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Mark O' Donnell
 · 
Research Analyst
November 18, 2020
 · 

Bitcoin – $60,000 and beyond?

Bitcoin – $60,000 and beyond?

There's a saying the markets have adopted over time: "Buy the rumor, sell the news." And the cryptocurrency market is no exception. Bitcoin has recently propelled itself to $18,000 – with minimal coverage on the news if we compared its coverage in 2019. However, another rule that I personally go by – If your mum is talking about it, it's a strong signal to sell. By "Mum," I mean anyone who generally is not associated with the specific market.

Maisie Williams a.k.a Arya Stark in Game of Thrones asking her 2.7 Million followers their opinions on the price of Bitcoin.

A recent poll done by Maisie Williams, the actress that played Arya Stark in Game of Thrones, asked her 2.7 Million followers whether she should go long Bitcoin. This begs the question, does Bitcoin have any fundamental basis for moving higher?

Bitcoin – hedge for inflation?

Goldman Sach's view on Bitcoin / Cryptocurrencies

Some people believe that Bitcoin and cryptocurrencies are a natural hedge to inflation. As the Federal Reserve and the U.S. government take out more debt, alongside the Federal Reserve putting particular importance on inflation, many have been concerned about holding fiat currency. However, many firms push away against the notion that Bitcoin is a hedge against inflation, much more than a MacBook Pro, or peanut butter is a hedge against inflation.

A couple of months back, Goldman Sachs sent an email out to institutional investors making points that Cryptocurrencies "Do not show evidence of hedging Inflation," making it one of many firms to push back against this claim. However, it is not to say Bitcoin is not an acceptable alternative asset class to shield against inflation; it is merely less affected by inflation.

Bitcoin – a suitable alternative to Fiat currency?

Many people believe that Bitcoin has excellent qualities for an alternative Currency. However, this is simply not the case. A Currency requires stability in its value, but Bitcoin is anything but stable.

We'll take the Coffee I buy every morning as an example. For the sake of argument, we will peg the price of Bitcoin to $1 USD at the start of 2019.  The price of my Coffee is $4.

Date Value of Bitcoin to USD Value of USD Change BTC
Jan 2020 $4 $4
March 2020 $2.16 $4 -54%
Present $5.74 $4 187%

As you can see, at the start of the year, I could afford to buy that $4 coffee. However, around March, that same $4 worth of Bitcoin is now worth $2.16, which means I would not have been able to afford the $4 coffee.

In comparison to the U.S. Dollar, I purchased that $4 throughout the whole year. I understand this is a flawed test, as we can argue if the price of the Coffee were in Bitcoin, the hypothetical would be reversed. However, with such massive swings, it would be realistic to assume we would get a situation similar to Venezuela, where prices for goods and services fluctuate by the day. This shows that Bitcoin is more similar to Gold or commodities in general.

Bitcoin – Interbank possibilities?

One appeal with Bitcoin and cryptocurrencies, in general, is the low transaction costs it has. Transfers from banks from one country to another can incur fees upwards of hundreds of dollars, and possibly, even more, when larger sums of money are transferred. However, with a centralized system, Bitcoin and many cryptocurrencies incur negligible transaction costs.

For example, Silk Road, an organization which sold illegal services over the dark web was raided by the FBI, in which they took Billion's of dollars of Bitcoin as it was the means they used to transact. It was noted that over $1 Billion USD worth of Bitcoin was transferred from one account to another, incurring a transaction cost of $15.

Cryptocurrencies are definitely a strong substitute for interbank transfers, and we can see that slowly playing out within bigger institutions. Both JP Morgan Chase and Goldman Sachs have appointed a new Global Head of Digital Assets, with JP Morgan exploring the possibility of creating its own blockchain similar to Bitcoin.

Bitcoin - "network effect" in play?

Going back to the original paragraph, Maisie Williams's ponder on whether she should "go long" Bitcoin highlights the general overview of what people think cryptocurrency currently is – as a means to make quick money.

Mike Novogratz, Billionaire, and the Investment Firm Fortress Investment Group's ex-fund manager stated he believes Bitcoin's price will hit $65,000 U.S. Dollar. Novogratz said he expects the price first to hit $20,000 before it gets to $65,000 due to a "network effect," in which there are a ton of new buyers and lowers supply, "So YES, but it."  In other words, he is currently long Bitcoin and wants the "Bigger fool" theory to take place to push his position up.

Bitcoin - Technicals play well with the Coin

Bitcoin - will history repeat itself? Or will it make a move much higher?

Currently, Bitcoin retraced from its $18,500 high to $17,584 in the span of a couple of hours. It is currently approaching a strong psychological level of $17,000. A move below this alongside risk off sentiment may see a move to a 100% retracement level to $13,914. Bulls may see this as an opportunity to move higher to a 161.8% Fib level, above its all time high. If it breaks this level, bulls may tacket it to levels never seen before,

However, Novogratz’s theory makes sense and may be the main driver pushing prices higher. Therefore, there is a case to be made that its time to buy a couple of those Bitcoins.

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