Bitcoin supporters are seeing 2017 as a very positive year owing to a pool of factors. From Trumps presidency to EU – led bail outs, improving adoption to increasing investments, the market dynamics look very favorable for the price. Many mainstream groups have openly come out with their support towards the cryptocurrency and discussed about the possible factors influencing their decisions. Bitcoin has recently touched its year’s high and has still been on a bullish path. Going strongly into the next year, let’s look into the predictions centering Bitcoin and possible investment opportunities:
The Trump Factor:
Trumps economic policies as per his Presidential Campaign, look very favorable for the growth of Fintech services. Especially Trump promised fiscal spending binge might add to approximately $20 trillion of U.S National Debt. This would triple the current U.S budget deficit from about $600 billion to $1.8 trillion. The move would cause the growth and inflation to increase unproportionately. Consequentially this would result in a hike in the interest rates and might see US dollar soar new heights. The economic fabric would be disturbed on a hike and would have a significant impact on the emerging markets and China in particular. To get away from the rippling effects of such impact, people would move to invest in cryptocurrencies and opt for alternate payment systems.
The EU Fall Out:
Post the housing collapse and its crippling effects; the European Union has experienced real turmoil in terms of ‘Debt Crisis’. Luckily Greece will receive a short term debt relief from Eurozone creditors to stay afloat, though IMF was not on board. Bad lending practices have landed Italy in the same zone, with people voting against constitutional reforms. Italian Prime Minister Matteo Renzi is now poised to resign after suffering the referendum defeat. With so much turmoil in Eurozone, next year is going to be very unpredictable and would see European commodity prices waver with high volatility. Historically with events like Brexit, where European commodities tanked, Bitcoin prices soared proportionately indicating the inflow of funds. Hence a similar move can definitely be expected for any of these eco-political events.
Saxo Bank predictions:
Saxo Bank is a Danish Investment Bank that has been prominent since 1992. Earlier CEO of Saxo, Lars Seier Christensen was personally vested in Bitcoin and hence the firm took a keen interest in cryptocurrencies. According to their recent prediction list, Saxo bank says that Bitcoin price might very well surpass $2100 in 2017.
Saxo explained that:
“If the banking system as well as sovereigns such as Russia and China move to accept bitcoin as a partial alternative to the USD and the traditional banking and payment system, then we could see bitcoin easily triple over the next year going from the current $700 level to +$2,100 as the block-chains decentralised system, an inability to dilute the finite supply of bitcoins as well as low to no transaction costs gains more traction and acceptance globally.”
This is also backed by Trump’s policies, Russia’s steps to legalize Bitcoin after a temporary ban and many other factors that are favorable.
The European region has always been a major Bitcoin market mover in times of economic or political crisis. This is evident from what happened with Brexit this year. The pre-Brexit tension and the post-Brexit shocks caused turbulent economic times for European residents. The Brexit from EU caused Bitcoin prices to spike up considerably and make it the safe haven against the adverse market reactions. December 4th can witness a similar push in Bitcoin prices as EU will witness Italian referendum. While market is waiting to for what might happen, let’s look into the dynamics of the referendum:
On December 4th, the global markets should be prepared for an economic tremor as Italy prepares for a referendum. The Italian citizens would vote on changing resolutions to amend constitutions. This also involves absolving the power given to State, Parliament and Bureaucrats. The sale of Italian government bonds and securities has been on the rise anticipating the crisis. Italy currently has eight troubled banks currently that tank if the referendum doesn’t turn out in favor. Adding to the tension, Prime minister Matteo Renzi declared that he will quit if people vote against the resolution.
Impending market chaos:
The aftermath of the controversial referendum can be disastrous as Italy is one of EU’s biggest debtors. Owing to bad lending practices, the country’s borrowing has led to financial instability as many banks are under heavy pressure now.
Financial Times reporter Rachel Sanderson stated,
“Italy’s banks have €360bn of problem loans versus €225bn of equity on their books after successive regulators and governments failed to tackle a bloated financial system where profitability was weakened by a stagnant economy and exacerbated by fraudulent lending at several institutions.”
How the markets will react to this would surely be of interest for all global investors.
How Bitcoin will react:
If the Italian referendum goes sour, it could mean investors could turn to possible uncorrelated assets such as bitcoin and Gold. Just before the Brexit vote, Bitcoin spiked to $675. As soon as the decision became public, global stock markets began to plunge. However, gold and bitcoin values went up significantly as investors turned to safer hedges. Just one week before the vote took place, the San Francisco-based exchange Coinbase saw a 55% rise in British registrants. After the vote was out, it was noted that a 350% increase in UK sales of Bitcoin. Even during the fears of possible ‘Grexit’- Greece Exit, there was good increase of volumes of Bitcoin. Basing on these historical observations, it is very possible that we might see something similar during the referendum.
The past 7-8 years of study of the Bitcoin market has made one thing very clear to people around the world. Bitcoin and its underlying technology are here to stay and are slowly transforming the technological and financial sector, one step at a time. Interestingly, the digital currency’s adoption was more visible in the face of global crises. Whenever there is a massive event, that impacted a chain of markets pertaining to particular geography or a common asset class, Bitcoin always came to the rescue. Various events like ‘Brexit’ or fears of ‘Grexit’ and other cases that put conventional markets in danger showcased this feature. The adoption manifested in the form of increased volumes, prices and inflow of funds making Bitcoin the new ‘Safe Haven’. With prices now sideways between $700 and $750, let’s look into how Italian Banking Bail-in might send the prices further higher:
Problem with the Italian Banks:
Italy’s banking system is beginning to implode starting with Monte dei Paschi, Italy’s third-largest bank. Italian banks dropped as much as 7.1 percent over the past few quarters according to Bloomberg. UniCredit SpA slipped 0.3 percent in Milan, while Intesa Sanpaolo SpA decreased 0.6 percent, recovering from earlier lows. Monte Paschi’s 379 million euros ($418 million) of 5.6 percent subordinated bonds fell 3 cents to about 20 cents last quarter. Hence the bad debt situation has been a concern for the government and has also become politically sensitive topic.
How Italy plans to counter the situation:
The Banking Bail-in is really sensitive and a lot of things depend upon how this would be handled. Especially because majority of the investors in the banking bonds are retailers or average household members. Any conflicting element would prove detrimental to their interest and would defy the rules laid down by EU when it comes to bail-ins. A complete bail in would hurt all the retail bond holders and savings account holders. As such Italy can’t turn away from this crisis without a Bail-in, how they would strike a middle ground is now left to speculation.
What this means for Bitcoin:
As Monte Paschi tries to recapitalize, the Italian market will surely react. If the restructuring ends up in the same way as Cyprus and Greece, the resulting volatility might last through a year. In the case of Cyprus, Bitcoin values grew tenfold as an economic panic set in making it the newest of virtual safety nets. Due to the looming fears of Grexit, Bitcoin peaked to an annual high last summer. In June, the “Brexit” vote forced the British Pound to drop over 10 percent, and this market value quickly captured by Bitcoin, with the spike ranging over $100. Hence people should lookout for news pertaining to the bail-in while investing in Bitcoin markets for the coming weeks.