In 2017 Bitcoin increased 1400%. However, there was a 25% drop after Bitcoin futures began trading in the US, late in the year. So, what’s the forecast for 2018? I won’t attempt to make a prediction myself -- I have no clue! However, we’ll review a few factors here that will likely influence the price in 2018.
To Bitcoin’s favor, prominent figures have made lofty predictions for this and the next few years. Maybe the most famous example is John McAfee who made a bet that a single Bitcoin would be worth $1,000,000 by the end of 2020. Ronnie Moas has predicted $300,000 to $400,00 for one BTC. Recent reports claim that Peter Theil has invested millions of dollars in Bitcoin, another powerful endorsement. Although I wouldn’t blindly follow the predictions, they can’t be dismissed either -- these influence people to buy, grow demand and increase price.
On the flip side of the above argument, there are also many big names spreading negative sentiment. A famous example is Jamie Dimon (CEO of JPMorgan Chase) who stated Bitcoin “is a fraud” in an interview on CNBC and claimed that governments will shut it down before it gets too big. Recently, it seems more bad press is being spread by people trying to sink Bitcoin for financial gain, e.g. proponents of alternative coins like Bitcoin Cash or people that have shorted Bitcoin. Again here, while the basis for these arguments may not be sound, it’s enough to scare many people away, reduce demand and lower price.
Another major factor on Bitcoin price is government regulation. On Dec 28, South Korea’s Ministry of Justice stated that the country is considering shutting down all cryptocurrency exchanges. On the other hand, rumors are circulating that China may remove some regulations. In the past, these changing government regulations have led to short-terms dips (and spikes), but it’s not clear how much long-term impact they’ve had. Of course, there must be a limit above which additional regulation will stifle the growth of, or even crash, Bitcoin prices. With the US allowing Bitcoin futures in late 2017, and the mounting likelihood that they will permit ETFs in 2018-2019, it’s looking like the Western world is not going to follow South Korea soon.
The supply of Bitcoin is of course a big influencer on the price. A great feature of Bitcoin is the well-defined, limited supply – there will never be more than 21 million Bitcoins. Gold investors, for example, must consider the risk of new mines being found that increase the gold supply (and crash the price). New US dollars have been created at astronomical rates the last several years, which risks tanking their value soon. The amount of Bitcoin available for trading is limited by additional factors. Polls indicate that many Bitcoin holders will not put their coins on the market anytime soon: from a late 2017 poll of 564 Bitcoin investors, the average investor planned to hold on until bitcoin was worth almost $200,000. In the same poll, 20% planned on holding for at least 7 years. What’s more, recent research from Chainanalysis indicates that 2.8 to 3.8 million BTC have ALREADY been lost -- well over 10% of the total supply. Of course, taken together this should help boost the price in 2018 if demand continues to grow.
There are a couple counters to the above argument about the limited supply of Bitcoin. One concern are whales out there holding huge sums of BTC. Some people believe this makes it more likely that a flood of BTC will enter the market in a short period of time, e.g. if one or a small number of whales decide to sell all their coins. Such an event would likely trigger a crash, but whether a whale would want to do that is debatable (they would likely make more money selling BTC more gradually over time). A seemingly better counter is that, although Bitcoin itself is limited in supply, there is a long (and growing) list of alternative digital currencies potential investors could turn to. So, the broader class of digital currencies is NOT limited and in fact is growing very quickly. There’s no doubt that a lot of money that would have gone to Bitcoin this year will be diverted to other digital currencies. Various forks of Bitcoin like Bitcoin Gold are included in this list. This is further exacerbated by e.g. proponents of Bitcoin Cash (BCH) tricking people into buying BCH while leading them to believe it’s BTC.
The quality of Bitcoin’s source code, new features, and network of miners (Bitcoin’s technology) is another major factor. Although the price of Bitcoin has not tracked with the underlying technology, it’s hard to imagine Bitcoin retaining its dominance if other coins surpass its technology. E.g. when the Bitcoin network has bogged down leading to slow/expensive transactions many people and organizations have switched over to altcoins, lowering the value of BTC in the process. Being the first crypto and having name recognition is a big advantage, but don’t think potential investors won’t look past Bitcoin. When they see alternatives with much smaller market cap or faster/cheaper transactions they may feel such options are a better deal or more useful for their needs. This is also facilitated by the addition of new altcoins to major exchanges like Coinbase, which is likely to happen in 2018.
Finally, a potential price limiter in 2018 may be the late 2017 crash. Bitcoin lost 25% of its value relative to the US dollar after futures trading began in the US at the end of 2017. Bitcoin has been though many such crashes, and always come back stronger than before. After each crash cynics arise claiming “this one is different” and explain why Bitcoin won’t recover this time. A seemingly good argument a cynic could lodge this time is that there were a lot more eyes on this crash – it occurred just after Bitcoin made big steps towards mainstream adoption, being featured on “Big Bang Theory,” receiving substantial mainstream news coverage, and entering the US futures markets. Coinbase had periods in which they added 100,000 new users per day. Hordes of new investors were buying Bitcoin to experiment and reporting results to their friends and family. Many of these people bought in at over $16k per coin and quickly fell “into the red” in the subsequent crash. A lot of these new investors have sold at losses and shared their negative experience with friends and family. People may be more likely to try something new than retry something that gave them (or a close confidant) an unpleasant experience. A large fraction of new investors may have been lost for 2018.
There are numerous additional arguments for and against Bitcoin price surges this year. The biggest factors may be surprises we’re not considering now. One fact that consistently rang true in 2017 was that no one could accurately predict price movements months in advance. Early in 2017, people thought they were being bold predicting $2K Bitcoins. When $2K was surpassed $3K was the big bold prediction. Once $3k was slain it was $5k and then $8k. Of course, it ended up more than doubling even that latest/largest number. Will this overwhelming stellar performance continue in 2018? Only time will tell….
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