Is this the beginning of the end for Bitcoin?
On Tuesday, 16 January, almost all major cryptocurrencies fell in a market slump that continued into Wednesday. Bitcoin, the king of all cryptocurrencies, dropped below USD 11,000, which was almost 50% below its December 2017 peak, after the market entered a second day of a sell-off. According to CoinMarketCap.com, the combined value of over 1,110 cryptocurrencies in circulation fell to USD 460 billion from around USD 800 billion at the start of the month. The causes of the sell-off are not entirely clear, however, some have speculated that the threat of a regulatory crackdown on cryptocurrencies by some governments may have had something to do with it.
Indeed, heavy losses across all major cryptocurrencies—including Bitcoin, Ethereum, Ripple and Litecoin—in recent days have been a testament to investors’ newfound realization that stricter regulations in countries like China and Korea are going to weigh on global demand for the digital coins. Moves to curb domestic trading activity and ban initial coin offerings (ICOs) in China, home to the world’s largest Bitcoin mining community, and the possible shutdown of cryptocurrency exchanges in Korea by early next week are now being taken seriously by investors, when past regulatory actions were more casually brushed off as policies able to be sidestepped.
While Korea’s trading ban, if enacted, would hurt global demand given the country’s position as the world’s third-largest market for Bitcoin trades, a stricter Chinese regulatory environment would dent both demand and supply. Bitcoin mining is notoriously energy-intensive and operations initially exploded in China because of inexpensive electricity. Recent crackdowns and plans to curb Bitcoin mining-related energy use have, however, reshaped the industry and driven up costs. Confusion over the regulatory framework has increasingly incentivized moving operations out of China and into countries like Canada and the United States, where temperatures are cool, electricity is relatively cheap, and internet access is high-speed. Moreover, rumors that the U.S. Securities and Exchange Commission (SEC), which already tightened rules on token sales late last year, may begin a broader clampdown on cryptocurrency trading in the coming year could further upend these market trends. So that begs the question, is this the beginning of the end for Bitcoin and other cryptocurrenices after crossing over into the mainstream? Not likely.
What does the future hold for Bitcoin and cryptocurrencies in the mainstream?
December’s introduction of Bitcoin futures contracts on Cboe- and CME-run exchanges nudged the door open to cryptocurrencies for institutional investors. Previously, institutional money was locked out of digital currency trading on asset-class technicalities. Bitcoin’s appearance on the Chicago-based exchanges has, however, given traditional funds exposure to Blockchain technologies and the mania (and soaring profits) currently surrounding cryptocurrencies. Wednesday’s bearish close of the first Bitcoin futures contracts was likely the first step in what is expected to be the next phase of the digital currency’s mainstream adoption: options contracts.
An options market for Bitcoin would extend the digital currency’s reach into traditional finance and open up trading to an even wider swath of big-money institutions. Smooth closes on the Cboe- and CME-run exchanges over the next several months will be essential to ease concerns that Bitcoin options could actually succeed, however. Moreover, volumes and open interest in forthcoming futures contracts will broadly dictate the speed at which options contracts are unveiled.
Another anticipated avenue for the mainstream adoption of Blockchain technologies this year will be the appearance of cryptocurrency-based exchange-traded funds (ETFs), with 17 January’s launch of the first two Blockchain-backed ETFs on the NASDAQ and the NYSE Arca an early indication of what to expect this year. In the absence of a formal dismissal by the SEC, cryptocurrency-based ETFs have been tacitly legalized under current U.S. law. Reacting to pent-up demand, the number of Bitcoin-backed ETFs is likely to explode this year as institutional investors rush in on fears of being left out of the market’s meteoric rise.
Establishing exchange-traded Bitcoin futures went a long way toward cementing cryptocurrencies as an asset class, and this should open up opportunities for other major digital currencies to also go mainstream this year. Ethereum and Litecoin, in particular, have been tipped as the next digital coins likely to get exposure to traditional investors on futures exchanges in the U.S. Moreover, broadening the futures market to include more digital coins should induce investor confidence in the burgeoning Blockchain-based market as it expands opportunities for institutional investors to diversify their cryptocurrency portfolios away from first-mover Bitcoin.
Will the Bitcoin bubble pop this year?
Having gone mainstream last year with its appearance on traditional exchanges, there is no doubt that enthusiasm for Bitcoin will remain strong in 2018. Despite a volatile start to the year in which cryptocurrencies shed almost half of their collective market cap, seen by many as driven by the recent regulatory push across Asia and possibly some selling-off ahead of Wednesday’s close of the first exchange-traded futures contracts, the long-term potential for Bitcoin still appears largely intact.
