Bitcoin, where is it headed?

Bitcoin is up 450% since my last post.

Last year in the month of May I wrote an article on here titled “Bitcoin, what is it?“, the purpose of this article was to introduce the concept in a easily explainable way to new users, but to also provide a simple resource I could direct people to rather than always having to explain the same thing to different people.

As always, whenever I write anything on Bitcoin, I get a bunch of private messages telling me how I’m wrong, how Bitcoin is stupid and will be worth zero, these messages only ever come from people who have never used Bitcoin before, I used to hear the same garbage from people about email, “why would I send an email when I can just post a letter?” or “why would I ever get an email address?, none of my friends have email addresses”.

The ironic thing is, that most of these angry people end up buying at the top of a cycle, I’ve witnessed this multiple times.

The industry coined term for these angry individuals is NoCoiner.

Bitcoin is going through one of it’s regular cycles, the Bitcoin price during my last article was $1500, by the end of the year it had reached $19,500, currently it stands at around $6,700, to put this growth into simple terms, lets say you had $200, you placed $100 into the Sydney housing market at the time of my last article and $100 into Bitcoin.

Today the housing market investment would be worth $95.50 and the Bitcoin investment would be $450.00, at one stage however the Bitcoin investment would have reached $1300.00.

Now here is the problem, if you simply ignored Bitcoin for what it is and only cared about it because all of your friends or colleagues were buying it and you had FOMO “Fear of missing out”, then you may have bought at the top, rather than after my last article, if this is the case, then hopefully you learnt a valuable lesson about market cycles.

Today, Bitcoin is in a bear market, so far it’s experiencing it’s 4th largest decline to date. Long term users of Bitcoin have seen this all before, however for new people it can be scary, especially when NoCoiners tell them “Bitcoin is going to zero!”, Bitcoin couldn’t actually go to zero, for the simple reason that there is enough people who’d happily buy up all the coins as they almost reach zero, these people would speculate that the price would one day rise again offering them huge returns. The big question today is where is Bitcoin heading? up or down?

up-down

At the start of the year, January 1st, I tweeted the following prediction.

So how did I predict the markets move? well, there was only two possible directions, so anyone could guess with a 50% chance of being right, you could say I’d be explaining my answer with survivorship bias.

My prediction was based on the simple fact that the price was going up way too fast, it was a speculative bubble, when everyone is making money on something, you know you’re in a speculative bubble. The best sign of this is seeing people entering the market who had zero interest in it previously, their only interest is making money, they simply enter because their friends who are also new to the market and have no understanding told them about their gains. Humans are herd animals.

Humans have a natural fear of missing out, if everyone else is having an orgy and you simply sit and watch then your genes won’t carry on, you’ll be removed from the gene pool. Put another way, imagine everyone is grabbing the latest weapons before a foreign tribe invades, but you get left with a stick, or everyone is having a huge feast but you’re not invited to eat, yet you know food is scarce. Well this in built FOMO flows over into investments.

Everyone else is buying, prices have risen, you better buy too before you miss out, you’d be mad not to buy now, everyone else is buying! prices are going up!. In this situation you need to ask yourself, what happens once everyone has bought? e.g what happens once everyone else owns a house? or at-least what happens when people start to sell and there is less buyers than sellers?.

With investing, like everything else in life, there is some great quotes that always make sense in hindsight, to me the most truthful quotes for investing are.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. ― Warren Buffett

And

“Buy when there’s blood in the streets, even if the blood is your own.” — Rothschild

These quotes are true because they’re obvious, when the herd is fearful to buy is when an investment is cheap, when the herd is all buying then the investment is expensive and big gains have already been had, it’s basic supply and demand, any kind of investment relies on having buyers and sellers, the best time to sell obviously is when there are buyers.

Everyone knows the saying “Buy low, sell high” but very few people actually follow this, most people want to buy high and will sell low, they want to buy high as everyone else they know is buying, they hear of others gains and panic buy, then when the price drops a little they panic sell, instead of blaming themselves they’ll blame the product they bought “stupid bitcoin, I bought it and it crashed” “houses suck!” “The stock market is rigged” etc.

These days I don’t tell anyone to buy Bitcoin, I don’t give investment advice, but I tell everyone to try it, to experience it. Several years ago however I would tell people to buy, I told one friend to buy at $180, he laughed and mocked me, late last year he contacted me telling me he was buying at $18,000, why? because “all his colleagues were buying” he “didn’t want to miss out”, he’d already missed out on 100x gains, he missed out on these gains because he needed someone to hold his hand and to validate his decision, he couldn’t take a risk and buy something early, he needed group support, this is how the majority of people are, unwilling to take risks, following the norm, then complaining that others got lucky.

Right now, people are fearful, there is blood on the streets, but is now the time to buy?. It all depends on what you’re buying for, Bitcoin can be bought and spent straight away, it can be used to trade peer to peer, it can be used for international transfers, where you buy it, send it to someone straight away in another country and they sell it straight away, this is relatively risk free, but what about as an investment?

Once again, everyone has an opinion, but no one knows for sure, however if you ask enough people, then at a future date you’ll be able to see at least one of these people were correct, but this is true of everything, everyone could be just guessing, so below is my guess.

How low will Bitcoin go? where will the bottom be? in January I was guessing $4,700, I simply plucked up this figure by looking at historical drops in previous Bitcoin bear markets, I guess that this drop won’t be as big as previous crashes, due to increasing liquidity and adoption each crash has been smaller than the previous, as an example Bitcoin once went from $1 to $30 in a single month then crashed down to $2, everyone was certain “Bitcoin is dead”, well not quite everyone, for the people who bought at $1 were sitting there thinking “this isn’t too bad I’m up 100%” however NoCoiners would scream at them “You’re an idiot if you don’t sell, Bitcoin is over valued at $2, only an idiot would hold thousands of bitcoin!”.

Fast forward a few years and there was the $1200 bubble, where it crashed to $150 over a period of roughly 13 months, this was a much smaller bubble, so far the “crash” from $19,500 to $6,500 has been the smallest crash to date, however the average person doesn’t do simple maths and rather react to big numbers instead of percentages.

Now, I could be wrong, Bitcoin could fall to $1500.00 or even lower, what do I know?, as I could be wrong on my upwards prediction. How high do I think Bitcoin will go?. Bitcoin is an experiment, for it to work as a store of value it only needs to go to somewhere around $100,000 to $300,000, but for it to work as a global currency, a currency with liquidity and stability, it needs to go to somewhere between $1,000,000 to $5,000,000.

I’m confident Bitcoin will reach six figures sometime in the next decade, I rate it a 50% chance, if it does reach six figures, then I’d give it a 50% chance of reaching seven figures in the following decade.

It is possible that Bitcoin forever stays a niche protocol, only used by a few million people, no one really knows, should an international standard be set by one country? e.g the US dollar where one foreign government is able to debase it at will? or should it be decentralized, a product of maths and born out of the Internet? what will future generations that grew up online think?

I don’t know, but here is my prediction that I can look back on in the future, will I be wrong?, will I be right?, what do you think? feel free to leave a comment below.

 

 

 

 

 

 

 

 

 

 

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