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How The New Rally Improved Bitcoin’s Upside Potential

How The New Rally Improved Bitcoin’s Upside Potential

Recently, bitcoin’s price grew more than 50 percent in less than a month before taking a dip. What goes up comes down, how does the rally affect the bitcoin ecosystem? Bitcoin.com asked Spencer Bogart, Equity Research analyst at Needham & Company, his opinion on the recent bitcoin rally.

Also read: A Look At Bitcoin Bubbles, When Will the Next One Be? 

Bitcoin’s Rally Likely Means More Upside

needhamAnalyst Spencer Bogart, who leads Needham & Company’s coverage of bitcoin, explained to Bitcoin.com what a large bitcoin rally means by comparing it to equities.

“In the equities world, underlying earnings potential drives price,” he began. “So when you have a big rally in a given stock it eventually hits a point where you can’t justify price relative to earnings potential.” When that happens, investors with long positions will scale back thereby reducing their exposure while those with short positions “will step in more aggressively to balance the market,” he explained.

However, unlike equities, bitcoin does not have underlying earnings so it “doesn’t necessarily have the same constraints,” he said and then clarified that:

In equities, a large rally typically limits further upside but in Bitcoin a large rally typically means more miners, more users, more awareness, more merchants, more startups—which, if anything, likely improves the potential for further upside.

Short-Term Profit-Taking Time

Bitcoin’s price has already risen over 51 percent from the beginning of the month on Bitstamp before taking a significant 20% dip at press time on January 6.

chartBogart said that “the vast majority of this rally is speculation—complimented by macro-driven demand.” While he himself is in it for the long-haul and does not want to time himself out of the market, he understands that “It’s really hard to argue with taking some profits after a 50% run.”

“Anytime price is up more than 40% in less than a month, I’d say there’s an elevated chance of a pullback,” he revealed, but emphasized that “nobody knows when or how big it will be.” He then explained that the perception of the rally “depends significantly on how we frame this,” adding that:

Bitcoin up 50% in less than a month—sounds like a top and a good time to take profits. But if we frame this differently: Bitcoin went from 0.12% to 0.19% of the value of the gold market—what’s stopping it from going to 0.25%? or 1%?

Even though the price has dipped below $900 at press time, in the long run, many are still optimistic. Among those foresaw high prices for bitcoin is Civic co-founder and CEO, Vinny Lingham, who predicted that the price of the digital currency will reach $3,000 late this year. “I believe this is entirely possible, but it must happen while maintaining low volatility and steady growth,” Lingham recently wrote on his blog.

What do you think of the latest bitcoin rally? Let us know in the comments section below.

Images courtesy of Shutterstock, Needham & Company, Bitcoincharts

Bitcoin.com is ramping up our tools section with a variety of useful Bitcoin-related applications. There’s a price converter, paper wallet generator, a faucet, and a verifier to validate messages using the Bitcoin blockchain. We’re pretty excited to introduce these new widgets and tools so our visitors have the best resources to navigate the Bitcoin landscape.

Tags in this story
Analysis, equities, fundamental, needham, prediction, rally, Stock Market, Vinny Lingham
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Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.