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Ron William, from RW Advisory, tells IG it's likely that we will see more downside for bitcoin before it recovers. However, in the longer term, he says, it may end up losing out to other cryptocurrencies like ether and ripple.
Blockchain is the platform likely to create the revolution akin to the one instigated by the internet in the late 1990s, William said.
The mistake people are making is overcorrelating the price of cryptocurrencies to the long-term disruption opportunity.
Bitcoin toyed with the $20,000 level in December before dropping by near-to 50%. In the short term, William expects it will sink to his price-exhaustion zone, between $9192 and $8325. If it finds support at that level it may return to its giddy heights, but if not, it will drop to between $7000 and $6000. Such corrections are healthy, he adds, as it adds creedence to the market, attracting smart money and exchange traded funds (ETFs).
The risk of a retracement in the parabolic risk cycle is 85%, William warns, and the phrase ‘bitcoin bubble’ is peaking again, which has the cryptocurrencies last two 80% collapses.
Bitcoin accounts for 3% of business transactions, up from 1% at the start of 2016, so there is a lot of scope for expansion, William adds. His take is it is entering the transitional phase. For a paradigm change to kick in, cryptocurrency adoption would need to reach 20%.
Bitcoin was one of the worst performers compared to its fellow cryptocurrencies, despite its 3314% rise in two years. Ripple climbed 3550% in 11 weeks, and Ethereum 10,000% in 16 months.
Looking back to the transitional phase of the internet revolution, will bitcoin suffer the first mover fate, as Myspace did to Facebook? Bitcoin is falling behind in terms of technology, speed and cost of transaction, though this may improve. William said it is all about picking the cryptocurrency that will win it all.
The inexorable rise of stock markets is hiding fragility, and a bitcoin collapse could be one of the events that could trigger a sharp correction, William warned.
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