Things have no doubt been uncertain for Bitcoin over the past few months.
Many so called “experts” have claimed that the next bull run has been just around the corner. But whenever we think that the price will break and start rallying, it falls and breaks more support lines.
So when will the next big BTC to EUR upswing really begin? And will this rally be sustained or will it also slowly fizzle out?
Right now, the Bitcoin price is being held back by a few key factors. Mainly, uncertain market sentiment, setbacks for institutional investors, looming regulation, and ongoing technological problems.
Let’s take a look at each of these factors to determine if Bitcoin is likely to recover anytime soon.
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Uncertain Market Sentiment
Right now, the hype surrounding Bitcoin is quite different from what it was at the end of 2017. During the bull run last year, media hype was helping to fuel a great deal of FOMO (Fear of Missing Out). Newbie buyers, institutional investors, and news outlets just couldn’t get enough of the digital asset.
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The price was self reinforcing and further drove the narrative that Bitcoin was a “sound investment”. As the price started to go hyperbolic, many investors started to wonder whether the rally would really continue. It was not sustainable and prices started reversing pretty quickly in early January and have been on a downtrend since.
Right now, market sentiment is at a polar opposite to the euphoria of December last year.
After repeated disappointments of a breakout in 2018, most people are much more cautious now about jumping back into the markets. One Wall Street analyst even made an index to measure Bitcoin ‘misery’ which is used as a barometer to tell how traders are feeling. According to this, based on the current prices, those holding BTC are decidedly quite miserable right now.
That might sound like bad news, but historically speaking, times of fear, uncertainty, and doubt are the best time to buy Bitcoin. When the media is continually writing a great deal of FUD articles, it is more likely that the price of the coin is undervalued. And, according to that same ‘misery’ index, Bitcoin always sees its best price performance in the year after the indicator hits ‘miserable’.
Setbacks for Institutional Investors
One factor that is likely to drive the next huge Bitcoin upswing is the influx of institutional money. There is a great deal of large investment funds, asset managers and financial institutions that want to get involved in the Bitcoin markets. They are all on the lookout for the ideal entry opportunity.
Up till now, Bitcoin has been far too risky for these institutions to risk client money with. While many retail investors have been happy to risk their own money in the hope of a Bitcoin rally, money managers have a fiduciary duty.
We can also add to this the failed attempts to create important investment vehicles like exchange-traded funds. All this means that cryptocurrencies have remained out of reach for most institutional investors.
For the big money to roll into Bitcoin, it would need much better protection for its investors. One of the most important steps in this regard would be for regulators to step into the breach and provide some clear laws and regulations related to digital assets.
Regulators are Taking It Seriously
The biggest uncertainty with Bitcoin at the moment is regulation. Regulators around the world have taken a keen interest in Bitcoin and other cryptocurrencies. They have viewed the technological advanatges of decentralised systems and blockchain technology.
Regulation was traditionally viewed with suspicion by most Bitcoin users. This is because it was developed specifically in order to throw off the strictures of modern finance and free its users from centralised systems.
However, despite what many of these die-hard Bitcoiners may think, regulation might not be all bad for the cryptocurrency, especially for the price. Regulation doesn’t necessarily mean clamping down on the asset and all of its users.
It is possible for government bodies to craft effective regulation which adequately protects users while still allowing the technology to develop and innovate in a relatively free market.
Hester M. Pierce. Source: Wikipedia.org
This was actually evidenced recently by the positive reviews in the community to a speech by Hester M. Pierce, a member of the Securities and Exchange Commission (SEC). The speech, entitled “Beaches and Bitcoin” outlined her vision of how the SEC could regulate the market.
She compared the SEC to a lifeguard on a beach. This lifeguard will allow freedom of innovation in the markets, but step in with the whistle when needed. Regulators in Europe have also come out with similarly positive statements on Bitcoin and the general cryptocurrency ecosystem.
With a well-balanced regulatory oversight, the Bitcoin markets could shake off a great deal of the negative side affects of an unregulated market. These include such practices as market manipulation and cryptocurrency fraud.
When institutional investors know that there are protections in place for their clients money, they are much more likely to invest. One would hope that this could open up the floodgates of excess capital which would breath life into the crypto markets.
Growing Confidence in Scalability
Another issue that has been plaguing Bitcoin has been its inability to scale. With current network speeds, Bitcoin is able to process around 2-3 transactions per second. Visa, on the other hand, is able to process 56,000 transaction per second.
Hence, if Bitcoin really wants to compete with established companies, it has to improve its transaction scalability. This is a clear roadblock that Bitcoin needs to overcome should it aim to achieve mass adoption. Fees are also a part of the problem. During Bitcoin’s most recent upswing, fees ballooned to almost $50 per transaction.
The good news is that scalability solutions are now in sight. Researchers are working on innovative technologies such as the Lightning Network. This solution adds a ‘second layer’ to the Bitcoin blockchain that allows the majority of transactions to happen ‘off-chain’.
This will greatly help with scaling because it will mean that not all transactions will have to be placed on the Bitcoin blockchain. Similarly, as these transactions will take place in separate channels, the miner transaction fees will not have to be paid.
If it’s successfully implemented, it would increase the capacity of the Bitcoin network exponentially. This could provide an impetus for more adoption which would result in positive sentiment and a rally in the price.
There is a great deal of hope that the next Bitcoin upswing is around the corner. The market is in need of some positive news that could breath life into the “mass adoption” hopes.
Well thought-out regulation that is able to protect investors without stifling innovation will provide the right environment. It would allow for institutional investors to purchase cryptocurrency assets en masse without fears of client lawsuits.
Moreover, if the Bitcoin nodes are able to fully roll out the lightning network and allow it to scale it could aid this adoption. People could start using Bitcoin again as a means to transact and not just as a store of value.
Of course, there are also risks that the market could face in the short to medium term. There is no real consensus on how far Bitcoin can fall before demand begins to pick up again. There have been a lot of retail traders that were burned in the recent sell off and they will have bad memories.
Hence, only invest what you are willing to lose and make sure that you Do Your Own Research (DYOR).
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