With the price of Bitcoin rising to a new record and in touching distance of the $13,000 mark, a respected FX and crypto trader believes that while the digital currency’s value is unlikely to be slowing in the near future, “Bitcoin will not be able to hold its position as the leader, and will even become obsolete, as other cryptocurrencies become better alternatives for payments and trading.”
The virtual currency, which was trading at below $1,000 at the start of 2017, has capped a remarkable year. As its value went past the $10,000 last week some experts believed the asset still had far to soar, while others opined that it represented a speculative bubble with nothing tangible at its core and could burst at any time.
Today, Bitcoin continued its staccato march skywards, with prices achieving fresh all-time highs above the $12,400 mark and earlier this afternoon threatening $12,500 on some exchanges. And, at the time of writing it was trading just a few hundred dollars shy of the $13,000 threshold. And, the $15,000 level was just a stone's throw away. Indeed, last week online bookmaker Betway wasoffering odds of 13/8 for the currency to reach a peak value of $15,000-$20,000 by the end of 2018.
The momentum traders were further fuelling the bubble with speculative long positions. But according to Neil Wilson, senior market analyst at City brokerage ETX Capital, a firm that offers trading in Bitcoin, this could be “about to change.”
Much will depend on the newsflow around Bitcoin and its longer-term prospects will depend on alternatives and how efficient and cost effective they are in terms of exchange and carrying out transactions, according to SiimÕunap, an Estonian who trades the FX and cryptocurrency markets.
Acknowledging that the price moves of late for Bitcoin have been “pretty crazy”, Õunap said: “Bitcoin defies all the trading rules. However, I think it [the price] is going to slow downbut not just yet when it comes to the very near future.”
Stacks of Bitcoins sit near green lights on a data cable terminal. Despite warnings of a bubble the... [+] price of the largest cryptocurrency by market value, Bitcoin is showing no signs of slowing down. (Photographer: Chris Ratcliffe/Bloomberg).
Good & Bad News
“It went up really fast and it continues to rise, and it will do so for quite some time, but not indefinitely,” he added. “Obviously much depends on news around the currency - as with the CME announcement that it will be trading Bitcoin futures this quarter - which pushed the market quite a bit higher.”
Õunap, who is also the COO of GetGame based inPärnu, a city in south-western Estonia,noted that “even when there is bad news about Bitcoin, it will affect the price only temporarily.”
By way of background, GetGame, the brainchild of the Estonian who partnered with decentralized exchange OpenLedger in the project, last week (30 November) launched a reservation option fortheir initial token offering (ITO),supporting their‘all-in-one’ game development platform run on the blockchain. This is touted as enabling people with great ideas can go to and take their game idea from vision to reality.
There are more and more people talking cryptocurrencies, with Bitcoin recognized more than any other cryptocurrency, coin or token.
Looking around for causes for these fresh gains, one has to look at the imminent launch of Bitcoin futures as the most important catalyst. Some have also suggestions that it could be the new gold, something Wilson labelled as somewhat “fanciful” given the supply of new cryptocurrencies.
The CBOE goes live on 10 December, while the CME follows on 18 December. The thinking is that these initiatives will attract additional investor interest and inflows of capital, and in so doing give this bubble new oxygen and an early Christmas present for speculators.
However, futures are not entirely positive for the bulls. “In fact they may spark a significant repricing as they will make it significantly easier for bears to go short,” Wilson at ETX Capital in London posited.
The London-based Scot added: “When the only way to short is to sell your Bitcoin and effectively exit the market, there is a clear bullish bias as owners (enthusiasts and speculators - both of whom want prices to go up regardless) cling on as long as prices keep rising. The ability to go short creates a new dynamic in the market and should create a better functioning market.”
Alternatives To Bitcoin?
So what about the alternatives to Bitcoin. There are more than a few cryptocurencies out there. In fact many hundreds.
Asked what could derail Bitcoin going forward, the Estonian, who studied in Denmark and the Czech Republic and divides his time these days between London and Pärnu, cited the possibility of alternatives to the ‘Big Daddy’ of the cryptocurrencies.
“Whenthere is an alternative that is just as available for trading on the exchanges, and can be used universallyfor purchases as Bitcoin is,then Bitcoin will start losing its value very quickly,” Õunap asserted. “And, that alternative could be Bitcoin Cash, it could be EOS and potentially a third candidate. I have some other ideas in addition to these, but I will keep these to myself.”
At this point in time “Bitcoin is one of the most inconvenient cryptocurrencies to pay with because it is slow and expensive ” according to Õunap, despite it seemingly grabbing all the headlines.
While Bitcoin, which has been described as having the attributes of a currency, a commodity and a technology, it has had the big benefit of being the first cryptocurrency and it’s the first to go to - especially for newcomers. The Estonian ventured that it’s perhaps also “the worst when it comes to trading and payments...having not been developed as such.”
He added: “The only reason why Bitcoin is so strong right now is because it works and there is just so much news about it all the time. Almost everybody knows Bitcoin, but very few people - unless you a crypto nerd - know even Ethereum, second most known cryptocurrency.”
That said,Õunap, speaking from Tallinn believes that it will only be “a matter of time” until some better alternative to Bitcoin becomes available, with shops starting to accept the alternative(s) - be it EOS or another currency.
As he pointed out for example, with EOS the transactions could be free as promisedand transactions executed in a matter of 1.5seconds. By contrast, with Bitcoin one might have a transaction fee of at least $6 and have to wait around half an hour for the transfer.
“If both options are equally available,obviously under those circ*mstances you are going to go with EOS, even it means that you have to trade your Bitcoin to EOS first, as it’s a relatively easy exchange,” the Estonian said. “And, given that quite a few of these alternatives already exist, I’m fairly sure that - if not next year then definitely the year after - Bitcoin will fall big time.”
Bitcoin & The Mainstream
Once you bring Bitcoin into the mainstream, investors - both bulls and bears - and regulators will start demanding it to behave like other asset classes. Or, as Wilson puts it “at least be able to co-exist in the same ecosystem as other assets.”
By introducing futures contracts - and potentially ETFs as a result - you try to make Bitcoin more like any other asset and price discovery becomes a lot less opaque, i.e. people will see just how badly priced it is. At the moment it is dominated by enthusiasts and speculators who want the price to go up.
Wilson added: “Once you get enough shorts and sufficient numbers of people taking the other side of the bet, there will have to be a significant repricing that pops the bubble. Given greater scrutiny and because Bitcoin cannot live up to the expectations that the current pricing (speculatively driven) imply, it will not be able to sustain the price gains and there could be a shock for the bulls.”
For now Bitcoin remains in a bubble and there could be a further squeeze higher as we approach the launch of the futures contracts by the CBOE and CME.
Regulatory Crunch?
Meanwhile certain pundits think there may well be at some point a regulatory crunch for Bitcoin and the development of regulated derivatives only accelerates that by bringing it into the mainstream. “Once you start hammering Bitcoin exchanges with AML, KYC and all the other regulation, the appeal of cryptos as an ‘off-grid’ currency significantly diminishes,” Wilson asserted.
All that said, it is hard to say precisely where we are in the curve. But the shape of the chart is parabolic and heading vertical. And, as Wilson noted: “These things don’t last and the advent of regulated derivatives may be the thing that pricks the bubble.” Caveat emptor.
