I have said it many times, but when it comes to financial markets, long term predictions are hard, and in many cases pointless. Markets are forward discounting mechanisms and as such they price in any foreseeable influences. It is therefore the unforeseen, the proverbial bolt out of the blue, that usually ends up being the biggest influence over any given time period. The fact remains though that the New Year is a time for reflection and contemplation of the possibilities ahead, and when it comes to bitcoin the possibilities for 2016 are so intriguing that they are worth pondering.

From a price perspective it is hard not to be bullish on BTC/USD. At this time last year I stuck my neck out and predicted a period of relative stability for the bitcoin exchange rate, albeit in a lower range than the $300-400 levels at the time, followed by significant appreciation in the second half of the year. Though I say so myself, that wasn’t too far off the mark.

For 2016 I expect that pattern to almost reverse itself, but with the decline and consolidation not coming until late in the year. There are several factors that will be positive for price in the next few months. Firstly there are already signs of some turbulence in the credit markets, particularly at the high yield end. That could easily translate into problems for emerging market sovereign debt early next year, particularly if volatility in commodities remains a theme. That in turn would cause some rapid movements in currencies, making bitcoin’s historic volatility look like a risk worth taking for those in smaller countries looking to protect what wealth they have.

In addition the publicity surrounding the mainstream financial sector’s interest in the principles behind the blockchain will make the advantages of a peer to peer, trustless distributed ledger system obvious to even those that have willfully ignored it up until now. As such systems gain ground in the exchange of securities, land and other assets, bitcoin, as the original source and most established use of monetary use of the technology, will have the most to gain. As trust in the system increases wider adoption will inevitably follow.

Of course none of that will matter if bitcoin cannot deal with the biggest single hurdle that it will face next year…scalability. At first sight it may seem to some that the prolonged debate regarding the best way to scale the blockchain in order to meet the growing number of bitcoin transactions demonstrates a weakness. There is much disagreement as to how to handle the needed change, but that is in actual fact by design, and is a strength of the system rather than a weakness. Open source, collaborative change is often messy but usually leads to the best possible solution. I am confident that that will once again be the case, and add to the growing confidence in bitcoin.

All of these factors combined should result in a gradual rise in BTC/USD, but the biggest push will come in July, when the block reward halving comes into effect. There is some risk that this will lead to more concentration in mining than is desirable, but in the short term it will certainly restrict supply. If all of the influences mentioned above have combined by then to increase the number of transactions and therefore demand for the currency, that reduced supply could easily cause a spike in the price.

2016 will not be all sunshine and roses, however. That spike, when it comes will prompt a lot of profit taking by the more speculative holders of the currency and, mindful of the collapse following the last spike (to $1000+ in 2013) any downward trend at that point could rapidly accelerate. There are also other black clouds on the horizon that could easily bring turbulence in the market.

I and others have written often of the absurdity of regulating bitcoin based on the belief that it may be used to finance terrorism. On that basis there should be a lot more regulation of dollars, which are far more important in that area than bitcoin, but when fear is guiding policy logic usually takes a back seat. It is almost inevitable that there will either be another major terrorist attack next year or one will be uncovered, and just as certain that some politicians will, in a desperate attempt to appear tough, attempt to restrict access to digital currency for the innocent.

Despite the negatives though, next year promises to be a banner one for bitcoin. Interest and adoption should continue to rise, and the price should still finish the year higher than it is now.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.