As the world of digital currencies expands, market analysts believe that bitcoin will continue to be a significant player in the global economy. Just as the fiat money pairs that can be traded on the foreign currency exchange (forex), bitcoin has become a commodity, a store of value and even a flight-to-safety asset.
Over the last few months, bitcoin analysts have been discussing the potential of this digital currency to enjoy a bullish run and a strong value appreciation. A surge in bitcoin value would not be a new turn of events for seasoned investors; in late December 2013, bitcoin reached values higher than $1,200 before taking a drastic downturn only to gain back some lost ground a few days later.
There is a strong chance that the wild fluctuation of bitcoin from October 2013 to February 2014 may never be repeated again. Unlike other commodities such as precious metals, bitcoin enjoys the nonpareil advantage of instant liquidity by virtue of being currency. Bitcoin has clearly matured as a dependable asset class; this is something that can be clearly appreciated by looking at the currency’s 12-month chart, which no longer features wild gyrations.
There is also a strong chance that bitcoin could see values as high as $1,000 this year. To understand why that might happen, it helps to learn how this currency has evolved in the last few years.
Flight to Safety
Bitcoin is no longer a novelty or an alternative investment; it has actually turned into what is commonly known as a flight to safety asset, which means that investors are likely to look at it as a safe haven when turbulence hits the financial markets.
Government bonds, gold and exchange-traded funds (ETFs) are among the most popular flight to safety investments. These financial safe havens are preferred by investors who pull their money out of the markets in times of uncertainty. For example, each time the media reports on the likelihood of a Donald Trump presidency becoming a reality, global markets tumble and gold gains in value; the reason for this trend is that investors are putting their money where turbulence is least likely to have a negative impact.
Bad news tend to rock the principles of fundamental analysis, which is why investors react so swiftly. In the wake of the Brexit referendum, terror attacks in Europe and the failed attempt to overthrow the government of Turkey, investors have looked at bitcoin as a safe haven due to its status as a currency impervious to the factors that negatively affect central banks.
Psychological Trends and Technical Analysis
Now that bitcoin has matured into the XBT/USD currency pair, there is enough trading and volume history for it to be evaluated on a technical analysis basis.
Traders who look for trends and patterns in technical charts are starting to identify points of entry to profit from a bitcoin run. The specific pattern that has been identified is called a pennant, and it signals the end of a consolidation period.
As a deflationary currency, bitcoin has lived up to its expected performance on a fundamental level. Traders are getting comfortable enough to take positions and inject the bitcoin exchanges with the brand of psychological trading that impacts other markets. This means that bitcoin trading is now ripe for technical analysis and for riding short trends.
In the end, both fundamental and technical factors are favoring a run-up in bitcoin value, which analysts believe will happen this year.