Summary:
- Bitcoin (BTCUSD on xStation5) crosses $14k for the first time ever, a $15k mark not far away
- Three reasons why Bitcoin could see a massive pullback in the nearest future
- Bitcoin the most overbought this year increasing odds for a crash
Another day and the same scenario as Bitcoin establishes its new all-time highs almost each day, however the ongoing surge has been the most impressive in the Bitcoin history thus far. Notice that each subsequent surge takes less time before a severe pullback occurs fitting more and more into a bubble scenario. Today we present the three major reasons why Bitcoin could experience a hefty decline in the nearest future.
A launch of Bitcoin futures could depress the Bitcoin price all of a sudden
Although the prime reason for an astounding rally is still the same – investors await a launch of Bitcoin futures at CBOE – this move could backfire as well. Do notice that betting on Bitcoin increases has been much easier as of yet, hence there has been a limited amount of traders trying to play against the remarkably bullish trend. However things are expected to change decisively when CBOE and CME a week later will begin offering their customers quite a cheap method to bet against the Bitcoin price. When it occurs, it could push Bitcoin substantially lower once more institutional investors commence shorting the digital currency.
Gargantuan volatility could encourage central banks to issue warnings
There is no doubt that Bitcoin volatility tends to be much, much higher compared to other risky assets let alone currencies or bonds. While this scenario keeps or even speeds up its momentum, it could draw more attention from central banks and regulators which might even consider banning cryptocurrencies in order to deal with this issue once and for all. Let us recall that the Indonesian central bank has already announced that it intends to implement a regulation aimed at banning cryptocurrencies such as Bitcoin in 2018. While that decision did not daunt investors from buying digital currencies, it could be a major reason to change their mind when more significant countries do the same.
Dodgy stock exchanges pose a substantial risk for traders
Bitcoin has no a single price as opposed to other assets suggesting that each exchanges creates its own price. Having many exchanges all around the world there is quite easy to run dodgy activities which could pose a massive risk for Bitcoin and other digital currencies alike. That said Bitcoin is subject to manipulation by large entities they have a stake in it and Bitfinex could be the main player in this field. Let us recall that the CEO of Bitfinex and Tether (it issues tethers or USDT strictly pegged to USD) is one and the same person. While the company assures investors that all cryptocurrencies it trades are backed up by US dollars, it could not be as clear as it seems. Namely, Tether issued 50 million tethers just in a week in November and there were some doubts whether it was backed up by US dollars. To sum up, until cryptocurrencies involved are truly backed up by a proper amount of US dollars there is no a risk in the system, however all changes if the company does not have an adequate amount of US dollars. If so, there could be liquidity issues when the company faces a large scale cash-out which could result in even a collapse of the exchange as it happened in 2014 when the Mt. Gox went bankrupt.
Bitcoin’s frenzy keeps going as the price is nearing $15k, however a downside risk increases at the same time. Source: xStation5
Finally let’s add that even the largest Bitcoin supporters expressed their concerns related to an abrupt rally on the virtual currency. For one Tom Lee, the head of research at Fundstrat Global Advisors, urged investors to be cautious when the Bitcoin price was nearing $7,500 even as he had beamed with optimism on the cryptocurrency by then. Since then the price has already doubled raising concerns that a crash is inevitable. Taking a look at the chart above one may notice that each surge has taken less time while each one has been less impressive as well. Having said that we could forecast a heavy pullback before the price doubles its value since the bottom seen just above $9,000. At last RSI oscillator points that the market is the most overbought this year.