Is Bitcoin In Trouble After $3K Drop

The Thanksgiving Holiday of 2017 was right around the time when most casual retail investors first began to hear about Bitcoin and cryptocurrencies. What ensued is why we all still talk about Bitcoin and what most believe permanently put Bitcoin on the map.

The price moves from slightly before Thanksgiving 2017 until the end of the year in 2017, where what Wall Street dreams are made of. Bitcoin went from $5,000 a coin to $20,000 a coin in just a few weeks. Early Bitcoin adopters were made millionaires in only a few weeks.

After a stellar 2017, Bitcoin had a rough 2018 when the price fell more than 80%, from above the $20,000 mark to down around $4,000. Even after the recent $3,000 drop Bitcoin has experienced, the crypto is still doing well for 2019. But, is the latest drop a signal of what’s to come, or a buying opportunity?

The Bitcoin bulls will tell you that Bitcoin has a history of big rebounds after big drops. While I fully agree with these statements, the problem is that no one knows when the big drop is over. Furthermore, most of the past declines came after the coin was simply overvalued, or a big catalyst had and gone. The recent drop followed a move from the Chinese Government increased its cracked down on the cryptocurrency industry.

While this is not the first time China has taken a firm stance against the industry, this is the most recent move as the People’s Bank of China pledged to continue targeting exchanges and told investors to be cautious of digital currencies. However, this is just another scare tactic. If the Chinese Government or the People’s Bank of China really wanted Bitcoin and other cryptocurrencies to disappear, they would have done so buy now.

Well, while a government can’t necessarily make a cryptocurrency disappear; they can make it more difficult for its citizens to own and or use the crypto. Let’s be real here; the Chinese government has fairly successfully censored the internet, you think they really can’t essentially stop the use of cryptos if they really wanted to?

The same argument has been made about the US and our financial system. Bitcoin and other cryptos have successfully intertwined themselves with Wall Street and our financial system, so much so that at this point, it's unlikely the Federal Government would actually ban their use. Sure the Federal Reserve and other financial institutions will ‘warn’ about their dangers and the volatility, but cryptos aren’t going anywhere; they are here to stay.

With that being said, the only real question now that remains is, ‘what is a fair price for Bitcoin and other cryptos?’

I have made the argument before that Bitcoin should be given a slightly higher price than what physical gold is trading at, since Bitcoin is essentially the digital version of gold, and thus is easier to actually use as a way to hold or transfer wealth. But, just a slightly higher price than gold, say a 10% to 15% increase.

One Bitcoin bull, Peter Brandt, who accurately called the 2018 bear market for Bitcoin and other cryptos, believes Bitcoin will hit a low of around $5,000 this coming summer. The catalyst for the decline is the May 2020 halving event. This event is when bitcoin miners will receive half the number of bitcoins for the work they had in the past, 12.5 bitcoins down to 6.25. This event could slow the whole system down since some miners may decide its no longer worth their time, energy or money to mine bitcoins for half the price. If that does occur, and transaction times skyrocket, it is very likely we will see the price of the currency decline.

Despite Brandt seeing this decline occurring in the near future, long term, he believes Bitcoin will hit $100,000 per coin. When I read predictions of that kind, all I can think of is the Tulip-mania of the 17th century.

I personally have not been a big proponent of Bitcoin or other cryptos in the past, nor am I today, but I do believe Bitcoin is here to stay. I also believe investors can make money, but from a trading standpoint, not a buy and hold strategy. Bitcoin is so volatile and extremely unpredictable that buying it with the belief that it will someday hit $100,000 per coin is just bad investing. However, someone savvy and willing to put the time in could potentially make $100,000 by day trading Bitcoin, if they got lucky a few times and showed patience when it came to their trading rules and restrictions.

So, to answer the original question of where Bitcoin is headed? Well, I honestly don’t know, but neither does anyone else. What I do know is that the price of Bitcoin will be a roller coaster, so only get on this ride if you can stomach a wild ride.

Matt Thalman Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not own shares of any asset 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 for their opinion.