What’s Behind the Bitcoin Bonanza?

Bitcoin has gone wild – it’s up +10% in the last 24 hours; it’s up +100% for the month; and it’s up +178% year to date. Bitcoin is the best performing asset by a country mile. Simply put, it is the “Big Long”.

So what’s behind the move?

1.) Bitcoin Scaling Agreement – this is some inside baseball, but an agreement was reached this week on the path toward upgrading the bitcoin network. Prior to this agreement there was a very real chance that bitcoin could have split into 2 coins. IBKHO, this split (aka – a contentious hard fork) would have had an almost fatal impact on bitcoin. Reaching an agreement not to split the coin and agreeing to upgrade the network removes the existential threat. More importantly it means that the bitcoin network will now have the capacity for Web 3.0 apps to be built on top. This solidifies bitcoin as the leading payment protocol for Web 3.0.

2.) Korea and Japan – Earlier in the month the volume of bitcoin traded in Japan was soaring – it still is, but South Korea is coming on strong. As of this morning bitcoin was trading as high as $3700 on the Korean exchanges, a premium of over 20%. Getting fiat money out of Korea is almost impossible, which means the arbitrage opportunities are limited and by extension there are very few market forces to close the premium.

3.) Fidelity Embraces Bitcoin – At Consensus on Tuesday (the largest blockchain conference), Abby Johnson CEO of Fidelity announced that Fidelity customers will be able to see their bitcoin balances when they log into their Fidelity account. Fidelity has partnered with Coinbase to integrate bitcoin balances. The sheer size and scope of Fidelity ensures that bitcoin will continue to gain mainstream acceptance.

4.) Web 3.0 – While bitcoin certainly has a safe haven appeal and can serve as a hedge against political chaos, there is another use for bitcoin. People are finally starting to understand that Web 3.o will be a decentralized web and will need new protocols to replace the likes of HTTP and TCP/IP. The new payments protocol for Web 3.0 is bitcoin.

 
So are we in a bubble?

Probably, but it is not a “terminal bubble”. There is no question that we are in the middle of a price frenzy. There will be a correction and it could be severe BUT its unclear if that correction will start from current prices of $2700 or from someplace much higher. That being said, even at current prices bitcoin is vastly undervalued. To get an idea of how undervalued, consider that at current prices the total amount of bitcoin outstanding is $44 billion, while the total value of all the gold in the world is about $8 trillion. If bitcoin reaches only 5% of the total value of all the gold, then the price would be $24,000 or almost 10x higher.

It worth repeating, that while bitcoin is a revolutionary and disruptive technology it is not immune from the very human emotions of fear and greed.