Bitcoin slumped today to $4,300 USD, the lowest it’s been in almost a year.
From it’s peak of just over $20,000 in December 2017, that’s a fall of almost 80%.
Even worse than that, I don’t think we’re done yet. I think we could see Bitcoin at the $2,000-$3,000 mark at some stage. I don’t expect it to happen, but I definitely think it’s possible.
However, here’s the thing about Bitcoin: It’s always been volatile.
Every time Bitcoin has peaked it fell into a deep bear market, took a few years to recover, and then hit new highs.
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$30 down to $1 in 2011.
$260 to $45 in 2013.
$1,150 to $152 in 2015.
Big pullbacks like this are nothing new in Bitcoin.
However, at the end of the day the market is just the market. Have you heard the saying history doesn’t repeat but it does rhyme? Meaning we can’t expect Bitcoin to follow this trend to the T, but we can make a pretty good bet it’s going to move something like that.
More important than the historical trend though, and even the price, is what is actually happening to Bitcoin itself.
This is because price is fickle and it is not a good indicator of something’s value, at least in the short term.
For example, in 2008 I watched the Global Financial Crisis happen right before my eyes. Stocks plummeted completely irrationally, and I knew this was an ideal time to start building up my portfolio.
For example, Coca Cola dropped from $32 to $20 in the space of a few months, on the back of the banking and mortgage crisis. Coca Cola sells $1 cans of Coke, they have nothing to do with banking or mortgages. But they were plummeting – down 33% in a few months.
We’re talking about a 120 year old company here, profitable since forever, probably the most valuable brand in the world. Are you trying to tell me that the brand was suddenly worth 33% less because of the mortgage crisis? Did their revenues suddenly decrease 33% because of the mortgage crisis? Of course not.
Those are still some of my best investments – the ones made during that recession.
This is why price is not a good indicator of value. Price is too often based on emotion rather than logic. So to look at the value of Bitcoin, we shouldn’t look at the price. We should look at the fundamentals and decide whether or not Bitcoin is increasing or decreasing in value.
If you look at the big fall from December 2017 until now, nothing has fundamentally changed in Bitcoin. Well of course, that’s not true, it has changed obviously. But in every case it has changed for the better.
Let’s look at some of the developments the crypto industry has made during this bear market:
VanEck and CBOE have submitted applications to launch a Bitcoin ETF, which is likely to pass within the next few years.
JPMorgan, whose CEO repeatedly said Bitcoin was a scam, is now using Ethereum to tokenize gold holdings.
Venture capital money flowing into crypto is already up by +300% this year, almost at $3 billion.
Bitcoin’s Lightning Network is slowly being adopted with promising results.
Hundreds of millions of dollars from institutional investors is moving into Bitcoin. Transactions are being done OTC (over the counter) as this money comes in under the radar.
Switzerland, perhaps the world’s leader in finance, just launched and approved a Bitcoin ETF.
Normally during a bear market, bad news comes out. Banks are toppling over, the government has too much debt, companies are going bankrupt. Yet the developments above all point to further adoption and acceptance of Bitcoin in the future. When the news is positive but all price action is downward, you know the market is out of whack. It’s an information gap, like I’ve written about before.
So here’s my (conservative) prediction. I believe Bitcoin will return to it’s highs of $20,000, and in all likelihood surpass it significantly by the end of 2020.
Why I think it will happen:
The first reason is smart money. Institutional money is flowing into crypto right now under the radar. Of course, when large amounts of money is being moved, people don’t like others to know about it. It is far more beneficial for institutions to be doing their purchases off-market, so they can continue accumulating at a low price. What I see happening right now is a lot of retail investors selling their Bitcoin, and most of the buyers seem to be institutions. This is a classic transfer of wealth – dumb money to smart money.
Bitcoin is stronger than ever
Bitcoin is stabilising. Lightning Network is being developed, fees are extremely low, and the network is as stable as ever. It’s dominance on the market is also increasing and is back over 50%, after hitting a low of ~30% earlier in 2018. Every day the Bitcoin network becomes stronger as more developers work on it, more nodes come online and the hash rate increases. This all moves the network closer to mass adoption.
Huge investment is taking place
Investment. Coinbase is one of the most common places Americans buy their first Bitcoin. If Bitcoin is so useless and dead, how did they manage to raise $300 million in funding in the depths of a bear market? Why have these venture capitalists, who generally know something normal people like you and I don’t, valued this company at $8 billion? Why has Goldman Sachs, one of the most successful investment banks in history, purchased a cryptocurrency exchange for $400 million? Why has 2018 venture capital funding in all of crypto already tripled that of 2017, especially considering 2017 was a booming bull market, and 2018 has been a relentless bear?
Media coverage will enable mass adoption
After the bull run of 2017, Bitcoin is now a household name. Many people still don’t understand it, but almost everyone has heard of it. This is going to serve as a very strong launching pad when the next bull market hits.
Governments are learning
One of the biggest arguments against cryptocurrency was that governments are going to ban it. What we’ve been seeing slowly develop this year is the complete opposite. China has legalised cryptocurrency. Japan has too. So has Korea. Three of the world’s strongest economies. Malta is now the crypto haven of Europe. Switzerland, the rock of world finance, has embraced it completely, and Russia is also moving in that direction. Most governments seem to be looking at ways to integrate cryptocurrency rather than ban it. As I’ve written before, this is the smart approach as cryptocurrency cannot be effectively banned anyway. Governments that embrace it will reap the benefits in 10 years time.
Why I think it might not happen
Of course no prediction is guaranteed, and these are the reasons why I think it might not come true:
First, the US stock market is in the biggest bull run in its history. Of course, smart investors know what happens after a bull run – a long bear.
I’m expecting the bubble to pop in the next few years, and when it does, it’s difficult to know what will happen to Bitcoin. If I had to guess, I actually think the price of Bitcoin will increase, as it will be a safer store of value than many national currencies. But of course we’ve never seen Bitcoin in a recession, so I can only guess.
The only other concern I have about Bitcoin not reaching it’s previous high is some kind of Black Swan event. Maybe a sudden failure on the Bitcoin network (I’m not sure how it would happen, but it might), some kind of super hack (which is possible but unlikely) or any other unforeseen event I can’t think of right now. Of course no investment is risk-free, so those are the downside risks I’m seeing right now in Bitcoin.
As for government intervention or other cryptocurrencies, I don’t consider those any threat to Bitcoin’s continued dominance.
So there’s my prediction and the reason behind it. $20,000 by the end of 2020. Possibly much sooner. That’s looking to be a return of around 400% in a little over two years. I’ll be arranging my portfolio accordingly.