The bitcoin bull run is more than just hype this time – don’t be surprised by a US$20,000 price tag by year end

At the time of writing, bitcoin has just surpassed the US$13,000 mark. The last time we saw bitcoin reach this price was in December 2017, after which, the cryptocurrency went on to reach its all-time high of nearly US$20,000 in a matter of days.

The cryptocurrency market remained bearish for all of 2018, but with the way bitcoin is charging upwards and setting new highs in 2019, it is safe to say that the crypto-winter is behind us already. In the past several years, we have witnessed a cyclical pattern emerging in the cryptocurrency space. And with each cycle, we reached exponentially greater heights.

This time around, analysts have come up with bolder price predictions, ranging from US$21,000 all the way up to US$100,000, all of which begs the question: is the current bull market any different from the last one?

During the peak of the 2017 cryptocurrency bull run, several sceptics compared it to the Tulip mania of the 17th century, with most convinced that bitcoin was a bubble. However, since 2017, bitcoin and other cryptocurrencies have come a long way in terms of maturity. Bitcoin fundamentals are stronger than ever, institutional interest is at an all-time high and mainstream adoption is on the rise, strengthening the argument for why the market is not based totally on hype this time.

Earlier this month, Blockchain.info reported that bitcoin’s hash-rate – the speed at which a bitcoin mining machine operates – reached a historical high of 74,548,543 terahashes per second. In simpler terms, the bitcoin blockchain is more secure than it ever has been and breaching the network would require unimaginable computing power. In addition, the average number of transactions on the blockchain has consistently risen. As reported by localbitcoins.org, the weekly average transaction volume has remained above US$50 million since September 2017.

Daily active bitcoin wallets crossed the 1 million mark in June this year, according to data published by Coin Metrics, providing another indication that more people are now using bitcoin.

Institutional involvement in the cryptocurrency space, over the past year, has been incredible. It is easy to argue that the 2017 bull-run was largely fuelled by retail investors. This time around, institutional investment in cryptocurrencies has gained traction.

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Fidelity is set to launch cryptocurrency trading for institutional investors, seeing huge demand in that niche. Earlier this month, CME Group recorded open interest – the number of active contracts held by investors – in 5,311 contracts, totalling 26,555 bitcoin, significantly higher than the 2017 price peak.

Furthermore, JP Morgan, one of the biggest investment banks in the world, launched its own token, JPM coin, to settle payments between institutional clients. The biggest social network in the world, Facebook, is set to launch its own cryptocurrency, Libra, next year. Regardless of the use cases of these institutional cryptocurrencies, they are a step in the right direction, giving more legitimacy to the industry.

To most, the thought of bitcoin as a safe haven may sound completely absurd given its volatility. However, a recent study from Grayscale Research analyses the correlation between bitcoin and macroeconomic developments, illustrating the use of bitcoin as a hedge against political unrest and macroeconomic uncertainty.

Even though bitcoin does not really feature in the conventional list of safe havens, more people are relying on the cryptocurrency as a hedge against movements in the “traditional” financial market. Correlation does not necessarily mean causation but the key takeaway here is that bitcoin and other cryptocurrencies are becoming more popular among investors for diversifying their portfolios.

To stimulate their economies, central banks around the world are turning dovish: cutting interest rates and printing more money. While this has made investors rejoice in the short term, bitcoin holders are confident that in the long term, bitcoin will outperform fiat currencies, the supply of which is growing at a rapid pace.

Why the stock market rally will not last long

The cryptocurrency market is definitely more mature than it was during the last bull run and there is more intelligent money in the market than there was the last time. Fear of missing out will still definitely be a huge catalyst in driving up prices but we cannot ignore the other developments that have added legitimacy and increased the ways in which cryptocurrencies could be used, paving the way for mainstream adoption.

How prices will move remains of interest. Past performance is not an indication of future results, but if the observed pattern were to continue, we could be looking a year-end price well above the US$20,000 mark.

Sagar Chaudhary is a junior analyst at eToro Asia with a prime focus on the blockchain industry