In 2017 Bitcoin became a household name as the price went from below $1,000 per coin at the start of the year to well over $19,000 as the year came to an end. In 2018, the price of the most well-known cryptocurrency fell from its lofty heights to close the year below $4,000 per coin.
As we roll into 2019, some cryptocurrency experts are predicting Bitcoin to break the 2017 record high and fulfill its destiny of going as high as $1,000,000 per coin by 2020. Other more modest expectations have Bitcoin at around the $50,000 range by year end 2019. But the mass consensus of Bitcoin experts has the crypto ending the year in that $20,000 range.
I personally still believe that is way, way, way too high, and I’ll go even as far as saying Bitcoin will end 2019 lower than where it starts the year.
There are two reasons I believe Bitcoin will not perform well in the coming year. The first is because the Bitcoin ‘hype’ train is out of steam. Some still believe that a Bitcoin ETF or other mass appeal investment will be approved by the SEC in 2019, but I again am not one that stands in that camp. Based on what the SEC has said in the past about a Bitcoin ETF or other investment, I find it hard to believe that we will actually see one get approved in the near future.
On that same token, its widely believed that the NASDAQ will start trading Bitcoin futures in 2019. Some reports even have this as a major catalyst for the price of Bitcoin in the coming year. That very well may be true, but I would point to the fact that when Bitcoin futures began trading in Chicago, the price wasn’t really affected. Thus, I would logically think, the same would happen if futures trading occurs on the NASDAQ.
With no major catalyst such as a new Bitcoin investment vehicle, I don’t see what would cause a new ‘hype train’ to start when it comes to Bitcoin, especially since so many retail investors got burned the last time Bitcoin went on a big run.
The second reason, and probably the more important one is that no one can figure a way to determine the real value of Bitcoin?
We can place a value on stocks based on free cash flow, growth rates, cash on hand, assets, etc. Commodities such as oil and gas, corn, sugar, can all have a less accurate value than stocks placed on them, but still somewhat accurate value. Even traditional currencies that the developed world uses have some semblance of value which is based on something since the issuing country itself and others that have large quantities of that form of cash would essentially act as a backstop for the currency and not allow it to lose too much value. Cryptocurrencies, on the other hand, is entirely arbitrary, which largely explains is massive swings and the ridiculous price range investors are predicting for the price of Bitcoin in the future.
This is what also makes it even more attractive to those investors who don’t fully understand stock investing at its core. The world’s greatest investors, Graham, Buffet, Lynch, all showed us that investing is simply figuring out what the current value of a company is and determining whether or not the market is overpricing, underpricing and fairly pricing that company. Simply said, find undervalued stocks and buy them. Only sell when they are no longer undervalued. Rinse and repeat.
With Bitcoin and cryptocurrencies as a whole, this process is not just difficult to do, but essentially impossible since we can’t truly ‘value’ Bitcoin or any other crypto.
But despite this fact that there is no way to determine the value of Bitcoin, people still say things like “Bitcoin fundamentals are strengthening. Don’t let the price distract you,” an actual quote by Anthony Pompliano, the found of Morgan Creek. I would ask Anthony and anyone else that ever says something along those lines, “what fundamentals are you referring too”?
One ‘fundamental’ that Anthony actually highlighted in the tweet which I pulled that quote from was a chart showing the number of Blockchain Wallet Users. Essentially the chart showed how the number of users for blockchain wallet has grown over the years. This sort of thinking follows the idea that the more users blockchain wallet has, the more the demand for Bitcoin and other currencies will increase. That’s really not terrible logic, but following that same logic thinking I would assume that if we tracked the number of actual, physical wallets sold year over year that we could predict the value of the dollar, euro, yuan, or the pound. But sadly, I think we would all agree that in reality, that’s not an accurate way of predicting the value of physical currencies. So why do we think it’s a good way of determining the ‘value’ of a cryptocurrency?
The fact of the matter is, there is currently no way to determine a value of Bitcoin. It is a completely speculative investment. If you buy it, you are essentially gambling, not investing.
The last thing is that I want to offer full disclosure to the readers. When Bitcoin was trading well below $1,000 at the start of 2017, I told investors to stay away from it. When the price climbed higher, I continued to urge people to avoid it. The summer of 2017 I repeated told investors to sell and stay as far away from the cryptocurrency industry as they could. I was wrong every time I spoke about Bitcoin in 2017. Investors who didn’t listen to my advice would have likely made some money in Bitcoin.
So, I have been wrong about Bitcoin in the past and will possibly be wrong about it in the future. But I challenge anyone reading this to find an accurate way to value Bitcoin and prove, without a doubt that I am wrong once again. And if you can’t do that, I implore you to avoid Bitcoin and the industry; I certainly will be.
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.