Cryptocurrency investors are emotional, there’s no doubt about that.
Last week, when Bitcoin was trading at $9,200, analysts were certain that $10,000 was going to arrive in no time. It didn’t.
Now, with BTC ‘plunging to’ $8,500, many traders have once again begun to look to the $5,000s or even lower, claiming that it only makes sense for the asset to go there next.
While it isn’t clear of these calls are correct yet, it’s important to step back and look at the bigger picture, the longer-term trend.
According to Tom Lee — co-founder of New York market research firm Fundstrat Global Advisors, which called the S&P 500’s stellar performance last year when recession talk started to spring up — the longer-term trend is decisively positive for Bitcoin.
Bitcoin Remains Bullish for 2020, Fundstrat’s Lee Says On CNBC
Lee recently sat down with CNBC’s “Fast Money” segment, known in this budding industry for being one of the only mainstream media actively covering the cryptocurrency space, and gave his thoughts on markets.
After a host asked about his outlook on Bitcoin, the industry analyst asserted that he remains bullish on BTC for 2020, citing three main factors:
- The upcoming 2020 Presidential Election in the US, which he claims will decrease regulatory pressure on Bitcoin
- The upcoming Bitcoin block reward reduction, known as a “halving,” that will decrease the inflation rate of the asset by 50%;
- The rising geopolitical tensions, especially in Iran.
— CNBC's Fast Money (@CNBCFastMoney) January 23, 2020
Anecdotally, Lee added that his firm has been seeing an increasing interest from clients regarding cryptocurrency. While Fundstrat is a research firm, the most interest from clients would suggest that there is a growing investment demand for Bitcoin.
Yes, there may be interest to short the market, but Changpeng “CZ” Zhao of Binance was quoted late last year as saying that institutional interest in cryptocurrency should make an increasingly bullish market in 2020.
There is also one other factor that Lee has mentioned in the past that may be relevant here: strong performance in the stock market.
Last year, Fundstrat found that there is a correlation between performances in U.S. equities — namely in the index of the S&P 500 — and the price of Bitcoin.
More specifically, when the S&P 500 sees a certain level of gains, there’s a high likelihood BTC is outperforming, posting gains of dozens of percent.
JP Morgan Sees Downside Risk
Although Fundstrat is bullish, a team of analysts at JP Morgan is leaning bearish on the leading cryptocurrency. One of JP Morgan’s managing director, Nikolaos Panigirtzoglou, noted that the cryptocurrency has some downside risk
He specifically looked to the fact that Bitcoin’s intrinsic value, calculated by the Wall Street giant by looking at the marginal cost of production of a single coin by weighing the price of computational power (via ASICs) and electricity costs, which shows that the fair price of BTC is still around $5,000:
The market price has declined by nearly 40% from its peak while the intrinsic value has risen by around 10%… The gap has not yet fully closed, suggesting some downside risk remains.
The thing is, while JP Morgan does see downside risk, the cost of Bitcoin should theoretically double one the halving kicks into effect in May 2020, for the rewards miners will get will effectively be halved, throwing the bank’s model out of wack.
If Bitcoin goes into the halving at the current price of $8,500 and miner’s cost basis for mining 1 BTC is stable, there will actually be a positive gap between the intrinsic model of the cryptocurrency and the market price, potentially creating a bullish case.