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

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