Bitcoin: The $10,000 Question

The whole world is waiting with baited breath to see if and when bitcoin surpasses its next milestone: $10,000—it was trading $9,950 as of Tuesday. It almost seems inevitable at this point, after the digital currency smashed through a stream of other milestones this year, each one falling faster than the last. [Update: Another one bites the dust: Bitcoin was trading as high as $11,500 as of Wednesday morning.]

Only a week ago, bitcoin crossed $8,000 for the first time; a month ago, it crossed $6,000 for the first time; a little over three months ago, it crossed $4,000 for the first time; and six months ago, it crossed $2,000 for the first time.

Bitcoin Price

Now with a market cap of $163 billion, bitcoin has risen tenfold so far this year, and perhaps more impressively, has introduced itself to tens of millions of people across the world, many of who never knew such a thing existed until recently.

People from all backgrounds are scrambling to get a piece of the action. The digital assets broker Coinbase now has an estimated 13.3 million accounts, up 300,000 in just a week, and more than 11.7 million active accounts on traditional brokerage Charles Schwab, according to CNBC.

Bubble, Or The Real Deal?

The dizzying speed with which bitcoin has ascended has many throwing around the "b" word―bubble. A columnist at BloombergGadfly commented that the bitcoin bubble "makes dot-com look rational." Bitcoin is now four times as expensive as dot-com stocks were at their height, Stephen Gandel wrote.

Hedge fund manager Ken Griffin of Citadel shares that view. He said earlier this week that bitcoin "has many of the elements of the tulip bulb mania we saw hundreds of years ago in Holland."

Yet at the same time that some call bitcoin a bubble, other investors and analysts are saying it's the real deal. Fundstrat's Tom Lee likens the cryptocurrency to gold, and forecasts that prices could hit $25,000 in the next five years.

Spencer Bogart, head of research at Blockchain Capital, says the bitcoin run is still in "the first inning," and that it will go much higher.

"Things like Square Cash adding bitcoin support are big. The biggest barrier to bitcoin adoption is that most people don’t want to go through the process of setting up an account on Coinbase. If people have the ability to purchase bitcoin from platforms they’re already on, it’s massively bullish for bitcoin," he said.

"I think we’ll see more mainstream financial services companies and fintech companies add bitcoin support over the next six months. Doing so can meaningfully contribute to top and bottom line," Bogart added.

Futures Coming Soon

Another mainstream platform that bitcoin could soon find itself on are futures exchanges, such as those operated by Cboe Global Markets, parent company of ETF.com, and the competing Chicago Mercantile Exchange.

Bitcoin futures could launch as early as this year, which would open the floodgates for billions of dollars of institutional money to buy into the digital currency. It could also open the door to the first U.S.-listed bitcoin exchange-traded fund.

Analysts say the probability that the Securities and Exchange Commission will approve a bitcoin ETF would skyrocket if futures begin trading. Eric Balchunas, senior ETF analyst at Bloomberg, said that a bitcoin ETF could launch as soon as six months after futures are listed, and that it could attract $10 billion in assets within a couple of months.

Ride The Wave

With potentially billions of dollars of new money headed into bitcoin in the near future, it's easy to imagine prices for the cryptocurrency rising even further from here, regardless of whether or not one considers it a bubble.

If that's the case, why not just keep riding the wave? That's what Michael Novogratz, a former hedge fund manager at Fortress Investment Group, is doing. Novogratz thinks cryptocurrencies will be "the largest bubble of our lifetimes," and said this week that bitcoin could "easily" be at $40,000 by the end of 2018.

“Remember, bubbles happen around things that fundamentally change the way we live,” he told Bloomberg TV. “The railroad bubble. Railroads really fundamentally changed the way we lived. The internet bubble changed the way we live. When I look forward five, 10 years, the possibilities really get your animal spirits going.”

Watch Out For Corrections

After the eye-popping gains bitcoin has already seen, a price target of $40,000 doesn't seem unimaginable. But even if it gets there, don't expect it to happen in a straight line. Bitcoin has seen numerous large corrections, including five pullbacks of between 29% and 40% just this year.

Prices saw an even larger 86% plunge between late 2013 and early 2015, when they dropped from $1,137 to $160.

"It’s been an incredible run on this rally, and I’m expecting a significant pullback at some point,” Blockchain's Bogart said. “Of course the important question is how deep the pullback will be and from what level."

That's the $10,000 question.

Contact Sumit Roy at [email protected]