There is currently a lot excitement mixed with conjectures about the future price of Bitcoin. Yesterday, Sonny Singh, CEO at Bitpay stated that Altcoins “will never come back” to their former status. His claim is due to the developmental focus on Bitcoin. In June, 2018, Mike Novorogratz, CEO of Galaxy Digital Capital Management, predicted that the Bitcoin market will reach $800 billion by the end of the year, and 20 trillion in the future.
These are samples of a basketful of predictions made about the future of Bitcoin and crypto currencies. However, it seems that no matter the position, experience, or knowledge, of forecasters, predicting Bitcoin and its markets has proven a challenge. This problem is compounded by the reliance on current systems that are not attuned to the realities of the how the crypto market operates. Nevertheless, price predictions are becoming commonplace adding to investors’ confusion and loss of confidence.
Technical analysis is a visual representation of market data to predict pricing based on historical performance. It uses a number of indicators and markers to develop patterns and trends based on the information at hand. However, the problem with technical analysis of crypto is twofold; it doesn’t account for volatility or the speed of information. The high volatility of crypto currency prices is not precisely predictable by any means. Personal sentiment, choices, and greed create volatility, which can cause an immediate shift in price performance that can scale by the number of buyers. In other words, volatility can create a mean-reversion and invalidate a trend if sufficient number of people changes their minds in regards to a trade.
The second problem is the speed in which information travels in the modern world. Trends can also reverse due to the sharing of information that can drive the market in the opposite direction. News for example, shared on social media can spread like wildfire and can either push or cause a price pullback. Therefore, technical analysis has proven time and time again how ineffective it can be at predicting the market.
Forecasting Bitcoin prices reached prominence after flamboyant security software developer John McAfee made his outlandish one million dollars Bitcoin prediction by 2020. Since then, anyone in an influential position related to the technical, financial, or developmental aspect of Bitcoin has an opinion on its future. And not surprisingly, they not often agree. At the individual level, Luis Carranza, entrepreneur and the mind behind London’s Fintech Week and Blockchain conference puts the price of Bitcoin between $2,500 and $4,500. Mohammad El-Erian, Chief Economic Adviser of Allianz, puts Bitcoin’s price at $5000.
At an enterprise level, Alistair Milner twitted a list of Bitcoin price predictions from a number of financial institutions. The list shows Pantera Capital and Fundstrat predict the future price to be $20,000 and $25,000 respectively, this year. Brian Kelly, the founder and CEO of BKCM LLC, a crypto predicts Bitcoin to reach $250,000 by 2022. Unfortunately, the vast majority of these “crypto evangelists” have consistently failed to accurately predict the actual price of Bitcoin. This is because most of their predictions are based on technical analysis and their previous experience from trading and managing stocks and other conventional investments. The biggest example is quantified in an analysis done by Jacob Canfield and published in Tradingview.com. In his analysis, he discovered that 95% of CNBC’s Bitcoin’s price predictions were wrong and decisively produced the opposite results than those predicted.
The fact is that no one can predict the future price of Bitcoin or any other event for that matter. But that doesn’t stop people from trying. A lot of it has to do with attention, status, and money. In the case of John McAfee, investigators revealed that he was getting endorsement from companies to promote their projects. Most forecasts have to do with rumors and sentiments than actual data. That is not to say that every single prediction has failed; there are of course exceptions. On October 10, 2017 Mike Novorogratz predicted Bitcoin’s price would rise above $10,000. Only six months later, on November 28, 2017 his prediction became true.
However, in reality, the involvement of so many special interest groups from whales to banks, interdict any effort to achieve clarity in the future performance of the market. This is not say that predictions don’t have a use or serves a purpose. A lot of predictors have inherent interests invested in seeing prices sway according to their benefit. They make biased predictions in order to raise capital and capitalize on the ignorance of retail investors. Thus, it is important for individual investors to understand that however revitalizing or demoralizing a prediction is it is just a guess at most. True price analysis is unable to account for a number of unknown factors. Each of them can arise at any given period of time. And they should be carefully scrutinized and disputed with data from various independent sources.