A Look At the Recent BTC Rally

So, why the recent rally?

Part of the reason is based on technical elements, but part of the recent rally is fundamentally-driven. On Jan. 14th, the CME Group launched a new derivative product on top of its Bitcoin futures, Bitcoin futures options.

Futures options are a convenient and cost-efficient way to play the Bitcoin market as market participants don’t need to put up as much capital as they would need to trade Bitcoin futures contracts. Furthermore, market participants can use traditional trading platforms, independent from crypto exchanges, digital wallets, etc.

Additionally, and perhaps, more importantly, this is another key step towards bringing Bitcoin and institutions together. Anything that can be traded on major regulated exchanges having to do with Bitcoin is extremely positive, as it gives institutional investors an opportunity to participate in the Bitcoin market.

Moreover, these are steps that will likely lead to the introduction of Bitcoin ETFs down the line. Some analysts now say that there is about a 60% chance that a Bitcoin ETF will get approved in 2020. Personally, I believe it is inevitable that multiple Bitcoin ETFs are introduced eventually, within the next 1-3 years.

The introduction of Bitcoin ETFs (likely physically backed) should create enormous demand for Bitcoin, as Bitcoins will be needed to launch the physically-backed ETFs. This should simultaneously create a wave of demand from institutional buyers, as well as from individual/retail investors as they rush to accumulate Bitcoin through both traditional crypto exchanges as well as in ETF form.

With only about 45 million blockchain wallets in existence, it is likely that we are still in the very early stages of the digital asset development cycle. After all, there are roughly 4.5 billion people around the world with internet access. I will also assume that most of them probably engage in commerce (transact), and/or speculate or invest. Therefore, the potential market for Bitcoin and altcoins is huge, roughly 4.5 billion people.

Even if we presume that each blockchain account has one owner, and all or most are in use, this implies that only 1% of the applicable market share is penetrated right now. Naturally, this leaves a lot of untapped market share for digital assets to eventually capture.

Despite the 45 million blockchain accounts, the number of people that own Bitcoin and other digital assets is likely much smaller. Through some rigorous research, I estimated that roughly 20 million people owned Bitcoin around the globe in early 2019. 2019 was a relatively slow year for Bitcoin price wise, yet the number of blockchain wallets increased by roughly 37% YoY.

Still, due to the large number of lost or unused accounts, coupled with many users who have multiple accounts, I believe the actual number of people participating on the Bitcoin network is only around 25 million today (a 25% YoY increase, roughly in line with a 37% YoY rise in wallet creation). If my calculations are accurate, then only about 0.55% of the world’s population with internet access are involved with Bitcoin and other digital assets, which leaves about 99.45% of the applicable market untapped.

Furthermore, as I’ve often discussed, defining a ‘user’ of blockchain strictly by humans is a fallacy. With the rise of the AI Era and the Machine Economy, two central aspects of the Fourth Industrial Revolution, blockchain naturally arises as the transaction layer upon which artificial intelligence settles value.

Let us not forget about the Fed and its perpetual easing policy. The Federal Reserve System has continuously expanded the monetary base ever since its incorporation into the global financial order over 100 years ago. In fact, since President Nixon decoupled the dollar from the gold standard in the early 1970s, the monetary base has increased by roughly 4,300%.

With debt levels at all-time high, and the extended nature of the current economic expansion, the Fed is very likely to continue to expand the money supply going forward. To delay the onset of a recession, to try and engineer a soft landing, and to stimulate economic growth following a recession, the Fed will very likely use various tools like zero or negative rates, as well as QE type programs.

Also, it is not just the Fed, as other major central banks continuously expand their fiat currency stockpiles as well. Once again, we return to the fact that Bitcoin and other true decentralized coins have set limits and cannot be inflated in proportion to fiat currencies. In fact, Bitcoin and other digital coins are essentially inflation-proof in this sense. There are only about 18 million Bitcoins in circulation now, and the max limit is just 21 million.

Furthermore, the more Bitcoins that are in existence, the more difficult the mining process becomes. In fact, the process becomes so complex, lengthy and difficult that the last Bitcoin is projected to be mined in 2140, 120 years from now. Therefore, central banks can essentially print as much fiat currency as they want, but the ever-growing supply of fiats in the global financial system should enable Bitcoin and other systemically important altcoins to go much higher long term.

In December, Bitcoin successfully retested the extremely important support level at $6.5K. Since then, Bitcoin and other digital assets have appreciated considerably. Nevertheless, this move is still likely in the very early stages of the Bitcoin development cycle and overall price appreciation.

There is positive news flow regarding Bitcoin’s continued adoption as a mainstream investment vehicle. Moreover, the likelihood of a Bitcoin ETF and/or other mainstream investible products in the digital asset space appear to be increasing. The introduction of Bitcoin-backed investment vehicles should produce a spike in demand from retail as well as from institutional investors. In addition, the cryptocurrency complex should benefit greatly from such a phenomenon.

Bitcoin’s network keeps growing, as about 99.0-99.5% of the applicable market appears to be untapped right now, and Bitcoin’s set supply should enable its price to move up substantially once demand increases. Furthermore, demand could increase exponentially, or far more than is anticipated, which should reflect positively on many other prominent altcoins. Thus, prices for Bitcoin and many other altcoins are likely to continue to appreciate over the long term, in 2020 and beyond.