For many, the Bitcoin price is the most important, if not the only indicator of how the cryptocurrency is doing. Therefore, setting the myriad of other discovered and undiscovered use-cases aside, let’s take a look at five factors that will have a positive impact on the price of Bitcoin in what is shaping up to be a breakout year for the world’s first borderless currency.
1. Bitcoin Halving
Unlike the Fed’s monetary policy whims, the Bitcoin protocol is transparent, and the total supply of bitcoins that will ever exist is publicly known. According to Bitcoinclockhalf.com, the next great Bitcoin halving falls on July 18th, 2016.
Bitcoin is generated at a fixed rate of one block every ten minutes, on average, where one block contains a certain number of bitcoins. This is precisely the amount that will be halved decreasing the supply, and thus, one would naturally expect the price to rise if demand doesn’t also drop.
CEO of China’s biggest exchange BTCC, Bobby Lee, shared his thoughts regarding the matter:
“I think that the next run-up would be in early 2016, in anticipation of the halving of block rewards […] and yes, the price run-up should be much higher than in 2013.”
However, the market often behaves in contrarian fashion when it comes to expectations, according to former trader and founder of Sammantics blog, George Samman.
“I think price may rise into the halving on a lot of hype and then it could see a big dump because things rarely do what you expect them,” he explained to Bitcoin.com. “The theory of supply and demand lives in a vacuum like most economic theory. Price lives in the real world of traders navigating through complex systems. Plus we need to see if miners continue to feel incentivized.”
So will the price double? Probably not, though it is unlikely that the halving will have a long-term negative impact on price, if any. But while many see the halving as bullish, just how the market reacts will be finally revealed this summer.
China’s markets have been going nuts since the start of the year, experiencing 7% drops and suspension of trading. With even China’s biggest bank seeking safety in gold abroad, another financial crash might be in the cards, which could present a real boon for the decentralized currency. This is because the Chinese are not only known for buying gold — and more recently bitcoin — in times of economic distress, but also using the digital currency as a way to circumvent capital controls and as a vehicle for conversion into other fiat currencies.
For example, Bitcoin experienced a price uptick at the end of October 2015 when the Chinese markets were battered once again.
Evidently, further tightening of these controls, continued market manipulation and “disappearance” of finance magnates in China are all factors that could dampen confidence in the traditional global financial system leaving cash, gold, and bitcoin as viable tools for reducing exposure to floundering markets. Moreover, as demonstrated this past summer by Greece, bad news for traditional currency appears to be good news for bitcoin.
3. Transaction Volume is Growing
One of the most relevant statistics for gauging how Bitcoin is doing is transaction volume since there is a direct relationship between the number of transactions within a network and the number of network users. This number is of utmost importance since “the value of a telecommunications network is proportional to the square of the number of connected users of the system” as per Metcalfe’s law.
The linear growth becomes apparent when looking at Bitcoin’s transaction volume since its genesis block. In other words, the cat is out of the bag and Bitcoin — the world’s leading decentralized, peer-to-peer currency — cannot be un-invented.
Moreover, if we consider that it’s the only viable cryptocurrency at the moment (sorry, there aren’t too many Dogecoin ATMs yet) that anyone in the world with an internet connection can use, it’s not unreasonable to assume that the number of transactions will continue to increase as new users discover its benefits. That’s not to say that some other black swan cryptocurrency cannot steal Bitcoin’s thunder, but for the time being, it is undoubtedly the flagship currency of the nascent cryptocurrency industry so the transaction volume should continue its upward trajectory.
Many have dubbed 2015 as the year of the blockchain, where traditional financial institutions – even in countries that are supposedly hostile towards Bitcoin – are increasingly looking into the technology that powers it. What’s more impressive is that already over 50 major global banks have established the R3 consortium to figure out how to approach and implement blockchain technology.
Expect the debate on whether the blockchain will be as robust without Bitcoin to come to a head in 2016, when users realize that private “bankchains” are the equivalent of AOL’s and Compuserve’s walled garden Internet in the 90’s. Venture capitalist Marc Andreessen recently shared his thoughts on the issue tweeting:
Of course, the banking industry won’t stop from trying to get a leg up on Bitcoin. At the same time, such initiatives as R3 also benefit Bitcoin since inquisitiveness on behalf of banks is increasingly legitimizing Satoshi Nakamoto’s invention in the eyes of the public, even if these financial institutions refuse to utter the taboo B-word.
“First they ignore you, then they laugh at you, then they fight you, then you win,” ominously said Mahatma Gandhi, and it appears now that the banks are consolidating and mobilizing their forces.
5. Improving Infrastructure
Bitcoin had an impressive year as the world’s best performing currency against the US dollar. Not only that but the record $1 Billion USD venture capital funding injected into the cryptocurrency and blockchain industry in 2015 should yield some results this coming year and enhance Bitcoin’s infrastructure as a whole. This means better apps, digital wallets, easier interfaces, greater security, new use-cases, and more on-ramps for the Bitcoin ecosystem, which will add value to the network. And while many questions persist regarding scalability and the block size, advancement in technology will continue unabated.
As internet speeds and connectivity is continually improving worldwide and smartphones with ever greater capabilities becoming more affordable to people in developing countries, more and more people across the globe will gain access to the world’s first borderless currency. As the user-base expands, so will Bitcoin’s price as a result.
Expect to be Surprised
The list above outlines just some of the factors that should boost Bitcoin’s price in the year ahead. However, the fledgling currency is not known for its predictability and unforeseen events or changes in the Fed’s policy, for example, could have a significant impact on price.
“Bitcoin technology is only seven years old and Bitcoin as a financial asset is only five,” said independent investor and editor-in-chief at Adamant Research Tuur Demeester in his prediction for the year ahead. He concludes:
“If I expect anything over the next 12 months, it is to be surprised.”
What other factors do you see impacting Bitcoin’s price in 2016? Share your thoughts and comment below!
Images courtesy of blockchain.info