The price of bitcoin could go as high as $4,000 over the next 14 months and according to one investor this cryptocurrency is “fully valued” and could see a pullback in the short term after hitting $1,600 for the first time on Monday.
According to the Coindesk bitcoin price index, after hitting an all-time high $1,601.05 during morning trade, bitcoin was trading around $1,575.52 by early afternoon trading in London even as the cryptocurrency has been on an upward move since April.
Bitcoin has risen over 33 percent in the last 30 days.
The reasons for bitcoin rally and multiple.
Firstly, according to Aurelien Menant, founder and CEO of Gatecoin, a regulated blockchain assets exchange based in Hong Kong a greater amount of bitcoin being bought with yen has become a necessity after Japan legalized thee cryptocurrency as a payment method recently.
A change in the code of another cryptocurrency called litecoin could be another reason for the rally in bitcoin.
What happened with litecoin and why does it matter to bitcoin?
The code behind the technology that underpins litecoin underwent a change last month. Allowing the speed of transactions using the cryptocurrency to increase, that technology is known as Segregated Witness (SegWit).
Hopes that bitcoin could see a similar thing has been given by that.
How bitcoin transactions are processed needs to be looked into to understood the issue. A complex math solution is the result of transactions by users are gathered into “blocks”. to determine if the transaction is possible, these solutions are worked out by the so-called miners using high-powered computers. The transactions are approved and the miners are rewarded in bitcoin once other miners also check the puzzle is correct. But the speed at which these are processed is slowing and there is a big backlog in transactions. Only a certain amount of transactions through in one block is allowed by the rules of bitcoin and that is the reason of the slowdown.
Because the community was afraid of a so-called “hard fork” which could have led to two blockchains forming, and therefore two separate cryptocurrencies, the price of bitcoin saw a big drop in mid-March.
But a so-called “soft fork” can happen which would increase the block size for bitcoin without major disruption is shown by the example of litecoin.
“That example of a successful soft fork in litecoin has made people start to think that we could get a successful SegWit implementation in bitcoin and that could increase capacity and move us to the next level,” Daniel Masters, director at Global Advisors Bitcoin Investment Fund (GABI), said.
Listed on The International Stock Exchange on the Channel Islands, GABI is an investment fund.
Previous peaks have seen sharp pullbacks in prices even while bitcoin has seen a recent rally. With bitcoin “fully valued for the moment”, the price rise has been “violent in the short-term”, Masters said. A pullback to around $1,100 could be a result of this.
However, the long-term outlook remains strong.
“In the 8- to 14-month horizon, my forecast would be around $4,000,” Masters said.
(Adapted from CNBC)