Although 2018 is shaping up to be the year of the altcoin, especially XRP, better known as ripple, the market isn’t done with bitcoin. The bitcoin price broke through the $16,000 level on Friday as ripple coins continued to retreat. There were several major bitcoin milestones met in 2017, and although the winds of change were blowing as the year came to a close, 2018 could bring a whole new set of milestones.
Bitcoin milestones: “a legitimate economic force”
Canaccord Genuity analyst Michael Graham described bitcoin as a “legitimate economic force” in a note to investors this week. The 1,370% increase in the cryptocurrency’s value in all of 2017 made it the fifth-largest currency in the world by amount in circulation—if lumping it in with the world’s fiat currencies—according to Graham. Only the U.S. dollar, euro, Chinese yuan and Japanese yen were bigger.
However, he also noted that Japan is the only country to recognize bitcoin as legal tender, which he said makes the cryptocurrency’s skyrocketing value “even more remarkable.” He added that the digital currency could even take further share of the world’s currency market as crypto enthusiasts look to fix scaling issues this year to make it more viable as a payment solution.
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Tailwinds over headwinds for bitcoin
Graham also offered a list of potential tailwinds and headwinds for bitcoin in 2018 and clarified that he feels the tailwinds will end up being stronger than the headwinds, although he feels it was easier to identify more potential headwinds this year.
The potential tailwinds he sees this year pertain to some key bitcoin milestones from 2017. For example, two key institutional bitcoin milestones from 2017 were the addition of futures by Cboe and CME. Additionally, about 100 cryptofunds raised more than $2 billion in 2017, and Graham adds that many other firms are working on “cryptoasset custodial services.”
He expects this year to bring even greater adoption of digital currencies among institutional investors, even as the popular media drives even further interest. He also pointed out that cryptoassets differ from most other currencies and assets in that they’re open for global exposure, while other assets are generally specific to certain countries.
Graham also explained that there is a number of solutions to improve bitcoin transaction speeds that are gaining momentum, particularly the Lightning Network. Last year’s bitcoin milestones included the bitcoin cash fork in August, which he explains as essentially causing a roughly 18% dividend for holders of bitcoin at this weeks’ prices. He expects this year to bring about even more forks, driving further value for the digital currency.
Potential headwinds for cryptocurrencies
The potential headwinds he cited for bitcoin this year actually span across multiple digital currencies, such as regulation. He stated that “the significant majority” of the approximately 1,300 initial coin offerings (ICOs) that have been held so far may have violated securities laws in the U.S.
SEC officials warned investors against bitcoin earlier this week, and Graham said that a number of legal experts see the potential for a wave of SEC enforcement actions. If such a wave of enforcement does take place, he doesn’t expect it to have a direct impact on major cryptocurrencies such as bitcoin and ethereum, but he adds that it “could easily skim some of the froth from the space.”
The analyst also cited the rise of altcoins as a potential headwind due to competition, and that’s certainly one of the bitcoin milestones we started to see last month. Other possible headwinds include the lengthy transaction times. It takes an average of about 66 minutes to process transactions in bitcoin at this time, which keeps it from being adopted as a payments solution.
Other problems include efficiency problems and the very high minor concentration with more than 77% of capacity controlled by the top five miners/ pools.