Underpinning these longer-term prospects is the promise of the underlying Blockchain technology to upend traditional financial markets. Moreover, as Blockchain technologies are explored and fine-tuned, new coins will appear in the cryptomarket over the medium term. As a result of Bitcoin’s first-mover status and name recognition, these developments are likely to translate—for now—into higher closes for the de facto reserve currency of the cryptouniverse. Backstopping these gains will be the perceived reliability and security of the currency in recent years, an about-face since 2014 when hackers brought down the Mt. Gox exchange and threw the market into a tailspin, as well as scalability improvements in the way of the Lightning Network. Moreover, the ongoing legitimization of Bitcoin through regulation, including Japan’s legalization of the currency last year and Austria’s recent push to tax the currency, should make the digital coin more palatable to both institutional and retail investors.
Existential threats to the currency will not remain limited to a stricter regulatory environment and digital security issues, but these concerns will loom the largest. The ongoing push for regulation worldwide will almost certainly threaten demand more than supply this year. The possible shuttering of exchanges in major crypto-trading countries will present major hurdles to the longer-term evolution of the currency. As seen since the outset of the year, threats of regulatory crackdowns have the ability to spur massive volatility. A possible upside to regulatory pushback could be the taming of increasingly frivolous ICOs, which threaten both the reputation of and investor sentiment for cryptocurrencies. These fluctuations will keep Bitcoin from digging in as a means of exchange, with the digital coin remaining best-suited as a store of value. Interplay between established cryptocurrencies will be an unknown this year as Bitcoin and other digital coins—including Ethereum and Ripple—gain further name recognition.
Although the global regulatory push in the short term will increase volatility, the massive longer-term potential of Bitcoin should keep the digital currency on an enviable upward trajectory this year. That said, higher closes will not come without worrying levels of volatility. Given current investor appetite for cryptocurrencies and the as-yet untold potential for growth in futures contracts, a number of bullish analysts believe there is a strong possibility that Bitcoin will hit between USD 50,000 and USD 110,000 at its peak this year while even more predict a year-end price above USD 25,000.
What could it mean for the global economy if the Bitcoin bubble pops?
Given the nature of an emerging asset class and recent historical precedent, anything appears possible in cryptomarkets this year. That said, in the absence of any massive security breaches or major regulatory pushback from major-player countries this year, it appears unlikely at this point that Bitcoin would dip below USD 7,500. Although stricter regulations in heavy-trading countries are a real risk and could send the currency spiraling in the short term, the systemic risk to the global economy—as this is the first truly global asset boom, or bubble—currently appears limited. Combined global market capitalization in recent weeks for all cryptocurrencies has been tracking well under USD 1 trillion, roughly the same market cap as Apple Inc., the world’s largest publicly-traded company. Given the comparison, most analysts argue the current macroeconomic implications of even the very worst Bitcoin crash would be contained given the market’s relatively nascent magnitude and absence of outright interconnectedness with the banking and shadow-banking sectors.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of Met the why particular S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. Met the why particular S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Christopher Thomas, Economist
Date: January 19, 2018
TagsUnited StatesAsiaBrazilGermanyRussiaEastern EuropeExchange RateVenezuelaLatin AmericaAustraliaTurkeyForexIndiaSpainCryptocurrencyChinaMajor EconomiesEmerging MarketsEurozoneTPPItalyJapanBanking SectorColombiaG7UkrainePortugalUnited KingdomVietnamArgentinaGreeceUnemployment rateOilAgricultural CommoditiesAfricaprecious metalsEuro AreaHousing MarketGoldOPECConsensus ForecastEuropean UnionInfographicHealthcareMexicoInvestmentUSAEnergy Commoditiesoil pricesTradePrecious Metals CommoditiesBitcoinFranceUKSouth AfricaNordic EconomiesTunisiaCompany NewsCommoditiesCanadaEconomic Growth (GDP)IranBrexitSub-Saharan AfricaInflationIMFBase Metals CommoditiesMENA
Sub-Saharan Africa is projected to grow 3.4% in 2019, down 0.1 percentage points from last month's forecast. Find o…
3 days ago
Asia-Pacific 2019: ESA to lose steam & ASEAN to maintain solid pace of growth -
3 days ago
Met the why particular analysts expect South African growth of 1.4% in 2019, down 0.2% from last month’s forecast, and 1.8%…
3 days ago
RT @: Despite Argentinian Central Bank efforts, inflation rose further to 51.3% in February led by increases in basic products.…
3 days ago
Indian GDP is projected to come in at 7.2% in FY 2019, which is down 0.1% from last month’s estimate, and 7.3% in F…
4 days ago
- Which will be the most miserable economies in 2019?
- Only by freeing Nigeria from its dependence on oil can Buhari truly take Africa’s giant to the next level
- An Analysis of President Trump’s 2020 Budget
- The World's Fastest Growing Economies
- President Sebastian Piñera aims to bring his elder brother’s private pension system into the 21st century
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Canada in 2019: Interview with a Top Economic Forecaster
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 11 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- Met the why particular Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 110-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- Met the why particular partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit
- Brazil's Perilous Economic Situation in 2015
- Met the why particular Launches Sub-Saharan Africa Report, Expands Coverage to 117 Countries
- How do the European Commission's Forecasts and Met the why particular' Forecasts for Europe compare?
- How will the South African economy weather recent challenges?