I’m writing this article because I am seeing far too many Bitcoin (BTC-USD) (COIN) (OTCQX:GBTC) articles recently that express a far too one-sided bullishness about the prospects for the Bitcoin price.
I have written about this topic in August, in the context of the possible relation between the post-January 2018 cryptocurrency crash and the global financial market downturn this year.
But in this article, I am expressing my bearish view on Bitcoin more clearly and directly, as a cautionary warning to all readers. That’s why I’m putting a low price and a time scale in the headline, to get people’s attention.
When I say there’s a “good chance” the Bitcoin price will be below $1,000 by next year, I understand that “good chance” is not a precise phrase. Here is a more complete explanation of what I mean, in two paragraphs that will not fit in a headline:
If we had a guessing game, and we had to guess “What will be the lowest price range Bitcoin trades at during the rest of 2018 and all of 2019?”, my guess would be around “$900 to $1,000.” I think it’s about 50-50 whether the actual low price will be above that or below that.
Every potential price movement in markets is probabilistic. Nothing is certain, nothing is 100% or 0%. If I had to specify a number, I would say there’s a 50% chance Bitcoin is below $1,000 sometime this year or next year. But the actual probability could be 90% or 70% or 30% or 10%. I don’t think the odds of this happening could be any lower than 10%.
Now some Bitcoin bulls may complain that a minimum 10% chance of a crash below $1,000 is no reason or justification for writing an article with my headline. I strongly disagree. Imagine if investors knew there was at least a 10% chance that a major stock holding like Apple (AAPL) could crash 85% by next year. I think they would appreciate being warned about it in advance!
Complacency And Smugness Among Crypto Bulls
One of the biggest warning signs for me is the complacency and smugness I see among Bitcoin and crypto bulls recently and currently. Anyone who watched CNBC’s recent week of specials on Bitcoin and crypto had a chance to witness this. The look on their faces conveys the impression of “What, me worry?” They act like they are not the least bit concerned about the risks involved with investing in and trading Bitcoin and cryptocurrencies.
It is all well and good for a Bitcoin diehard since 2011 or so to have an attitude that they can survive anything, they’ve been through multiple bear markets with 80% to 90% drawdowns, it’s normal, it’s happened before, they can deal with it. But the reality is that the stakes are far higher now than they have ever been before. It’s one thing to have huge bull and bear markets in relative obscurity with most of the world not paying attention. It’s a completely different thing to have the biggest bull and bear markets ever, playing out on the global stage with everybody watching – and with a lot more people’s money involved.
If you are a Bitcoin millionaire who lives in a treehouse and pays no rent, sure, it’s no big deal, you can survive any crash, you will be fine if Bitcoin falls below $1,000 or even if it goes to zero and disappears like Enron or Pets.com stock. But for normal people who invest their hard-earned money in Bitcoin, a crash below $1,000 is a big deal.
Bottom Price Predictions Are Too High – Give False Sense Of Security
Another reason I put the $1,000 price in the headline, is that I am seeing too many analysis projections that even if Bitcoin fails to hold the $5,900 to $6,000 support level, the ultimate bottom will be around $5,000 or $4,000 or $3,000.
When a reader sees the $3,000 price bottom number, it actually gives them a false sense of security. They think, “Ok, I can handle this. I’m bullish on Bitcoin. I can make a lot of money. And worse comes to worst, it drops 50% and then bottoms. I can still hold through that, maybe buy some more at $3,000 to average down, and then make money when the next bull market comes.”
This is an extremely dangerous way of thinking. And talk of potential price bottoms anywhere from $3,000 and up encourages this way of thinking among speculative-minded retail investors and traders, whether or not the author who says numbers like this actually recommends this approach or not.
(Many authors on many sites have quoted numbers like these, and I do not mean to point a finger at any particular author or authors.)
Full disclosure: I began investing in Bitcoin in May 2017 when the price was around $1,700. I wrote about it on Seeking Alpha. Then I sold almost all of my Bitcoin and cryptocurrency in December 2017. I…