Preserving the Markets: What Needs to Happen to Bitcoin Price


Preserving the Markets: What Needs to Happen to Bitcoin Price

It’s now been over a week since the Bitcoin “halving” and, as the smoke clears, price speculators and miners are starting to re-examine their analyses. Perhaps we shouldn’t be guessing what will happen to the bitcoin price in 2016, but instead, start looking at what should.

Also read: The Halving Not Affecting Bitcoin Price or Hashrate, for Now

Civic CEO Vinny Lingham, a frequent commentator on price movements, told his prognostication one week before the reward halving “has played out pretty well so far,” with prices remaining fairly stable between the $600 and $700 marks.

He also reiterated the point he made in June — that large volumes of bitcoin trading happen away from the public markets (OTC trading). These trades, made by bitcoin “whales” with large amounts of money, causes price volatility.

Until public markets become so liquid that all trading can take place on the open market, he said, this activity would continue.

50% Cut Will Hurt Some Miners

Bitcoin price mining incomeIt would be naive to think that halving would, or should have no effect on price. However, if it stays at current levels for a long time, that’s effectively a 50 percent cut in revenues for mining operations (or looked at from another angle, a doubling of overhead per bitcoin received). That would be a huge hit for any business.

Most miners, at least in public, don’t seem too alarmed by this.

Anecdotally, some China-based miners asked said the halving had been anticipated for some time, so they were confident its effects had already been priced into their operations. This came mainly in efficiency improvements.

Lingham suggested this could be an example of the “Lake Wobegon Effect” — a condition whereby humans assess themselves, and their own capabilities, as above-average.

Some miners may well be as efficient as they think, he said. But many probably aren’t — and they’re the ones who will be in trouble if the bitcoin price doesn’t rise dramatically soon.

This is not necessarily a bad thing.

What Should Happen to Bitcoin Price

Vinny Lingham Bitcoin
Vinny Lingham

No-one really knows where the bitcoin price will go from here — those who say they do are only guessing and/or lucky, Lingham wrote.

So instead of trying to make such a prediction, he laid out recommendations on what should happen instead. “Should,” as in, what would be best for the health of Bitcoin in general.

Price stability and consolidation are necessary, Lingham said, preferably between $600-$650 but hopefully tighter. He recommends buying below and selling above that range, at least for the next few weeks or months.

Retesting the $700 mark (which Lingham calculated as bitcoin’s true “all-time high”) is a bad idea. $700 is a strong profit-taking level and many buyers, especially those in the aforementioned OTC markets, are waiting to start selling at that level. If this happens and large-scale selling is triggered, that means more volatility.

Keep a Level Head

Bitcoin.com_VolatilityWhile traders and speculators prefer volatility, it’s not healthy for any asset, especially one trying to act as a currency and hedge against potential fiat currency woes.

If the price does fall into the $500s again, Lingham said, this shouldn’t be a cause for panic as it’s likely to be a temporary dip.

As for those bitcoin operations who falsely believe themselves to be above average, a stable price at today’s levels could flush out bad actors from poorly financed and dubious mining operations, to outright scams and Ponzi schemes. Lingham concluded:

This will likely bring bad news to bitcoin temporarily, but it’s going to be like a new broom sweeping clean or a recession in a hot economy — it’s always good for the long term.

Flustered bitcoin traders may be heartened to hear that even industry professionals don’t have a crystal ball – every new month in Bitcoin is new history being made, and it won’t always follow familiar patterns.

Does Vinny Lingham’s advice make you more or less likely to trade on bitcoin’s price? Do you have any educated guesses or suggestions of your own?

Tags in this story
Bitcoin OTC, Bitcoin Price, Bitcoin Price Analysis, OTC, trading, Vinny Lingham

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Jon Southurst

Jon Southurst has been interested in bitcoin since reading Neal Stephenson's 'Cryptonomicon' in 2012. A long-time tech writer, he has been a regular contributor at CoinDesk and has written for, DeepDotWeb and ancient print publications. He lives on an artificial island in Tokyo.

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