Following the footsteps of bitcoin, all the cryptocurrency market had a rough first half of 2018. The end of last year, December 2017, was the peak of bitcoin when it was trading around $20,000 and in first six months of this year, the price went below $6,000. This is a 70% drop in price.
Ethereum, the second largest cryptocurrency, was being traded around $1,400 in January this year and it touched a price of below $500 during this same time.
To understand what actually happened and what is the future of bitcoin and other cryptocurrencies, lets have a look at what experts have to say:
Nicholas Cholas, Co-founder of Datatrek Research
In the start of May this year, when the price of bitcoin had crossed $9,500 level and people had started asking if bitcoin is moving back towards its December 2017 high of $20,000, Nicholas Cholas, the co-founder of Datatrek Research, mentioned some negative indicators and warned people from buying bitcoin and since then, the price of bitcoin is steadily declining. In an interview with Sara Eisen of CNBC, he said;
We’re getting a lot of people asking, is now the right time to buy? and the short answer is, ‘No’ for two fundamental reasons. The first is, we’re not seeing a lot incremental engagement with people interested in buying bitcoin for the first time. Like any new technology, you need new adopters to come in to make it more valuable and in terms of Google searches, they’re way down from the peak back in December and January.
Google search trend for the term ‘bitcoin’ from January 2018 to March 2018
Cholas further mentioned the loss of interest in bitcoin wallets as the second negative signal. He said;
We’re not seeing a lot of wallet growth. People aren’t opening up new bitcoin wallets to purchase the asset. Growth in wallets is only 2.2% last month. It was 5% to 7%, all of last year.
Based over these two fundamental factors, the low search volumes over Google and a decline in bitcoin wallet growth, Nicholas Cholas advised not to look for any upside in bitcoin price. He said;
We’re not seeing the kind of engagement we need to see, to make us feel like the bitcoin really has a solid track higher from here, fundamentally.
Mohamed El-Erian, Chief Economic Adviser of Allianz
You got to understand how you got to $20,000. You got to $20,000 because the base of people who truly believe in bitcoin, was joined by many, many, many people who jumped on the bandwagon. That was purely speculation.
This statement was given on June 29th by the chief economic adviser of Allianz, Mohamed El-Erian. He was talking to CNBC about the future of blockchain technology and bitcoin. El-Erian’s view about the increased base size of new people joining in to trade bitcoin and other cryptocurrencies in December last year, when bitcoin was at it’s peak, resonate with Nicholas Cholas, who also believed that the lack of interest of people in bitcoin, measured by the declining trend in Google searches, was the primary reason of this price drop.
El-Erian was skeptical about bitcoin as a digital currency but was very much positive about it’s underlying technology, blockchain. He said;
I suspect that if you look 10 to 15 years down the road, we will have digital currencies but the public sector will have involvement in them. It will not be pure bitcoin. But the blockchain technology, take that seriously.
Thomas Lee, Head of Research, Fundstrat Global Advisors
After almost a month of Nicholas Cholas’s warning about investing in bitcoin, earlier in June 2018, the famous bitcoin bull and head of research at Fundstrat Global Advisors, Thomas Lee was of the opposite opinion. He didn’t believe in the decline of Google search volume of the term, ‘bitcoin’, as an indicator of price movement. His opinion about decline in search volume was, as the price of bitcoin had declined, so did the interest of people and as soon the price will start to recover, the search volume would also increase. While talking to CNBC, he stated;
Google searches aren’t a leading indicator for bitcoin. I think it’s actually a coincident indicator. Meaning, as the prices fall the interest has dwindled but i think its not a signal that bitcoin is not gonna recover by the end of this year.
Maintaining his bull stance of bitcoin recovering by the end of year, Lee further attributed some technical and regulatory issues with bitcoin as the primary reason of it not moving past $10,000 level. He said;
Bitcoin has some technical issues and there’s some uncertainty in the regulatory overhang. But, you’ve to keep in mind that bitcoin makes all of its performance in 10 days than in a year.
According to Lee, the regulatory overhang is something that’s keeping institutional investors from jumping in the crypto space. He also mentioned that he doesn’t believe that these regulatory issues are a threat to bitcoin’s existence because of it’s super secure nature. He stated;
I think it works really well in terms of digital transactions and it’s a great example of security. In 10 years, not a single person has entered a fraudulent entry on the blockchain. That’s trillions of dollars of on-chain transactions and none of them have been proven to be fraudulent.
Again, talking to CNBC a few days ago, Lee predicted bitcoin price to go as high as $25,000 by the end of this year and argued about bitcoin mining cost as one of the indicators of it’s true value. He said that bitcoin has always been profitable when bought below the mining cost and as the current mining cost of bitcoin is around $7,000 and it’s being traded below that cost, bitcoin’s outlook looks really good. He said;
I think the reason bitcoin looks really good here is the cost of mining is around $7,000 fully loaded and the difficulty is rising, so by the end of the year, it’s going to be close to $9,000. Bitcoin historically traded at 2.5 times its mining cost, so, its not out of the question that it could be over $20,000 by the end of the year.
Bart Smith, Head of Digital Asset, Susquehanna International Group
Below $7,000, bitcoin does look like a great investment but without institutional investments coming in to the crypto space, the price seems to hang around the current level. Uncertainty of regulations around bitcoin are the primary concern of institutional investors. Talking to CNBC earlier in June, Susquehanna International Group’s head of digital asset, Bart Smith also raised the same concerns. He said;
It’s really about regularity clarity. Clarity will allow institutions to come in more than anything else. Institutions don’t like to invest into uncertainty.
