If you’re reading this then I’m sure you know – the price of Bitcoin has collapsed over the last few weeks. From a dizzying high of US$19,783, it plunged to under $6,000 before recovering slightly and currently hovering just over $8,000.
This would be no surprise to followers of our blog – it was clear months ago that a crash was imminent. We weren’t alone in forecasting it and neither are we alone now in enjoying a little self-satisfaction at just how right our prediction appears to have been. Just take this image from yesterday’s Forbes article:
That’s all history now and of no use to those still looking to make money on cryptocurrencies. So, where is Bitcoin heading this year? Nobody knows for sure (unless you believe the conspiracies of market manipulation by a small number of individuals) but here are a few predictions:
The main thing to keep in mind is that the majority of predictions out there are being made by people who either have a vested interest and make very bullish predictions (usually those who stand to benefit from a rise in value of Bitcoin) and those who know almost nothing about cryptocurrencies and tend to predict a catastrophic collapse. Almost certainly the true trajectory lies somewhere between. It’s possible but unlikely that Bitcoin will exceed $20,000 – at least in the near future while its recent rapid decline is fresh in investors memories. It seems more likely that it will start to plateau at a more reasonable value, perhaps close to $10,000. In the longer term, a more stable value will make its use as a currency more practical and thus increase its intrinsic value with a slower but less volatile rise in value over the next few years.
Whatever you choose to do, remember not to put all of your eggs into one basket. This goes especially for products with high volatility, such as cryptocurrencies at present.
History is full of financial bubbles. From Tulip Bulbs to the Dot Com Boom, bubbles follow patterns of rampant speculation and collapse that are, in retrospect, almost formulaic. Each time this occurs, there are voices of reason who see through the euphoric mirage of riches and glory to the underlying value. Sometimes, these people leverage their understanding to become extremely wealthy.
Bitcoin’s meteoric rise in 2017 has made a number of people very rich. However, this only represents wealth in the traditional sense when they sell their Bitcoins or exchange them for other goods/services of value. While this fact is contested, given that cryptocurrencies are marketed as currency and thus supposedly have intrinsic value, the market value has been far too volatile to function effectively as a currency. There will need to be a major stabilisation of the market for cryptocurrencies to function as a mainstream currency (outside of the black market, where they have more clear advantages over other currencies).
While the value at which Bitcoin will stabilise is open to speculation, there is little to support a continuation of its trajectory to date. Media coverage has reached saturation point – with Bitcoin’s price featuring in mainstream news broadcasts, everyone who would potentially invest already knows about it. While there will undoubtedly be plenty of new investors, the tipping point will be when new investors are outweighed by those looking to cash in on their investment. With so many respected voices predicting a price collapse, it’s hard to imagine many early investors forgoing millions in profits for the possibility of slightly more. With the most bullish predictions placing Bitcoin’s peak value at $60,000 (with a subsequent crash to $1,000), would you risk an appreciation of 1,000% for a slim chance of a further 400%? What will happen when the big players take their winnings?
This looks an awful lot like Tulipmania.
This article represents the author’s opinion only. Before obtaining any exposure to the markets you should be sure to understand the potential risks. Never risk more money than you can afford to lose.
The Barefoot Investor is a refreshingly accessible take on personal finance for Australians. While it can easily be read cover-to-cover in a day, it’s true power lies in carefully following the 9 simple steps Scott Pape lays out in the book. You don’t need to have any background financial knowledge to understand this book and none of the steps require any great investment of time or money.
While the claim to be ‘The Only Money Guide You’ll Ever Need’ is true for the average reader, we have a number of other great books to recommend if you want to take investment to the next level!