Following the recent dramatic slump in the price of Bitcoin, predictions for the cryptocurrency´s future vary considerably in value and credibility.
Last week, I wrote an article explaining some of the factors responsible for the sudden drop in the price of Bitcoin, and concluded the article by suggesting there could be a recovery within a week and a substantial price increase by the end of the year. The recovery may not have been as spectacular as some may have hoped for, but at least the price is heading in the right direction for investors.
Both the slump and the minor recovery have prompted cryptocurrency “experts” to spew predictions about what´s next for the price of Bitcoin – some suggesting the slump indicates Bitcoin is close to becoming worthless, while those of a more bearish nature predict it will break through the $20,000 barrier by the middle of next year. So, who is telling the truth?
The Naysayers Arguments
The naysayers´ arguments are mostly speculative and based upon the potential future U.S. regulation of cryptocurrencies, the potential withdrawal of mining operations (because the cost of mining Bitcoin is more than its worth), and “once-bitten-twice-shy” investors who may refrain from putting money into Bitcoin while the risk exists of further devaluations.
In response to these arguments, I would suggest that the future regulation of cryptocurrencies would have to be global for it to have any meaningful effect, that long-term Bitcoin miners have too much invested in hardware to pull the plug in the short term, and that if Bitcoin was considered to be a good investment when it was trading at $6,000, it is an even better investment while trading at $3,500. Of course, “experts” willing to condemn Bitcoin to the trash is not a new phenomenon:
- In 2011, after the Mt-Gox trading exchange was hacked, Tim Worstall – A Fellow at the Adam Smith Institute – wrote an article for Forbes claiming “So, that´s the end of Bitcoin then”.
- In 2013, Windows System Administrator Ken Hess wrote an article for zdnet.com claiming “If you pay $200 for a single fake digital coin, you have something wrong with you”.
- Also in 2013, Mark Williams, a risk management and capital markets professor at Boston University predicted the price of Bitcoin would fall to $10 by mid-2014 (It increased to $635).
More recent off-the-mark Bitcoin predictions include “Bitcoin is dead. No-one is using Bitcoin” (2014 – Taavet Hinrikus – CEO of money transfer service TransferWise), “Bitcoin is stuck in a self-reinforcing negative price cycle” (2015 – BusinessInsider.com), and “Bitcoin is a bubble. It will burst on Monday 12th December 2016”. (2016 – Jiri Kram -Cloud Architect and FinTech CTO). What these experts have in common – other than predicting the demise of Bitcoin – is that they were all wrong.
The Optimists´ Predictions
The optimists´ predictions of a six-fold increase in the value of Bitcoin may seem wildly ambitious, but at least they support their predictions with credible reasons for their optimism – the main one being the introduction of futures markets which, the optimists claim, will increase the rate of adoption, stabilize the price of Bitcoin, and make the cryptocurrency a more attractive safe haven for investor funds.
The safe haven argument is very relevant in terms of what´s next for the price of Bitcoin, as it was the safe haven principle that drove the price of Bitcoin to increase by 87% within two weeks when Cypriot authorities chose to impose a tax on bank deposits over €100,000 in 2013. At the time, 10% of all the Bitcoin in circulation were traded daily – causing the price to increase from $47 to $88.
A similar act by a country larger than Cyprus would not necessarily have the same outcome due to the price of Bitcoin being considerably higher now than it was in 2013, because there are more Bitcoin in circulation, and because there is a greater number of cryptocurrencies to choose from than there was five years ago. Nonetheless, the consequences would be significant in relation to the price of Bitcoin.
Conclusion: There will be Gains, but Modest Ones
Trying to reach a conclusion about what´s next for the price of Bitcoin can take you in all directions. Will people who invested in Bitcoin when the price was high cut their losses by selling now? Will people who invested in Bitcoin when the price was low take a profit while it still exists? At what point will financial institutions feel the price has bottomed out and start reinvesting in cryptocurrencies?
My own poll of polls came up with an average prediction that the price of Bitcoin will recover to $6,778 by the end of the year. My gut feeling says that figure is still a little higher than can be reasonably expected and – as I warn all visitors to USAFriendlyPokerSites.com – if you are thinking about buying Bitcoin while the price is low, never invest more than you can comfortably afford to lose.