Cryptocurrency price outlook 9 January 2020

The great crypto clean out of 2020

Cyrptocurrency markets may be cleaning out the non-performing lesser known cryptocurrencies in favour of Bitcoin and one or two other major digital currencies. Investors are showing their lack of trust and faith in the minor cryptos with prices falling consistently for more than six months.

Some major exchanges have even stopped accepting trades in Ethereum and other cryptos. Coinfloor CEO Obi Nwosu says only Bitcoin is “proven.”

Bitcoin is the “only game in town,” and achieving its mission of being  digital gold said Obi Nwosu.

While Bitcoin has also been under pressure, the minor cryptos have been falling consistently and without much rebound, throughout the second half of 2019 and now into January 2020. Unlike Bitcoin the minor currencies have not enjoyed the big boost in value last summer and some may not survive 2020.

XRP is down 11 cents (36%) over 12 months from 41 Australian cents to 30 cents (chart above from Coinbase.com).

Stellar Lumens (XLM) has lost 53% in 12 months, down from almost 15 Australian cents to under 7 cents now while Ethereum (chart below) has been falling for six months and is now back to A$205, the same price as 12 months ago.

Is Bitcoin crashing?


Bitcoin prices are trending down this week after posting big gains in the post-Christmas period. One Bitcoin is now worth A$11,646, down $325 in one day. Over the last month, Bitcoin has gained almost $1,000, up 8% (see chart below from Coinbase.com).

Bitcoin may be trending down but the number one cryptocurrency has inherent market strength and is well up on prices from 12 months ago.

How much does mining Bitcoin cost?

Even if you are not interested in becoming a Bitcoin miner, the cost of mining one Bitcoin is very useful information and provides a guide to the cryptocurrency price outlook in 2020.

Northern Bitcoin, a crypto mining company based in Norway, estimates the cost of producing one Bitcoin in Australia at almost US$10,000 or A$14,554.

Average Bitcoin mining costs in China and Saudi Arabia are about US$3,100 per coin while in Canada the average cost of bitcoin mining US$4,000. 

Last month a new report from CoinShares Research priced the overall average mining cost of one Bitcoin at US$6,300.00 (A$9,169.00).

That implies that Bitcoin has an effective, but not guaranteed, floor price of around A$9,169 (on current exchange rates). Bitcoin’s price now, at around A$2,000 above that, seems to be a relatively safer investment than many other cryptos.

However, prices can fall below the cost of mining and have done so in the recent past.

In late 2018, Bitcoin prices fell under US$4,000 per coin with miners turning off their equipment due to the high costs of production. But the lowest cost miners continued and the supply of Bitcoin was largely uninterrupted by the falling price.

If a price fall like was to happen to bitcoin again, the currency has a self-correcting nature says Glen Goodman, author of The Crypto Trader.

“If Bitcoin fell below US$3,900 most miners would probably have to shut down operations and many would be forced to sell their stocks of bitcoin, which would push the price down further,” Mr Goodman told Forbes.com.

“In that situation, the bitcoin system automatically adjusts to make mining easier – until miners feel it is profitable to start working again.”

Another factor is also providing support for Bitcoin markets in early 2020. The scheduled May 2020 bitcoin halving event will cut the number of bitcoins rewarded to miners by half.

The Bitcoin halving plus additional regulation in China of crypto miners could lead to a clean out of the mining community as older and more expensive equipment and operations are retired. Less supply of new Bitcoin could provide additional price support in mid to late 2020.

This article is not financial advice. Seek professional advice before making investment decisions.

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