Will the bitcoin return to $ 19,000?

After a 2017 where spectacular returns are achieved, the first quarter of 2018 brings this cryptocurrency back to reality

The first bitcoin block was mined in January 2009, and a few days later, its knowledge became public. Under the idea of ​​creating a form of value transmission in a digital, instantaneous, safe and decentralized way, a real revolution begins whose impact will affect each and every one of the sectors of our society. However, it is not until 2016 when technology and cryptoactives go from being something reserved for a few visionaries and technological developers to become a public issue. In 2017 there is a 'boom', both in the number of ICO (raising funds for new technological developments) and in the interest and impact on the price of cryptoactives, seducing more investors and speculators, which cause one of the largest movements of prices of the whole story.

Attracted by noise and greed, we witness the arrival of opportunists without any knowledge in search of free money. After a 2017 where spectacular returns are achieved, the first quarter of 2018 returns a large part of these speculators to reality, and the 70% drops in three months show the true meaning of the word 'risk'.

Just at that moment, the reflections on the bubble experienced by cryptoactives and the need for regulation or even prohibition arise again. After the fall of 19,000 to 6,000 USD in the case of bitcoin (BTC), trapped speculators (who are not few) wonder if we have already seen the end of the fall and if those $ 19,000 will recover again.

I was surprised the other day by a tweet where, in true Wall Street style, the price predictions of several characters, always positive, were placed on the price of the BTC. These contrast with comments from another part of the financial community such as Roubini, which foresees a zero value of the BTC, or Steve Strongin, Goldman, who commented that the vast majority (but not all) of the cryptoactive can be zero.

Leaving aside the predictions, I do believe that what really matters is knowing at what moment of the market we are, from that point of view, to be able to make the opportune decisions. In this regard, I think it is interesting to establish a reasoning on which to base the degree of probability that any position taken in cryptoactive can report.

This argument is based on the possibilities of cryptoeconomics beyond the success or failure of bitcoin. That is to say, the future may not focus on that cryptocurrency, but on the layer of value that has been created thanks to it and that will delimit the future of the economy.

There are three main pillars that make me positive about the validity of a new 'tokenized' order. The first of the evidences that show that this crypto-economic phenomenon is serious, goes through the generational change. The 'millennials' are now those who take over in all aspects of life. They are digital, they have been born and grown up in this environment, and their needs go through the continuous use of technology. They do not believe in intermediaries and a decentralized world fits perfectly with their way of life. They do not understand the classic function of the bank, use less and less cash and cards, and yet increasingly use the mobile device to pay and interact with others. They are the ones that mark consumption now, starting with the purchase of cars, continuing with the acquisition of a home and deciding that the first asset in which they would invest, outside the reduction of debt and the purchase of their house, would be in cryptocurrencies.

This generational change also coincides with the global transformation towards that mentioned digital environment. Nearly 70% of the global population has some type of mobile device, more than half have access to the internet and 42% use a social network. Digitization is a fact and the impact that this has and will have is obvious. In 2016, 18% of the worldwide payments were made through 'e-wallet'. In 2021 that device will be the priority with an estimated total close to 50%. In this environment and under these circumstances, not having any type of digital currency would seem absurd and the generation that is going to make this possible are the 'millennials' that, by the way, statistically mark an important milestone in the number of them (in USA baby boomers were about 79.5 million, while the 'millennials' are about 95.8 million).

The second evidence of the importance of cryptoeconomics in the future of investment, passes through the consideration of cryptoactives as a new asset class. The Federal Reserve of St. Louis published an interesting document about it and, under that idea, I have been telling it from this same section. The truth is that it is already giving high value to certain intangible assets. Using information from Fundstrat, if we look at the current composition of the S & P 500, it turns out that 77% of the current value of the index is intangible. If we take the value of the FANG, 91% comes from the non-tangible part (including brand) and if it were to liquidate the assets in the market, theoretically we would return 9 cents per dollar invested. That is, the value of many current companies is created on trust and expectations. And the same happens with cryptoactives.

From the point of view of management, having a series of assets that to date allow diversifying and uncorrelated with the classic market, is not a minor issue. If we take the BTC against the S & P, the ORO or the VIX itself we obtain these current correlations of 0.06 or negative for the volatility index.

Given the current maximum correlation time of the components of the S & P 500, having an instrument that allows us to reduce this risk seems to me, at least, worthy of consideration and study. Today we are at maximum levels in the North American correlation actions, not seen since the black Monday of 1987 and the cryptoactive could be a good help in the management of a portfolio.

Similarly, if one day bitcoin (or any other digital cryptocurrency) came to be consolidated as a reserve of value, the one that did it for 1% of the total current value (gold, real estate, bonds, etc.) would value each BTC at about 150,000 USD.

The third evidence is the change we have seen in the financial sector. If in September of 2017 JP Morgan talked about fraud in everything related to bitcoin, in November he qualified his words and a month ago, February 2018, he admitted that cryptocurrencies could be used as a financial asset within a portfolio. Soros or the Rockefellers confirmed this same month of April, their interest in investing in the crypto-world.

Likewise, the mere fact that a regulated market such as the CBOE admits futures trading on bitcoin (unregulated assets) shows that same industry interest to join the new trend. Here there is money and Wall Street knows it and wants to be part of it. Studies by Fundstrat itself showed that entities such as Coinbase ('exchange' regulated in the US) were more profitable since consolidated entities such as the ICE (Intercontinental Exchange). Goldman paid about 400 million USD for the purchase of the Exchange Poloniex. And institutional money has not stopped flowing into this world. A clear example is the volume reached by the 'hedge funds' that, according to data from Autonomous Next, reach 251 and assets under management that may be around 5 billion dollars.

If we look at the size of the crypto market and compare it with the global equity markets, as of December 2017 it appears that it was among the top 20 largest in the world. At that time there were 550,000 million 'market cap' and it was very close to 700,000 million of our Spanish market. This means that the sector will start devoting resources of analysis, information and management given the relevance it has taken. Today is close to 400,000 million and the interest remains equally strong.

So things and regardless of whether we talk about bitcoin (BTC) or ether (ETH) and without entering into valuation issues, what I think is clear is that cryptoeconomics has come to unseat and replace other traditional formulas, both from the point of view of financing and investment. Denying the evidence does not take more than losing a train that I fear has already left and that, despite not yet being in its cruising speed, has a clearly marked destination. Will Bitcoin be able to return to the $ 19,000 in January? Well here everyone has to do their own analysis and understand what risk is taking.

Previous analysts have established even higher prices, but in any case should not forget that they are mere expectations and that these can be met or not. From my side just to remind you that this platform does not intend to invite any investment and only shows my opinion that, yes, it goes through betting on a world where cryptoeconomics will be the new subject to master in the immediate future.