The Chicago Mercantile Exchange (CME) has announced it will add Bitcoin futures trading in the fourth quarter of 2017. Bitcoin price almost instantaneously jumped on the news, reaching all-time highs over $7,500.
However, the cancellation of SegWit2x has led to a sudden slump in the price, and would-be investors have been scared away from previous high priced predictions. However, Mark Yusko, founder and CEO of Morgan Creek Capital Management ($3.7 bln in assets under management) has not shied away from making predictions, suggesting that Bitcoin will eventually be worth $400,000.
The investing guru first bought into the cryptocurrency scene in 2011 but regrets not purchasing more. He was clear about the future, however, in spite of the lack of support among institutional bankers. He noted:
"This will change the supply and demand equation for banking. It is that big. I'm not surprised at all that bankers, financiers and Saudi Princes are coming out against it. This is a truly disruptive technology.”
Yusko compared Blockchain and Bitcoin to the Internet thirty years ago, noting that it has the same capacity to ‘change everything.’ His lofty prediction is for the long term of the cryptocurrency.
Bitcoin dropped below $7,000 on Friday to trade more than $1,000 down from an all-time high hit on Wednesday, as some traders dumped it for a clone called Bitcoin Cash, sending its value up around a third.
A bitcoin (virtual currency) coin placed on Dollar banknotes is seen in this illustration picture, November 6, 2017. REUTERS/Dado Ruvic/Illustration
Bitcoin has been on a tear in recent months, with a vertiginous sevenfold increase in value since the start of the year that has led to many warnings the bitcoin market - now worth well over $100 billion - has become a bubble that is about to burst.
It reached a record high of $7,888 around 1800 GMT on Wednesday after a software upgrade planned for next week that could have split the cryptocurrency in a so-called “fork” was suspended.
But it has quickly retreated from that peak, falling to as low as $6,718 around 1330 GMT on Friday. It later recovered a touch to trade around $6,880 by 1645 GMT, but that was still down almost 4 percent on the day.
After a meteoric rise in value in the past 30 days, the bitcoin price has endured a major correction as it dropped from $7,500 to $6,550.
Before delving into the analysis of the downward trend and the recent decline in the price of bitcoin, it is important to acknowledge that the price of bitcoin has increased from around $4,500 to $7,500 within a single month.
Joseph Young @iamjosephyoungWhen #bitcoin price drops from $7,600 to $6,700 it is the end of the world. But when bitcoin price rises from $4,500 to $7,600 in a single month, it is expected.#Greed
Even with the recent major correction, the bitcoin price has recorded a 29.2 percent monthly increase and investors are overly concerned with the short-term price trend of bitcoin. Many analysts have predicted the price of bitcoin to plunge either after the cancellation or execution of SegWit2x, as B2X dividend expecting investors reallocate their funds from bitcoin to other cryptocurrencies.
Such trend has been evident in the decline in the bitcoin dominance index, which dropped from over 62 percent to 55.1 percent. Hence, a major correction on bitcoin has been long over due, considering the rapid increase in its price in a relatively short period and the SegWit2x hard fork.
Is Frustration of High Fees Pushing Users to Bitcoin Cash?
Several experts and investors have claimed that the high fees of bitcoin and the cancellation of SegWit2x are pushing existing bitcoin users to migrate to Bitcoin Cash, which has a flexible block size limit and therefore, larger on-chain capacity than bitcoin.
The price of Bitcoin Cash did breach the $1,000 mark earlier today, but the increase in the value of Bitcoin Cash also seems slightly inorganic, given its 20 percent increase in value for three days straight. More importantly, the Bitcoin Cash market is heavily concentrated in South Korea, with three major South Korean trading platforms accounting for around 53 percent of Bitcoin Cash trading.
The rest of the trading volumes are composed of Bitcoin Cash-to-USD trades, not Bitcoin-to-Bitcoin Cash trades. Thus, it is too early to claim that bitcoin users frustrated with high fees are moving to Bitcoin Cash.
While the abovementinoed claim is far fetched, it is notable that the mempool size of bitcoin has risen to 100 million bytes for the first time since June. With the mempool, the holding area for unconfirmed transactions, overloaded with bitcoin transactions, users are likely to be recommended to attach higher fees than usual by wallet platforms.
Peter Todd, a Bitcoin Core developer, further emphasized that it is crucial not to oversell bitcoin, as fees will likely remain high in the long-term, after the adoption of SegWit.
Positive Indicators to Expect
At this point, it is too early to justify the recent correction of the bitcoin price as the movement of users from bitcoin to Bitcoin Cash, given that Bitcoin Cash will also very likely suffer a correction after its exponential increase in value in the past few days.
The drop from $7,500 to $6,600 could have been caused by two major factors: sell-off of SegWit2x expecting investors and the market’s correction after bitcoin’s strong short-term price rally.
If it is the latter, then the bitcoin price will be able to recover in the upcoming weeks. With CME Group and other major institutions planning the integration of bitcoin and launch of bitcoin futures exchanges, a “herd of institutional investors,” as billionaire Mike Novogratz explained, could soon enter the bitcoin space.
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