September turned out to an overall bad month for cryptocurrencies, as improving market sentiment towards the end of August took a hit in early September after reports of Goldman delaying plans for its proposed cryptocurrency trading desk surfaced. Bitcoin pricing fell from more than $7,300 to below $6,300 within days of the news, and remained largely around this level for the whole month. Notably, investor sentiments did not improve much despite Goldman’s clarification that it is keen on offering custody services for crypto funds, and also plans to allow its clients to trade in Bitcoins through non-deliverable forwards soon. Reports of other Bitcoin-linked derivatives being supported by peers Morgan Stanley and Citigroup in the near future also failed to pique investor interest.
While the growing support for Bitcoin trading activities among the largest investment banks in the world is good news for the nascent industry, the lack of investor enthusiasm from this news can be attributed to the fact that the limited offerings the banks are currently working on are indicative of key hurdles that need to be addressed before cryptocurrencies are accepted as a mainstream investment option. Additionally, investor focus over recent months has shifted to the possibility of a Bitcoin ETF being approved by the SEC – something that will boost mainstream adoption of the cryptocurrency at a much more rapid pace than full-fledged trading support by investment banks. Although there has been little news on this front over recent weeks, the SEC’s recent decision to invite comments from investors supporting or opposing Bitcoin ETFs should renew interest in the industry over coming months. As we detail in our interactive Bitcoin Price Estimator, there should be a steady recovery in the number of unique users as well as transaction volumes on the Bitcoin network over coming months – helping Bitcoin prices cross $8,000 by the end of the year, and potentially even doubling in value by mid-2019.
What Drives The Price Of Bitcoin?
This also makes sense given the fact that Bitcoin prices over the years have primarily been driven by the perception of how a particular piece of news boosts or hurts the potential number of Bitcoin users and their transaction volume in the long run. This has held true for the period since Bitcoin was first introduced, barring the last few months of 2017 when the media euphoria surrounding cryptocurrencies drove Bitcoin prices to an all-time high of almost $20,000. Although Bitcoin prices are susceptible to extreme volatility, they have largely moved in tandem with news that signaled either increased adoption in the future – like Goldman’s original decision to set up a cryptocurrency trading desk and IntercontinentalExchange’s ongoing work on a new trading platform that supports cryptocurrencies – or setbacks in terms of long-term adoption, like a cyber-attack on two South Korean Bitcoin exchanges in June followed by the SEC more recently rejecting plans for a Bitcoin ETF.
In our interactive Bitcoin Price Estimator, we forecast changes in the number of unique users as well as transaction volumes for each month through mid 2019 to arrive at our estimate for Bitcoin’s fundamental value. This video shows how to leverage our bitcoin pricing dashboard. While the dashboard looks fairly basic, in back-testing – a method to see how well it could have predicted prices in the past – it was almost 94% accurate.
As we pointed out above, investors rightly see an approval for Bitcoin ETFs by the SEC as the single-biggest growth catalyst the cryptocurrency industry has seen to date. Although the SEC rejected several proposals for Bitcoin ETFs earlier this year, it has softened its stance towards the industry in a series of steps over recent months by having the proposals reviewed again, and by more recently inviting investor opinions about the pros and cons of a Bitcoin-linked ETF. While little has been done over the months to alleviate the SEC’s fears of widespread market manipulation in cryptocurrency trading (which still remains a stumbling block when it comes to an actual approval), the SEC’s willingness to give the proposals a chance should drive Bitcoin prices higher in the near future.
Source: This article first appeared on Forbes.com.