Bitcoin Hits $13,000 Because Ceilings Are Just A Construct, Man

At this point, anyone pretending to know what the ceiling is on Bitcoin should be considered no more reliable than a palm reader. Today, the trading price of the most prominent cryptocurrency hit $13,000 for the first time. And that nice big number will almost certainly have the kind of psychological effect that brings in new traders.

Photo: Getty

Based on analysts' recent predictions, the $US10,000 ($13,137) milestone could be the beginning of the end or just the beginning. Some thought that $US2000 ($2627) would be the point at which we'd see a reversal of Bitcoin's ascent. Others predicted it would top out at $US4000 ($5255). Then, that became the floor. These days, analysts with decent reputations have predicted the cryptocurrency's trading price could go as high as $US50,000 ($65,684), $US100,000 ($131,367) and even $US1 million ($1.3 million).

All of those incredibly lofty estimates, however, are based on longer timetables. The more pressing question for investors is how Bitcoin will perform in the coming months. Bitcoin has survived hard forks and governmental regulations that were considered potential deal breakers. Every time, any price drop has been followed by a recovery that dwarfs the potential returns from traditional currency or stock investments. Bitcoin now sells for 10 times the price it did at the beginning of 2017. At the moment, the biggest thing that speculators are focused on is CME Group's decision to offer Bitcoin Futures to its customers beginning next month.

Futures trading is considered by traditional investors to be a major step in making Bitcoin more legitimate. CME customers will be able to sign contracts to sell bitcoins for an agreed upon US dollar value at a future date. When the contract expires, the customer will make up the difference between the current selling price of Bitcoin and the previously established price, either receiving money or paying it out. This means that people will be able to speculate on Bitcoin without actually buying any bitcoins, therefore limiting their exposure and the risk of having their bitcoins stolen.

How this affects the actual price of Bitcoin remains to be seen. Bitcoin Futures investors won't be buying bitcoins, so they won't be driving the price up. Bloomberg's Matt Levine explains the paradox at play here:

If you are buying bitcoin futures, it is probably because you think that bitcoin will go up. If you think that bitcoin will go up, it is probably because you think it will be more widely adopted as a currency and a store of value and an alternative to the current financial system. But if you really thought that, you'd just buy bitcoins. You're buying the futures because, deep down, you prefer the existing system. "The need for a bitcoin ETF," I once wrote, and it is just as true of a bitcoin future, "is an argument against buying it."

At the same time, institutional investors are finding other ways to make Bitcoin safer. Last week, Paris-based fund manager Tobam launched the first mutual fund that tracks Bitcoin in Europe. But as more experienced financial experts join in, the cryptocurrency runs the risk of slowing down when it comes to the mammoth returns it can offer. Sure, there's still plenty of reason this could all be a bubble that's just waiting to burst. The less dramatic outcome would be that Bitcoin's increases become more ho-hum, and public interest wanes when the headlines stop blaring. There are much easier investments out there that can bring in a modest return. And for some traders, Bitcoin's volatility is its most attractive quality. If they don't see a way to take advantage of huge price swings, they could move on to something else.

Nothing about Bitcoin is making sense right now, and that makes it a really attractive option in these confusing times. Vanguard Group, a fund that manages around $6.6 trillion in assets, put the odds of a coming stock market correction at 70 per cent on Tuesday. And the Trump administration has insisted the market will dive if its tax cuts for the rich aren't adopted. Throw in the general political turmoil that's happening in practically every country around the world, and Bitcoin has many asking, "What have I got to lose?"

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Comments

    The question is this: what happens if bitcoin stops going up? Its clear the explosion in value is due to the hype train hitting the mainstream, but eventually it will reach saturation. At that point, what happens? It will never be an embedded currency - developed countries have their own currencies which you must use to pay your debts to the state (like taxes) - so its a commodity, like gold. But the difference is gold's current value isn't based off of a hype train, it is a proven trusted store of value, people know what to expect of gold, it goes up when the world is worried (and also when money is devalued by low interest rates and quantitative easing), and it goes down when these things subside. But how many people are in bitcoin purely because of its meteoric rise that's due entirely to the fact that nobody new about it and now they do? (something that isn't going to repeat) how many will sell when that rise stops? And how many will sell when that causes the price to go down...

      Bitcoin has been trending upwards since its release - it has falls, but it always recovers. It is designed to continue to increase in value.

      Bitcoin can only ever have 21 million coins issued - it is a deflationary asset. There will come a day when Bitcoin is no longer minted and the world will have to use the bitcoin available to it.

      You hear some many stories about people losing thousands of bitcoins and it is estimated around 20% of the existing 16 million bitcoin have been lost by owners and will never be recovered.

      So unlike currency, where a government can just print trillions of dollars to go to war, or quantitative easing, bitcoin numbers will decline - driving its value higher. Its value also comes from the fact that no one owns or controls the network, so you don't need to trust individual players like you need to trust a bank or a national government, if one node of the network fails, another one will take its place.

      Bitcoin is made for a future when people have lost faith in government's, banks, reserve banks etc ability to control monetary policy. With Trump looking to increase the deficit by trillions in the coming years on the belief that the market will just continually finance this debt, the loss of trust could be closer than you think.

      The price of gold is based on its scarcity, if in the next 20 - 30 years we start mining asteroids etc, the value of gold could plummet as it loses its scarcity value.

        Interesting comment about gold price and space mining for gold. If we stop mining earth that is a good thing. As space travel gets cheaper it is very likely that gold will drop in price but we might have a decade to make some decisions.

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