Best-known of the cryptocurrencies, and the one against which all the others tend to be measured, Bitcoin has been on a roll. Indeed, any BTC price forecast is likely to look rosy.
The world’s favourite cyber-money, whose origins are shrouded in mystery, is close to 12-month highs. Many so-called swing traders, who try to ride the ups and sell out before the dips, have made Bitcoin their favourite counter on the financial trading board.
So what is going on? What drives Bitcoin – and can it last?
No central registry
To answer those questions, we need to start by looking at what Bitcoin is, and how it differs from other cryptocurrencies.
Bitcoin was founded in 2009 by Satoshi Nakamoto, someone who may well not exist. For a certain type of journalist, the hunt for Mr Nakamoto (if there is one) has become something of a passion. For us, his existence or otherwise is not really relevant, as Bitcoin appears to go from strength to strength without such a visible figurehead.
As with many other cryptocurrencies, Bitcoin exists on what is called a distributed ledger, a decentralised network of computers on which the buying or selling of bitcoins is verified. There is no central registry and certainly no central bank.
What makes it different is its sheer size and acceptability round the world, including in many retail outlets. There are thought to be more than 5,000 cryptocurrencies globally, but the vast majority are little more significant as mediums of exchange and stores of value than the plastic coins with which children play.
Built-in cap
At the top of the cryptocurrency tree are perhaps a dozen denominations, with Bitcoin at the apex. So what are the factors that drive its performance and how may they feed into a Bitcoin short-term forecast?
The first, which we have touched on, is speculative interest. Bitcoin’s hot streak has attracted equally hot money from those seeking to make a fast crypto-buck. They are helping its upward surge, but should the hot streak turn cold, so will their feet.
A second, and more sustainable, source of support for Bitcoin comes from its status as a financial safe-haven in what are, even by the usual standards, extraordinary times. As the coronavirus rages, the West and China face off against each other and suggestions have emerged that the result of November’s US presidential election may not be accepted by one side or the other, what could have been seen in calmer times as Bitcoin’s defects (anonymous backers, no one apparently in charge) become strengths, because they underline the cryptocurrency’s insulation from governments.
Bitcoin is supposed to have a built-in cap on the number of coins that can be generated, meaning, it is said, that inflation can never be a problem, unlike with mainstream currencies, where central banks always have access to the printing press.
Will the hot streak go cool?
A third factor that may currently be spurring capital flows into Bitcoin is the dire level of returns available on conventional assets. With so-called risk-free securities such as cash or government bonds yielding so little, the chance of a sizeable capital gain from trading or investing in Bitcoin is clearly attractive.
Finally, the decline of the dollar in recent months may well have burnished the attraction of Bitcoin. Three months ago, on May 20, the dollar traded at €0.9108 against the euro and, at the time of writing, is down to €0.8848.
By contrast, Bitcoin’s recent performance has shown a rarely interrupted upward surge. At the time of writing, it is trading $11,783, just off a 12-month high of $12,046 on August 18. One year ago, on August 20, 2019, it was worth $10,734, and its 12-month low was seen back in the spring, at $5,464.67 on 17 March.
So how do we see the above mentioned factors playing out in order to make a short-term Bitcoin prediction? We have already noted that speculative interest can be fickle, but for as long as Bitcoin delivers capital gains then the speculators will stay in the game.
Such gains depend on the other factors. How are they looking?
In terms of a safe port in a financial storm, Bitcoin is not the only harbour to which funds can be steered. Gold remains a potent rival, given that the advantages claimed for Bitcoin (a limit on the number of coins that can be created and independence from governments) have long been cited for gold.
And fans of the yellow metal can, and do, point out that its track record stretches back a little further than 11 years.
Then we come to the rock-bottom returns on conventional assets that make Bitcoin more attractive than may otherwise have been the case. Here, the outlook remains bright – or dark, depending on your point of view.
There seems little chance of a significant rise in interest rates in the short term or in the yields available on bonds. As for the decline in the value of the dollar, a great deal hinges on political and social developments in the US. The word from major business and financial interests is that a victory for the Democratic Party candidate Joe Biden would be preferable to another four years of President Donald Trump, and that, with the former Vice President installed in the White House, there would be a return to something resembling business as usual.
Of course, Mr Biden may not win and, even if he does, his party’s left-wing may push economic policy in a direction inimical to business. But we are looking at the short-term prospects for Bitcoin, and one factor – poor returns on other assets – is fully supportive. That has to be at the root of any Bitcoin price expectations/projections.
But in the medium term, the betting has to be that the hot streak is going to cool. Anyone holding Bitcoin should beware of the top.
Author: Dan Atkinson
Read more at: https://capital.com/bitcoin-short-term-forecast