Arthur Hayes, Co-founder & CEO of BitMEX
$50,000 by the end of the year.
This extreme bullish forecast about bitcoin’s price was made in mid May this year by the co-founder & CEO of BitMEX, Arthur Hayes. He was talking to CNBC and the only concern he mentioned about the future of bitcoin was the regulatory concern. Hayes stated;
We’re one positive regulatory decision away. Maybe an ETF approved by the SEC to climbing through to $20,000 and even to $50,000 by the end of the year.
He also mentioned that the decline in price of bitcoin has resulted in low volumes and less volatility. Less volatility does look like a positive signal because it stabilizes the cypto market but, as Hayes call bitcoin trading, ‘a call option’, it essentially means that less volatility is a problem for market. He said;
You want as much volatility as possible to have as much chance that bitcoin goes to $50,000, $100,000 or $1,000,000.
He had a very positive outlook for the future of bitcoin and believed that the current bear cycle would reverse, just like it happened in 2013 to 2015, when bitcoin dropped from $1,200 to $200 and in 2015 to 2017, it gained from $200 to $20,000. Hayes said;
Now that we’ve more visibility, more people talking about it, the time between an aggressive bear market and an aggressive bull market is going to be shorter.
Brian Kelly, Founder & CEO of BKCM LLC
While presenting the audience with reasons why ethereum is a better bet than bitcoin on CNBC on June 15th, founder & CEO of BKCM LLC, Brian Kelly showed a historical price comparison chart of both cryptocurrencies and said;
Relative value vise, ethereum has been trading a little bit better than bitcoin. So, if i were going to be long in this market, as i am, i would overweight ethereum at this point of time.
Thomas Lee had mentioned the mining cost as indicator of bitcoin’s fair value and Brian was also of a similar view. Answering a question about bitcoin’s price getting closer to the mining cost, he said that its true, if the price of a bitcoin gets lower than the mining cost, the miners will start to shutdown the rigs but its unclear how the market reacts to it, as it has never happened before. He said;
If we get below that level, the miners will start to turn off their rigs. But, it doesn’t mean that supply decreases. Bitcoin supply now; every 10 minutes, you get 12.5 bitcoins. So, we’ll see what happens. There could be some incentive for some of the bigger miners to say, ‘i’m not gonna sell every 10 minutes, 12.5 bitcoins, i’m gonna hold on to it’. So, its something that i’m watching very, very closely because we really haven’t seen it in this market, at least to this magnitude.
Later in the same month, on June 24th, when bitcoin had fallen below $6,000 and there was an extreme negative sentiment, Brian declared that this was not the end of bitcoin. He built his case and took in consideration the whole year stating that bitcoin was trading at $2,500 in June 2017 and at just below $6,000, he suggested it to be the bear market, not the funeral of bitcoin.
Ran Neu Ner, Founder & CEO of ONchain Capital
The whole month of June had witnessed a steady decline in the price of bitcoin. On June 11, bitcoin was trading around $6,700 level when founder & CEO of ONchain Capital, Ran Neu Ner predicted the continuation of bear market for bitcoin with first support at $6,250 and then at $5,900. When asked about the reason of bitcoin’s continuous falling price, his primary negative signal was a bear market with low volumes. He said;
Technically, we’re in a bear market. We keep going down and keep testing the new lows.
He further added;
If you see at the bitcoin trading for the last few weeks, you’ll see that the volume is low and we’ve never been able to break up.
With bitcoin price testing new lows, falling under $5,900, on June 28th, Ran Neu Ner predicted yet another low for bitcoin at $5,350. Talking to CNBC, he said;
Unfortunately, the same model that told us we’re going to $5,900 is telling us that there’s more blood to come. It’s calling a 62% chance of a bear market and a bear market means that we’re going to test $5,350 as the next point.
Though, he was betting on the continuation of bear market for next two weeks but didn’t completely rule out the chances of a bull market and said;
There’s about a 16% chance of a bull market but to confirm the bull market, we’re going to need to test $7,400 with high volume. So right now, my money is on the market continuing to go down and going down to about $5,350 which is the next up.
Just like Brian Kelly, Ran Neu Ner was also concerned about the mining costs. He also considered it one of the major factors to predict bitcoin price and said that if bitcoin’s price go below the actual mining cost, the miners will start to switch off rigs, leaving the echo system with less number of miners. Which, in turn, will be more profitable for miners who would stay in the system as there’ll be less miners to distribute the same reward. He also mentioned that some miners have already started switching off their rigs. He said;
We’ve received some notifications from some of the miners that they’ve already switched off their machines. So, we’re there and miners are switching off their machines and there’re gonna be a few number of miners with the same amount of money.
He emphasized over holding the position for a longer duration, hoping for a bull market by the end of year but did provided a tip for day traders by saying;
I’m calling $5,350 in the next week or two. So, you could possibly take a short position and there’s probably 10% in it.
Though, bitcoin is trading around the $6,700 levels but to consider it a bull market, it has to cross the $7,400 level. Volumes are low and there still is no news about any advancement in regulatory concerns. Most of the above quoted experts are bullish in long run for bitcoin and other cryptocurrencies, hoping for some regulatory decisions that will drive institutional investment into this space. But short-term, their is just uncertainty and as Bart Smith said;
Institutions don’t like to invest into uncertainty.