Is Bitcoin About to Breakout?

  Several  factors have lead to a surge in the price of Bitcoin this year. One of  the main factors has been the instability in China and Bitcoin emerging  as somewhat of a safe haven. The Brexit referendum too led to price  hikes in Bitcoin. There are still underlying factors present that could give  the cryptocurrency a further push upwards. According to an article by Forbes Bitcoin transactions could triple. Forbes cited Juniper Research, a UK based company that  specialises in identifying and appraising high growth market sectors as  saying, “the total value of Bitcoin transactions is expected to exceed  $92 billion (bn) this year – up around 240% from less than $27bn in  2015.” 

Trump, Brexit and other global risks

Bitcoin has acted as a pillar of strength and stability in  times of uncertainty lately. We have already seen Bitcoin hitting a high  of $780 before the Brexit referendum. The BBC  has reported that according to the Economist Intelligence Unit, Donald  Trump winning the US Presidency has the potential to ‘disrupt the global  economy and heighten political and security risks in the US’. The BBC says, “He is rated as riskier than Britain leaving  the European Union or an armed clash in the South China Sea.” The  Economic Intelligence Unit uses a risk scale of 1-25 and Trump getting  elected the US president is cited as having a rating of 12 which is the  same as the risk of jihadi terrorism destabilising the global economy  according to the BBC report. Other risks that were mentioned were Russia’s military adventures and Chinese economy taking a ‘hard landing’. 

A Deflationary Currency pitted against inflationary fiat

Bitcoin is considered to be a deflationary currency and  undergoes ‘halving’ on a quadrennial basis. This halving reduces the  amount of bitcoins being mined by half, thus reducing the supply of  money in the system. The dynamic between Bitcoin and fiat currency thus  assumes a significance. We talked with Eric Grill, CEO of Coinoutlet who says: 

“There is a limited supply of bitcoin, and recently that  supply has been reduced, while the demand continues to rise.  Bitcoin is  typically traded against currencies that continue to increase in supply  (Printing more money) which will make the value of bitcoin relative to  these currencies increase in value over time.” 

The Charts suggest a Breakout

MarketWatch  reported recently that 2016 has been a strong year for Bitcoin bulls  and the cryptocurrency has climbed to levels unseen in 2 years. They  have observed a technical pattern emerging in charts as analysed by  equity analysts that may suggest the prices may be heading even more  northwards.  This pattern known as a flag or a pennant can be seen in the chart given below.  - Source: Marketwatch Marketwatch cited Jonathan Krinsky, Chief Market technician  at MKM partners as saying that this so called pennant formation is  about to resume its long-term trend after a period of consolidation. Will the prices of Bitcoin then resurge to the high levels of US$ 764  per bitcoin? Keeping in view global uncertainties, halving and other  technical factors, we may indeed be on the verge of a Bitcoin breakout.