Bitcoin's Next Big Price Event?

For the price of bitcoin, the summer was anything but smooth.

Markets boomed on news of 'the Brexit', tapered off through the long-awaited halving and tumbled on the news yet another exchange had been hacked. Since then, the price has fluctuated between $550 and $600, returning to the "relative" calm observed earlier in the year.

But given bitcoin's historical volatility, analysts are already beginning to question what may trigger bitcoin's next big price swing.

As we head into the fall and winter months, a diverse set of theories are beginning to emerge about conditions that could either boost the price, or see it return to its 2015 lows.

Institutional approval

Among the potential triggers cited by analysts, the emergence of a bitcoin exchange-traded fund (ETF), an investment vehicle that generally tracks a basket of stocks or commodities, was perhaps the most often discussed.

Many market observers have been watching the status of two proposed ETFs with great interest, but for a while, there wasn't any reason to hope for developments. However, excitement for a potential market first has grown in recent weeks following the July announcement of the SolidX Bitcoin Trust and amid new filings by the Winklevoss Bitcoin Trust.

The approval of either could represent a milestone for the bitcoin community, analysts say, as the ETFs would enable authorized participants to issues shares tied to real bitcoin holdings, which could be a catalyst for new liquidity.

Daniel Masters, director of Global Advisors Bitcoin Investment Fund (GABI), noted recently that many commodities have enjoyed sharp increases in price and more robust trading activity once ETFs based on the underlying assets hit the market. 

He wrote in an August blog post:

"From the early 2000s onward, there was a proliferation of ETFs covering all manner of commodity interests. In each and every case – for gold, silver, oil, natural gas, platinum, copper and even indices – the advent of the ETFs led to higher prices, more trading volume of futures and cash exchanges and higher levels of commodity futures open interest."

Should either ETF receive approval, bitcoin could enjoy a notable increase in liquidity. It was this variable that Du Jun, co-founder of Chinese exchange Huobi, singled out as potentially driving the digital currency's price higher.

"Bitcoin's liquidity depends on the future of bitcoin's value and investors' expectation to a large extent," Du said.

Technical improvements

Yet another potential boost for the bitcoin price could come in the form of a long-awaited resolution to the "scaling" debate.

Currently, blocks of transactions on the bitcoin blockchain have a storage size of just 1MB. As this puts a limitation on the number of transactions the network can process (and therefore, some argue, adoption), there has been a sometimes messy and contentious drive in the community to change it.

But due to the tricky specifics of how a change to this hard-coded limit would need to be enacted, no consensus has yet been reached. Still, that doesn't mean solutions aren't on the way, the most notable of which is Segregated Witness (SegWit), an upgrade that recently saw a preliminary code release.

While promising for the network, though, analysts seemed less enthusiastic about SegWit’s potential impact on bitcoin prices.

Cryptocurrency investment fund manager Jacob Eliosoff, for example, said investors have likely already priced in the coming change as it was announced in December and originally expected to be deployed in April.

"SegWit's release seems too gradual and widely expected (not to say overdue) to really bump the price," Eliosoff said.

Tim Enneking, chairman of investment manager EAM, struck a similar tone, adding:

"I don’t think SegWit will have anything more than an incremental and marginal impact on BTC prices, at least in the short term."