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As 2016 races to a close, it’s human nature to retrospectively reflect on the outgoing year’s highlights and low points. On the economic front, it’s certainly been a tempestuous one, filled with growing uncertainty and increased concern around financial affairs. On the political side, we’ve seen some rather wild moves and ‘blindsides’, which have added fuel to the rising fire of unrest and instability at large.
From a bitcoin perspective, however, the events and mindset of this year has provided the perfect environment to showcase the true benefits of bitcoin, and corroborated our long-standing belief in bitcoin’s place in the global economy.
Early in the year we presented two rather bold predictions in terms of the results we expected to see from bitcoin in 2016. These weren’t based on gut-feel or a whim, but rather an intimate knowledge of bitcoin, the market forces that accelerate growth, and a heap of economic data tracking. At the time, bitcoin was trading at £298 - a far cry from its November 2011 GBP all time high of £720 when it eclipsed the price of an ounce of gold - but we remained unemotional and unmoved. We were confident that 2016 would be bitcoin’s breakthrough year. And we haven’t been disappointed.
Firstly, we forecast that bitcoin would again reach £720 per bitcoin. Bearing in mind that at the time the value was £298, this meant a 142% increase was required in order to meet our projected price.
The chart below shows how (after its low of £260 in February 2016) bitcoin conservatively gained ground until June 2016, at which point it rallied to £550 in June 2016. This growth was largely attributed to the Brexit vote, the subsequent drop in the pound, and citizens looking to safeguard their wealth against significant losses.
From there, after taking a brief drop off to £390 in August 2016, bitcoin recovered and we settled into a steady, positive climb through to December 2016.
And this is where things have become most interesting.
If we look at the below chart, zooming in on December 2016, we see an aggressive rally in the bitcoin price, indicating the point where it broke through the £720 mark on 22 December. Bitcoin has continued to gain ground since and at time of writing, bitcoin is currently trading at £775, representing an impressive 160% total increase for the year thus far.
Our second forecast was that bitcoin would reach the US$1,000 mark towards the back end of Q4. At the time of our presentation, bitcoin was trading at US$360.
Whilst it’s left it rather late to make big moves, it’s certainly not giving up on breaking through before the end of the year jumping from US$790 on 19 December to US$978. We can’t help but speculate about the potential connection between the jump in price and the date president-elect Donald Trump’s presidency was confirmed by the electoral college vote. Pure coincidence or correlation? We’re going to deep dive into the ‘Trump effect on bitcoin’ in the New Year - most especially when he takes office on 20 January 2017.
It’s also interesting to note that due to bitcoin selling at a $30 premium in the Far East (see comments on China below), the $1,000 mark has already effectively been breached in those parts.
The annual chart below tracks the progressive increase in bitcoin against the US$ over the 2016 period with significant spikes in June and late December 2016 clearly evident.
At the time of writing, bitcoin closed at US$956 and continues to look bullish for a big finish. Even if we don’t see a US$1,000 bitcoin before we ring in 2017, we’re confident the positive trend will continue and we’ll easily see it reached in the early days of the New Year.
One of our core beliefs is that, due to its decentralised nature and inclusive qualities, bitcoin is the most plausible global currency of the future. Bitcoin addresses the shortcomings of fiat currency in that it isn't owned or governed by any central authority or organisation, therefore it's not profit driven. It allows for permissionless 'banking' and interaction with your money. It has no limitation on geographical areas or amounts that can be transacted. And it has a limited, set, deflationary supply, in other words, hyperinflation doesn't apply to bitcoin.
These characteristics make bitcoin predictable and, as such, appealing to any person who has lost trust in conventional currency’s ability to retain purchasing power over the long term, most especially when that currency (and personal balances thereof) is controlled by central banks and stakeholders who’re at liberty to pass legislation without input or repercussion from citizens.
As economic woes escalate for many of the traditional powerhouses, citizens are growing increasingly concerned and disgruntled with government’s control over their finances, and are actively seeking alternatives. In previous times of crises, many turned to the precious metal markets, converting their wealth into the likes of gold and silver. And while these markets certainly still have their place, the digital age has brought about technology that allows for a less cumbersome store of value and a place for people to keep their wealth well out of reach of desperate governments.
This technology is bitcoin; a commodity, but at the same time a currency that’s flexed its muscles against the leading traditional currencies and come out tops. Juggernaut currencies such as the British pound, US dollar and Chinese yuan all suffered substantial losses in the current year, whereas bitcoin has gained 160%, 130% and 150% against these respectively.
This is a remarkable, yet unsurprising result.
