Bitcoin Price Analysis: The Big Picture -

Published on
22.12.2015
Author
Aurelien Menant

Disclosure: Author owns a small number of bitcoins.

It's official: The U.S. Federal Reserve raised interest rates by a quarter of a percent for the first time after nine years. This has caused a strengthening of the US Dollar against all other currencies in the foreign exchange market. What kind of domino effect does this bring to bitcoin's price come 2016? Here's a summary of what we at Gatecoin have gathered from several bitcoin price analysts, news reports, and a poll we conducted.

A Cointelegraph article posed this question: "Even though the [US] Dollar price is strong, Bitcoin continues to grow slowly. This raises the question: why does publication of such important indicators, that so strongly influence the currency market, have no effect on Bitcoin? What factors can then affect the value of Bitcoins?"

IMHO, since a majority of bitcoins are traded in Chinese Yuan, a strengthening US Dollar may not affect the value as much as the Chinese Yuan would. Any prudent bitcoin trader will and should keep a close eye on what's going on in China. So, what's happening in China?

George Samman, COO of BTC.sx, recently blogged that the Chinese Yuan is overvalued compared to other emerging market economies. Due to this, the People Bank of China (PBOC) will continue to devalue the spread between onshore yuan and offshore yuan. Now, an increase in U.S. interest rates puts even more pressure on the PBOC to further devalue the Chinese Yuan. According to Arthur Hayes of Bitmex, "the CNY has been pegged to the USD over the past few years-raising rates is negative for emerging market currencies, which is positive for Bitcoin." Holding onto a depreciating asset is not an idea that sits well for the wealthy Chinese. The Chinese government enforcing capital controls gets them even more restless. In their search for a 'way out,' they will notice Bitcoin as a viable method to get money out of the mainland despite strict capital controls. Samman concluded, "If more Chinese wake up to this reality, the price of bitcoin will continue moving higher."

In the meantime, Digital currency investment firm, Pantera Capital, thinks that Chinese buying is already driving the pace of bitcoin's price change. Their blog stated, "Strong inflows have pushed the price on Chinese exchanges to as much as a 9% premium over the world price."

Another factor to consider is the record number of daily transactions on Blockchain wallets earlier this month, which signify the growing bitcoin ecosystem. Bitcoin's price increases and generally positive news involving influential finance executives joining bitcoin startups in 2015 grabbed news headlines worldwide, which attracted traditional traders' to try their hand on bitcoin trading. While we can't speak for other exchanges, trading volumes continue to grow, placing us in the top 15 exchanges worldwide.

Lastly, we'd be remiss if we don't include the highly anticipated block reward halving that many in the bitcoin community believe will drive bitcoin's price to as high as $1,000 - $2,000 range. In a poll we conducted at bitcointalk.org, more than half of respondents think that the daily price average will go up with each passing day after the halving occurs in mid-2016, while about 23% think the price will fluctuate driven by those with a bad case of FOMO (fear of missing out) and profit-taking by more experienced traders. Few others are either a little more pessimistic on the price or think the price will be relatively stable right after the bitcoin-halving because market expectations might already be reflected in bitcoin's price in the months leading up to the halvening.

This is not to say that bitcoin's price won't see a slump every now and then in the near to medium term. Bitcoin, by nature, is volatile. However, judging from a macroeconomic standpoint, it seems that Bitcoin is well-positioned to reach new heights in 2016. How high? It's anybody's guess... or, are we being too optimistic? Tell us what you think.