds awesome. MegaUpload 2 could hold some micro-payment, file-sharing promise. Brave’s Bitcoin-based, micropayment, ad-blocking browser definitely adds to my excitement level. And most of all, 21 Inc’s Qualcomm partnership, combined with Balaji Srinivasan’s vision, should get anyone excited. The pieces of the puzzle are gradually finding each other, and I sense the industry coming together within a few years.

When I look at Bitcoin from a worldwide perspective, my bullishness does not wane. Here’s why:

  • China’s insatiable demand, tech advancements, and interest in mining / trading

  • India’s movement towards a cashless or digital society, their technological prowess, and their love for sound money

  • Japan’s volume, experience from Gox, established regulatory framework, and precarious financial situation

And because…

  • Singapore and South Korea are Bitcoin friendly

  • Europe’s highest court ruled that Bitcoin would not be subject to a Value Added Tax (VAT)

  • Canada is keeping a “light-touch” approach

  • Britain has been Bitcoin friendly

  • Switzerland’s railway firm, SBB, now allows people to purchase Bitcoin at over 1,000 locations

And because of…

  • Worldwide Central Bank money printing

  • Worldwide negative or low interest rate environments

  • Inflation / hyperinflation countries such as Venezuela would benefit from having an alternative option

  • The potential break-up or devaluation of the Euro (Think Brexit)

  • The ability to hold value during crisis scenarios

  • And because Bitcoin’s remittance potential for third world countries is extraordinary

Bitcoin Accepting Businesses

As we’re in the early stages of Bitcoin, we have a chicken and the egg type of problem. Why accept Bitcoin if nobody has it, and why have Bitcoin if there is nowhere to spend it? As it is in its infancy, and because it isn’t super easy quite yet, these questions are legitimate. If I were to speculate, the number of people that HAVE Bitcoin needs to increase before merchants begin accepting. If people have the coin, businesses aren’t going to turn away this perfectly good money, especially with its “merchant-benefitting” properties. So, I suspect that it will have to happen this way. But for the businesses that already do accept Bitcoin, I would like to thank you for being a part of Bitcoin’s early days. We need more like you.

To practice what I preach, I’ve decided that I’m going to model their approach. When I launch my company, I’m going to accept Bitcoin for every product or service released into the marketplace. However, I’m going to take it a step further. To do my part in increasing awareness and adoption, I’m going to incentivize others to make their purchase using Bitcoin by pledging to “Always be cheaper when paid by Bitcoin.” If a product is sold for $10 using traditional payment methods, it will likely be sold for $8 or $9 by Bitcoin. I will truly be a “Bitcoin Preferred” brand. And you better believe I’m setting up shop on OpenBazaar, the decentralized, Bitcoin-only, eBay. Just give me some time.

WARNING

I don’t want you going out and buying Bitcoin just because I’m optimistic. I was also optimistic when the price dropped from $1,100 to $200, so take what I say with a grain of salt. As I’ve learned from Jim Rogers and Warren Buffett, you should never invest in something you don’t understand. Listen to these wise men.

Now, if your interest is piqued: Learn about it. Do your homework. Research it. But I absolutely do not want you to take my word for it. You shouldn’t. I’m not an investment professional. My recommendations have caused others to lose money from it already. It’s extremely risky and volatile, and if you jump in without a plan for secure storage, you’re likely going to get your Bitcoin stolen. And good luck getting them back… So please, don’t prematurely enter the fray. I don’t want that on my conscience.

If you do get involved, remember that Bitcoin is MONEY. Meaning, you need to think about it with a long term perspective in mind. You need to have a plan for it. If you don’t, you’ll lose it as quickly as you got it. You should assume that there will always be clever hackers roaming around, waiting for you to slip up. So for heaven’s sake, never invest anything more than you can afford to lose, and be sure to properly secure your coin. Keeping Bitcoin on an exchange is a losing proposition. It’s very risky. Countless investors have lost everything they had after their exchange shuts down due to a “hacking incident.” Even Bitfinex, one of the most professional and “perceived-to-be-reliable” exchanges, got hacked and lost a substantial amount of Bitcoin. Those that had Bitcoin on the exchange were affected, those that transferred their Bitcoin onto a hardware wallet were not.

Be your own bank. Store Bitcoin yourself. Heed this warning. Have a plan.

Bitcoin as Money

I’m going to conclude by sharing my own personal thoughts and feelings regarding Bitcoin as money. I think it is revolutionary and a much needed upgrade to our financial system. It’s money that can be transferred over the internet almost as quickly as an e-mail. It has limited supply, and since no government or bank owns it, it’s actually FAIR MONEY. I believe that it has the potential to be the best form of money to ever exist. It essentially rolls gold, cash, and our credit card system into one. It takes the strengths of each, and leaves the weaknesses behind. It has the limited supply quality of gold, but can be used to purchase everyday items. It has the speed of a credit card, but doesn’t carry the risk of identity theft. Transactions are settled instantly like cash, but are recorded on a public ledger. Here are a few more comparisons to our traditional and modern day financial system (United States, 2016):

  • Unlike credit cards, there is little to no cost in sending money from one party to another.

  • Unlike credit cards, there is no threat of fraud or charge-backs.

  • Unlike government currencies (Dollars, Euros, etc), you will always know the exact quantity that exists.

  • Unlike banks and credit cards, transactions are settled in minutes and seconds, rather than “business days”

  • Unlike banks and credit cards, the funds are almost immediately available.

  • Unlike banks and other money transfer systems, there is no added cost to send funds outside of the country.

  • Unlike government currencies, the threat of a rapidly increasing money supply does not exist.

  • Unlike government currencies, an entire country is not at risk if the currency collapses.

  • Unlike gold, storage costs are minimal.

  • Unlike cash, it leaves a trail.

With Bitcoin, we have money that is issued in a predictable, automatic, and transparent way. We have securable money that allows us as individuals to be our own bank. With Bitcoin, we don’t need to worry about government debt loads or inflation. With Bitcoin, we have money that knows no borders, is perfectly divisible, quickly transferrable, and transaction “markable.” It’s significantly cheaper than current money transferring options; and for merchants, it’s very attractive. There are no credit card fees upon sale, and once the funds are sent to you, they’re yours. You no longer have to wait business days.

This currency/commodity/technology hybrid has often been dubbed, “The Internet of Money.” As I’ve already made a purchase with Bitcoin, it’s very easy for me to visualize Bitcoin payments over the internet. With infrastructure developed worldwide, security strengthened, and the ease-of-use increased, I do believe that it has the potential to rightfully hold that title some day. It may take some time, much like the actual internet, but if it does reach that full potential, we could all be witnessing the earliest stages of the greatest financial innovation of all time: The best form of money to ever exist.

Thanks for reading. This is not investment advice. Don’t let me influence you into buying. Be smart. Have a plan. And support the Diet Matador.

Source: medium

  • December 25, 2016 11:34 AM MSK
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