Bitcoin in Perspective

The rapid rise in price of Bitcoin has generated intense speculation about the future of cryptocurrencies. It’s instructive to take a closer look at some of the commentary about the future price of Bitcoin, because it tells you a lot about speculation, investing and financial journalism.

One prediction

On December 11, 2017, the price of Bitcoin was $17,040. It’s had a remarkable run. On February 9, 2011, it was priced at close to $1.00. Many pundits believe there’s still time to jump on the bandwagon.

One of them is Michael Bryant. He authored a blog on Seeking Alpha entitled: Bitcoin to Reach About $142,000 or more. Mr. Bryant supports his “pricing models” with impressive charts, which yield a “predicted price” for Bitcoin. His “trendline” indicates a “predicted price” of $18,921,44 (very precise!) on April 5, 2018.

One of his models (which he believes is “most realistic) shows the price of Bitcoin dropping to $13.790.32 on December 31, 2018 but increasing to an astounding $1,682,598.06 on December 31, 2027.

Here’s his conclusion: Bitcoin, while it may be ripe for a pullback, will likely keep rising over the long run until either maximum supply is reached or when mining starts to become unprofitable.

The value of predictions

Mr. Bryant’s prediction may be stunningly accurate, in which case he will be anointed as the next financial guru. Or he may have missed the mark entirely. If so, few will remember that he made this prediction.

To his credit, he discloses his track record— something that few pundits do. He states that he “was up 130%, 29%, 15%, 3%, 19%, 25%, 56% from 2001-2007 respectively, and down 39%, 39%, 79% from 2008-2010 respectively. In 2011, he “...was flat, but some ill-timed trades (should have held AG) caused a loss of 17% and 14% in 2012 and 2013.” I don’t see his track record reported from 2014 to date.

If I read this correctly, for the six-year period from 2008-2013, relying on his predictions cost investors money.

Like most pundits (and coin flippers), he has good and bad years. If you were impressed by his 130% return in 2001, you were disappointed by his track record (down 79%) in 2010. Given these ups and downs, you should be very cautious about relying on Mr. Bryant’s predictions.

The harsh reality is that pundits make a good living making predictions, but their track record is suspect. Larry Swedroe discussed this issue in this blog post. He made this cogent observation, which I would encourage you to consider: If investors knew the evidence on forecasting accuracy (for those interested, I recommend Philip Tetlock’s “Expert Political Judgment” and William Sherden’s “The Fortune Sellers”), they would learn to tune out all market forecasters.

What will affect the price of Bitcoin

The most sophisticated charts, graphs and models are of little value in predicting the price of Bitcoin. What will have a major impact on its price are future events (like government regulation, vulnerability to hackers, fraud and liquidity risk).

No financial pundit has a crystal ball clear enough to evaluate these risks.

Here’s all we can say about the price of Bitcoin. Everything known about this currency is in the public domain. The price is set by traders buying and selling it every day. Today’s price is the fair price of Bitcoin, taking into account all available information. The future price of Bitcoin will be determined by tomorrow’s news. No one knows what that news will be.

Consequently, you should place no value on the views of anyone — no matter how impressive their logic may seem — about the future price of Bitcoin.

The views of the author are his alone. He is not affiliated with any broker, fund manager or advisory firm.

Any data, information or content on this blog is for information purposes only and should not be construed as an offer of advisory services.

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