Bitcoin Crash Prediction
It’s early January of 2018 and, suddenly, many cryptocurrency enthusiasts have woken up in the hangover of the Christmas break with an odd feeling. A bitcoin crash is coming. On January 8, Bitcoin showed it could not sustain $17,000, let alone the $19,000 days of December 2017. The fact is, with little in the form of substance acting as a foundation, there’s no telling how deep bitcoin will fall from its record, and frankly mind-boggling, high. It’s time to start worrying, if the bubbles have come home to burst.
You may be wondering, “why did Bitcoin crash?” For anyone to answer that question intelligently and accurately, it would be necessary to first answer this one: “why did Bitcoin rise so quickly?”
Surveys show that 30% of Millennials (for the record, those defined as those born between 1980 and 2000) are more interested in investing in Bitcoin than they are in traditional financial instruments. The survey confirms that Millennials seem have developed a heavy appetite for Bitcoin, and a veritable buffet of cryptocurrencies has emerged to satisfy it. But,as with all the best all-you-can-eat experiences, there comes the time for indigestion. (Source: “30% Of Millennials Would Rather Invest In Cryptocurrency: Here Are 3 Tips To Help You Do It Smarter,” Forbes, January 7, 2018.)
The poll should generate concern. It suggests that many Millennials would prefer to invest $1,000 in bitcoins rather than in government bonds. One of the main reasons is that young people think they understand Bitcoin. Predictably, older Americans are less interested in Bitcoin and the like. This suggests there is an evident generational gap. It’s the same generational gap that stops more retirees from pondering the prospect of flying through a mountain crack in the Alps wearing a wingsuit than those under 30 years of age. It’s not just a question of risk aversion/appetite, it’s a question of wisdom. (Source: Ibid.)
Bitcoin Boom or Bust
Why could cryptocurrencies fizzle, and why did Bitcoin crash in recent days? JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon said it bluntly: “Bitcoin is a fraud.” He added that cryptocurrency valuations are inflating a bubble that “will eventually burst.”
Bitcoin, the most famous cryptocurrency, reached prices on the edge of $20,000. I call that Bitcoin’s “Yuri Gagarin” or “John Glenn” moment. The cryptocurrency reached the monetary equivalent of the edge of space like those two first astronauts. Many believe the Bitcoin program could evolve and graduate to “Apollo 11” status. (Source: “Nearly a Third of Millennials Say They’d Rather Own Bitcoin Than Stocks,” Bloomberg, November 8, 2017.)
Will prices hit $1.0 million, as John McAfee predicts? That would be the equivalent of landing on the moon for the history of space exploration. But even at those prices, history shows that nothing has a linear progression. Just as space exploration has focused on probes and orbiting space labs, cryptocurrencies could soon focus on becoming an actual alternative tool of exchange, rather than displacing traditional currencies.
They lose their speculative edge as they become more ubiquitous and go “mainstream.” That’s why investing in cryptocurrencies poses significant risk. Therefore, abandoning traditional investment products in favor of cryptocurrencies may not be a good idea. A crypto crash in 2018 is a possibility, given the unhinged speculation that Bitcoin has experienced. After all, what other investment vehicle has managed to gain almost 1,000% in a period of less than a year?
Bitcoin Boom or Bubble
As many wonder whether there’s going to be a Bitcoin boom or bubble, the most interesting aspect of the Millennials poll is not how much young people like it. Rather, it’s that as much as they like it, they too could quickly grow skeptical about its reliability as an investment. Surely, Millennials like Bitcoin because it’s decentralized, avoiding government meddling, at least for the time being.
It’s also a way to invest without having to resort to the very same traditional financial institutions and banking tools that produced the 2008 financial crash. That’s the very same crash that, arguably, has caused so of the anguish and difficulty that Millennials have experienced securing suitable employment after college. They have a point. But, many ‘generation X’ and ‘boomers’ also lost jobs and savings because of the recession that the subprime bubble caused.
Despite, their enthusiasm, one major crash–and evidence suggests Bitcoin is vacillating already after the 2017 climb–could cause Millennials to become as suspicious of Bitcoin as their parents and grandparents. The Bitcoin “boom or bubble” question will be settled shortly in favor of the ‘bubble’ option. Bitcoin must still cover many miles before people start to perceive it, and other cryptocurrencies, as a safe bet (that is, as safe as other investments).
There’s little doubt that Bitcoin represents a valuable innovation in general technology–not just financial technology. But its most valuable aspect is the blockchain, rather than the currency itself. Computer engineers will be able to develop many applications for the blockchain, including many other varieties of Bitcoin.
The best that can be said of Bitcoin is that it’s a soufflé. At least it tastes better than a bubble. That said, there’s nothing stopping Bitcoin from going to $30,000 or $100,000 in 2018. It’s riding on pure psychological sentiment. Therefore, the next Bitcoin boom may be just around the corner, and as prices rise, more will want in. But Bitcoin is not alone; there are competitors and alternatives promising even higher returns. Yes, but on what basis? That’s the problem.
As easily as cryptocurrencies gain value, as easily they can crash and leave you destitute in a crypto crash in 2018. Of course, this doesn’t mean that Bitcoin has no role to play. It’s an innovation and it will doubtless produce tangible change in finance and in how we pay for goods. The technology itself is only going to rise.
Just because the price of tulip bulbs reached a peak, only to flash wilt in 1637, doesn’t mean we no longer enjoy tulips in our gardens and homes. Perhaps the best advice might be to fully understand what bitcoins are and why their price rose so quickly in 2017 before embarking on a new crypto-fueled investment journey.