While the rest of the financial markets have been sleepwalking into May, the new asset class on the block has been a bit of a peacock. Bitcoin has strutted in full plumage to rise +18% this month…yes this month…as in May…which is 5 days old. The proximate cause of the rise is Japan, the Winkelvoss ETF, and a software upgrade.
First Japan – in April, Japan declared bitcoin an official means of payment. To be clear it is not legal tender, but its also not illegal to use it. Further, many of the major Japanese banks are preparing to begin trading bitcoin as currency, just like yen, euro and dollar. It appears this has legitimized bitcoin as a currency and caused an influx of new money.
Second the ETF – the BATS exchange (where the Winkelvoss Bitcoin ETF was scheduled to trade) appealed the SEC rejection of the ETF and the SEC agreed to take a second look. The primary reason for the original rejection was the lack of regulated exchanges and the inability of the SEC to monitor and prevent manipulation. As the space matures, it is possible that the ETF is approved, but in BK’s opinion the exchanges are not ready for prime time.
Third the software upgrade – Bitcoin desperately needs to increase the amount of data that can travel over the network. This is a good problem, as so many people want to use the network that it has become congested. There has been a contentious and damaging civil war within the bitcoin community over the best way to upgrade the network. In the last few weeks, the solution presented by one side (Bitcoin Unlimited) has proved to be an unstable solution. For the time being, this has taken the existential threat of a split into two coins off the table. However, this threat still remains and is BK’s biggest worry.
Can we go higher? Sure. Assuming current growth rates hold, BK’s fundamental value for bitcoin at year end is $2800.