These 2 Things Will Push Bitcoin Higher In 2018

By Scott Tzu

Bitcoin's first mover advantage and the listing of bitcoin futures that will begin to trade this month are both tremendous positives for the digital currency that we believe will help it continue to move higher into 2018. The fact that bitcoin is the currency that created the asset class and the immeasurable amount of liquidity that bitcoin futures are going to create are both meaningful positives for the digital currency heading into 2018.

Balance in Our Bitcoin Discourse
Despite bitcoin's astronomical move higher already, we have tried to take a measured approach in identifying both strengths and weaknesses of the new asset class during our series of articles that we have written about it. We have been bullish on bitcoin, encouraging readers to "buy one bitcoin and forget about it" while the price was about $1400. Those who followed that advice have made nearly 10 times their initial investment at this point and we don't have any reason to believe that price appreciation is going to stop anytime soon.
While our last article tried to pepper in some balance in laying out what we believe to be one of bitcoin's biggest weaknesses, today we wanted to put two more new bricks in the wall of the bullish argument and talk about two big advantages that we think are going to continue to propel bitcoin higher as we head into 2018. So far, our price targets of $5,000 and $10,000 have both been met and for 2018, we don't believe that $25,000 is an unreasonable price for bitcoin. As you may have noticed, the higher the price goes, the quicker it appreciates. Some would argue that this is a bubble, we argue that this is just the long lost art of supply and demand when supply is limited and the asset in question could be a potential disruptor.
We want to talk about two things today. The first is why we think bitcoin will take precedence over other digital currencies and the second is why we think bitcoin futures are going to be an immense positive for the digital asset going forward.

Bitcoin As a Historical Asset
One of the big bear arguments against bitcoin is that there is an unlimited number of digital currencies and that many of them have functionality and transaction capabilities that far exceed bitcoin. Additionally, some argue that the introduction of these additional digital currencies may deter investors from bitcoin. We argue the opposite. We believe that because bitcoin is the first of its kind in terms of being a secure, decentralized peer to peer digital currency, that this will ensure its place in the history books and make it only more valuable as time goes on.

Bitcoin could essentially become an "antique" of digital currency eventually, especially down the road if central banks begin to make their own digital currency. But the nature of how it is programmed and the fact that it has only a finite supply is leading us to think that people are going to want to own it not only for currency purposes and storer of value purposes but also eventually for historical purposes. Bitcoin is synonymous with digital currency or cryptocurrency right now and therein lies the reason that it is leading the charge and is the most valuable out of all of the digital currencies. That reason is simply because bitcoin is the first. The fact that it is the currency is responsible for creating the entire asset class is going to continue to make it the weathervane for all digital currencies going forward and we believe it will maintain this prominence going forward. This will only serve to make the currency more valuable in the future, we believe.

Futures Will Allow Massive Institutional Bitcoin Exposure

But perhaps the most important piece of news for bitcoin since it originated is going to be the beginning of bitcoin futures that are set to open for trading in just weeks. IBD reported,

CME Group's contract will start trading Dec. 18, as investors rush to get a piece of the cryptocurrency mania.

"Bitcoin, a virtual currency, is a commodity unlike any the commission has dealt with in the past," CFTC Chairman Chris Giancarlo said in a statement. "We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms."

These futures are going to do to really important things. The first is that they're going to allow bitcoin owners to hedge against their current positions and the second is that they are going to help speed up price discovery. The fact that bitcoin itself isn't very liquid not only leads to severe swings in the asset's price, like we saw on Thursday and Friday, but it also prevents price discovery from happening at a rapid pace. Institutions and banks all have likely been unable to take large stakes in the bitcoin universe because it is so illiquid and not easy for a large buyer to step in. Futures are going to change all of that. They are going to create an immense amount of liquidity that is going to allow an unprecedented amount of cash speculate on bitcoin. The futures will then help drive the price of the underlying asset.
Futures are going to allow a whole new set of investors access to bitcoin that have been unable to invest in the digital currency in meaningful amounts. How starved is the market for liquidity?

The Greyscale Bitcoin Trust (OTCQX:GBTC), which is one of the only ways to trade bitcoin or have access to bitcoin without actually owning the underlying has consistently traded at a premium of over 50% since it has been listed. This premium shows that investors are hungry for exposure to bitcoin and it shows that investors expect the price to continue to rise meaningfully. Futures are going to help satisfy some of the demand for liquidity. Though the futures won't help the price of bitcoin move higher directly, they will likely lead bitcoin investors to a better understanding of what market expectations of the future price will be.

Bitcoin Isn't Going Away
Bitcoin's first mover advantage means that it is the first to take advantage of things like futures trading on digital currency. It is going to continue to benefit from the fact that it was the proprietor of the digital currency asset class moving forward. We never saw other digital currencies as a meaningful threat to bitcoin and the introduction of futures for bitcoin this month is going to not only further solidify its position as the leader in the cryptocurrency market, but it is also going to lend more validation and credibility to the digital currency.

With the introduction of these futures, larger institutional investors will finally be able to have access and exposure to the digital currency in a meaningful manner and we think this will help further a case for bare bones regulation on bitcoin moving forward. Now that it will be in the best interest of banks and big money for bitcoin to appreciate, with the introduction of futures, we expect price discovery to speed up meaningfully and we continue to believe that over the course of the long term, bitcoin will still appreciate.

Disclosure: I am/we are long GBTC Bitcoin.

I wrote this article myself, and it expresses my own opinions.. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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