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Since its inception Bitcoin’s (BTC) adoption has grown up tremendously, outperforming other currencies for six of the last seven years.
Bitcoin had its most impressive performance in 2013, when it became tradeable in China with the launch of several Chinese exchanges.
Sources: Pantera Capital, Revoltura
Since then, the pair BTC/CNY has captured more than 90% of bitcoin trading volumes.
The digital currency gained strong traction in China because of the continued Yuan (CNY) devaluations, interest rate cuts and capital control measures imposed by the government.
This year, Bitcoin is poised to retain is crown of the best performing currency, as it has already advanced by +75% since January 1, 2016.
Bitcoin - Alternative Store of Value
Often compared to a digital gold, Bitcoin presents common characteristics with the precious metal, as durability, fungibility and in a lesser extent limited supply.
Bitcoin is a non-inflationist currency, as its supply decreases over time and its total volume is limited to 21 million.
Furthermore, bitcoin is not depending on a central authority which could decide to adjust the supply, as it is frequent with Central Banks (quantitative easing, interest rates cut, etc.).
Historically, fiat currencies have not performed well as a store of value, because of their expanding monetary base. Over the past 20 years alone the USD has lost 53% of its value, the British Pound has lost 47%, the Euro has lost 40%, and the Australian dollar has lost 64%.
Furthermore, emerging market countries tend to have less stable currencies, more onerous capital controls, and more frequent economic, monetary, or financial crises.
For example, from August 2015 until last month, CNY depreciated by 8%, meanwhile Bitcoin over the same period rose 128%.
Since October 10, 2016, the People’s Bank of China (PBOC) has weakened the Yuan by over 1.00%. USD/CNY is approaching 6.80. For example, every one percent that the CNY devalues, Bitcoin pops 10-15 percent.
Hong Kong analyst at BitMex believes that if CNY weakens further to 7.00, Bitcoin should rise to $1,000.
Bitcoin - Capital Control Circumvention
Bitcoin thrives as a payments channel in emerging markets with lower financial inclusion, fewer and lower quality payment alternatives.
Bitcoin adoption as a payment channel will be greater for cross-border transactions (vs. domestic) because relative to alternatives Bitcoin appears as a low-cost, fast, and borderless payment channel.
With a rising dollar and whiffs of American trade protectionism, the PBOC will be forced to devalue the Yuan again, thus capital outflows will intensify.
Bitcoin is weightless, and can be accessed using any internet connected device. As of December 2015, China had 620 million users of internet connected mobile devices.
Currently, Chinese people can not exchange more than $50,000 limit which is insufficient to invest abroad. The Financial Times reported Chinese people bought over $100 billion worth of US real estate between 2010-2015.
The American EB-5 investor program is a popular route to spirit capital and family out of China, as for a minimum investment of $500,000, a green card can be granted.
Goldman Sachs analyst MK tang estimates that capital outflows in September accelerated to US$78 billion up from US$32 billion in August.
Bitcoin - Speculative Trading Vehicle
Despite the fact that past performance does not necessarily predict future results, in a low-rate and slow-growth economy, an allocation to bitcoin is not only a way to mitigate risks of traditional capital markets but also a way to better overall portfolio returns.
Not only Bitcoin was the best performing currency for six of the past seven year, it has also offered unparalleled Compound Annual Return over the last five years, as showed in the table below:
Despite the common idea that great return comes with very high risk, the volatility of Bitcoin daily returns remained comparable to stocks like Twitter.
A substantial portion of the market owns Bitcoin as a liquid speculative investment in a nascent technology comparable to a Venture Capital equity investment.
Bitcoin - Raising Target Price
Needham & co analyst has recently raised his bitcoin price projection from $655 to $848 due to "Bitcoin faster than expected adoption and improving fundamentals."
Source: Needham Bitcoin Report Sep. 2016
If Bitcoin can take out $800 on the back of a weaker Yuan, a positive feedback loop will form and help propel Bitcoin higher.
Hong Kong analyst at BitMex forecasts a bitcoin price at $1,000 by the end of 2016, fueled by the threat of a Fed rate hike, and continued devaluation of the Chinese Yuan.
Once Bitcoin price breaks $800 resistance with high volume, it should head to a four figures trading price fast.
As per the analysts at Wedbush Securities, Bitcoin price will likely double in 2017. It means they see the price in 2017 in the vicinity of $1,200.
Analysts at Juniper Research have not issued a specific price target for Bitcoin in 2017, but they believe that transactions in the digital currency will rise sharply in the coming year to $92 billion. A growth in Bitcoin transactions should lift prices along with it.
Saxo Bank analyst has recently mention that Bitcoin could "easily triple over the next year going from the current $700 level to +$2,100".
On a longer term, top-flight Wall Street analysts Needham & Co. has a target of $1,896 by 2020 ($2,231 based on supply/demand) and Wedbush Securities has forecast a Bitcoin price of $17,473 by 2025.
Considering Bitcoin’s major growth opportunity coupled with its diversification benefits, it represents a highly compelling trading opportunity.
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