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Tuur Demeester is an economist and investor.
The following article refers to an opinion and is for informational purposes only. It is not intended to be an investment advice. Look for a duly authorized professional for this.
Despite a cooling period of six months already, for 2018 we see more sideways and downside potential in the bitcoin price due to weak retail demand, hesitation on the part of institutions and a current market capitalization that seems too high compared to the activity that occurs on available blockchains.
Many investors and advisors are aware of the fact that $ 5,700 has been the bitcoin fund for this year and higher prices are expected. Although we are very confident about the long-term prospects of bitcoin, we pay attention to greater price optimism in the short term.
To find the starting point of the historic bitcoin parabolic rally that ended at $ 20,000, we have to go back to August 2015, when the bitcoins were traded for less than $ 200. This past event was a wonderful move and historical. Even in the secular tense market, the collective of economic actors needs time to absorb the information embedded in its characteristic high-volume rallies.
As I indicated in my 2018 forecast, I think the odds are high for this year to be remembered as a year of shakeout: an altcoins lemon market, regulators getting up and growing infrastructure suffering .
Short-term bearish signs
Since January, the hashrate of bitcoin mining (aggregate calculations per second made to protect the network) has tripled, which means that a large amount of new or more efficient mining platforms they arrived online. Combined with falling prices, this means that miners who have not been able to upgrade their machines or find cheaper electricity have had to face a sharp decline in profitability, a 90% drop in 7 months (the altcoins have immediately similar or steeper decreases).
With profit margins under heavy pressure, it is not unlikely that the miners are and will remain responsible for a significant amount of sales on the market.
Subsequently, trade volumes did not die, but still below those seen during the last winter and spring.
It is not clear how much of the recent increase in volumes is the result of a short compression and what comes from new long-term buyers.
After last year's FOMO, the bitcoin retail interest became very slow:
- A Gallup poll conducted three months ago suggested that less than 0.5% of US investors "will likely buy bitcoins" close to the future. "
- Despite transaction fees and volatility declined sharply, traders see + 50% less bitcoin revenue than last fall.
- Google searches do not even suggest a quick retail shot:
So here are some comments we have gathered from bitcoin analysts, market makers and Wall Street insiders:
The first bitcoin ETF will probably not be approved before 2019. So any anticipation of approval by September will probably be disappointing.
While institutional investors are certainly involved in bitcoins, the vast majority of companies trade businesses that seek to make markets regardless of price: they are just as happy to take short positions to go long. Institutions that have been known for a long time, such as mutual funds and pension funds, are not ready to invest because they are not yet at ease with available custody solutions.
There is also the NVM report, which was designed to reflect early stage adoption, now suggesting that now there is too little on-chain activity to justify the current bitcoin capitalization: [19659004] 
It is assumed here that the market value of bitcoin derives mainly from the fact that it is a network that connects users around the world: more people and entities use bitcoin blockchain to regulate the transactions, plus acquires the liquidity and utility that we would expect from digital gold.
The NVM ratio approaches that by measuring the daily active addresses on the blockchain. Similar valuation models have been developed for growth companies such as Facebook and Linkedin, where the number of monthly active users is correlated with the value of the company.
(There are several objections that could be raised against the NVM report: it does not take into account the amount of transactions in the account, nor the difference between old and new addresses, it does not attack spam attacks, it does not recognize the limits of block size and does not consider the institutions that enter the market that create bitcoin derivatives that are based on a small amount of high-value cold storage addresses: to refine the valuation models you need more work, even if the proposition of intrinsic value of bitcoin is a reserve of value, we think that we are still in the initial phase of adoption, and therefore using an evaluation metric that reflects this adoption makes sense to us.In this context, we believe that the evaluation method based on the 39; NV chain activity has a value.)
The related NVT report, which attempts to measure whether the dollar's daily value of all bitcoin transactions are relatively high or low compared to market capitalization, even suggests an overvaluation .
Finally, in recent months, we have also seen a number of macroeconomic events that would seem confident for bitcoin as a safe haven: the defeat of North Korea, a spike in volatility, the collapse of Chinese stocks, etc. However, these shocks did not move the bitcoin meter.
Some warnings
All this said, the low prices of bitcoins are not obvious:
- The price of bitcoins has already fallen by 62% since December.
- From March the Chinese yuan fell 8% against the dollar. If this slide continues, the Chinese capital could escape into bitcoins.
- The bitcoin domain is gaining ground, which we think indicates the slow realization of the market that now there is a big ditch around the bitcoin ecosystem that will make it difficult to remove.
- The 2015 rally – & # 39; 17 was historic but not entirely unique to this ecosystem: between the end of 2011 and April 2013, the price of the bitcoin has multiplied by 100x and, after a correction of six months, it was again multiplied by 10x.
- Value investors are already anticipating the halving of the May 2020 premium, which will reduce the annual bitcoin inflation from 3.7% to 1.79%.
- An endorsement of the bitcoin ETF, even if delayed, would be a huge deal because it makes it extremely profitable for the retail investor. After the first gold ETF went live in 2004, the price of gold rose by 350 percent (and today is still 200 percent higher). The 2017 rally has also set off a burst of bitcoin infrastructure on the side of the bitcoin infrastructure and the promise of well-established banks, brokers, payment operators and security providers offering their own suite of solutions is attracting the value of investors' attention.
Conclusion
We believe the market probably needs more time to absorb the recent 30-month rally, which could lead to lower prices.
We do not foresee new historical highs in bitcoins for 2018 and unless the data begin to suggest differently, we mostly expect side or lower price actions.
Vintage Merry-Go-Round via Shutterstock
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