Consider China. In an attempt to resuscitate economic activity and curb capital outflow, the People’s Bank of China deliberately devalued the yuan in August 2015. This action sent ripples through the global markets and many accused China of currency manipulation for export competitiveness. Whether or not it was the main driver for the decision, the immediate impact is for the Chinese citizen. In addition, the PBOC decreased the reserve requirement ratio (RRR) for banks, effectively allowing for greater lending capability. This combination of monetary policy levers has seen an abrupt devaluation in the yuan as it continues to depreciate at a rapid pace, eroding away accumulated wealth.
To rub salt in their wounds, they’re also subject to harsh capital controls that limit how much money they’re able to move outside of China (with increasing restrictions being implemented as time goes by). In light of this, bitcoin has become the Chinese investor’s haven of choice, with large bitcoin volumes being recorded over the 2016 period. And they do so at a premium. At the moment, Chinese bitcoin exchanges trade at $30 (£24.53) above market value per bitcoin.
But government enforced financial ‘dictatorship’ isn’t unique to China. We’ve seen signs of this in varying degrees for many countries, all of which seems to have come to a head in 2016.
In Venezuela, the people on the ground are so financially restrained that unemployment, poverty and crime is reaching extreme levels. Owing to hyperinflation, the bolivares is practically worthless, and even for those who can secure work, the minimum daily wage is 15,051 bolivares, the equivalent of $USD 23.40 with a food bonus equivalent of 18.585 bolivares or, $USD28.90. Even with a food allowance, the pay is far lower than what’s required to sustain a family comfortably. Informed Venezuelans have adopted bitcoin as a means to earn a living and be able to provide for their families in the face of severe economic conditions, where inflation is expected to soar 1,660% in 2017.
The Agony of Greece
The ongoing Greek debt crisis is another example of a nation financially constrained as a result of political agenda. Earlier this year, bitcoin surged in price as Greece faced another round of EU negotiations around its outstanding debts and a potential bailout. With draconian measures being part and parcel of the agreement, citizens have been limited to €60 daily withdrawals from bank accounts and restricted movement of funds, including capital controls.
And The Tribulations of India
More recently, we’ve seen India’s Prime Minister, Narendra Modi, shock the nation and world alike when he announced two heavily controversial regulations, apparently brought in as a means to clamp down on tax evaders, or in his words, “a surgical strike on black money”.
No Modi, It's Financial Martial Law ...
Sadly, the reality is that these are simply the first signs of financial martial law being implemented (which incidentally was another prediction we made more than 7 months ago).
Firstly, there was the demonetisation of 500 and 1,000 rupee notes, which effectively wiped out 85% of India’s banknotes with immediate effect.
For a country where the majority of the people live on or below the breadline, and transact mostly in cash, this is an exceptionally harsh blow. These people rely heavily on banknotes to be able to purchase food and pay for shelter, and this is precisely the problem for the government. When currency is physically held with no electronic record, it makes it near impossible for central banks to go into accounts and take what they need, when they want to. Their solution - eradicate cash!
Secondly, there was the announcement for the allowance of the confiscation of gold in search and seize operations.
Indians collectively hold about 20 tonnes of gold but Modi’s ruling provides impetus for tax officials to visit private residences and evaluate the legality of ownership on any amounts in excess of 250g for unmarried women, 500g for married women and 100g for men. This includes gold bars, ornaments and jewellery. Any gold pieces that can’t be categorically proven to be owned as a result of taxed income, may be legally taken into custody. Once again, a backhanded means for government to eliminate personal assets and wealth that lie outside of their realm of control.
It’s no wonder then, that we’ve seen a massive surge in bitcoin interest and transaction coming from India in recent months, as it gives people the opportunity to move their financial assets away from the grips of central control and back into it’s rightful place - the hands of individuals.
The overall performance from bitcoin in 2016, gives us hope for 2017 being an even stronger year. It would appear that bitcoin is finally being recognised and accepted as an ideal form of finance and investment for those who no longer wish to remain shackled to central control. For those who wish to break free from fiat currency as the ball and chain with which governments hold us hostage. People have begun to see through the old rhetoric and messages we’re fed by those who wish to remain in power. They’ve begun to look passed conventional finance and have actively participated in elevating a system that seeks to bring about sovereignty and governance from a more appropriate place - the individual. This system is bitcoin. And as far as we can tell and forecast - it’s a system that’s only going to grow from strength to strength in the coming months and years as a viable store of value and impenetrable global currency.
So cheers to 2017 - and to bitcoin!