The price of Bitcoin has been very volatile since the start of 2017 with prices rising from $1,000 to almost $20,000 before a steep decline in Q1 2018 to below $7,000. Some pundits are forecasting further declines in Q2 and beyond, whereas others still see Bitcoin outperforming all other investment classes in the medium- to long-term.
With declining block rewards, the expectation is that the price could rise considerably with some forecasts as high as $1 million in the next few years. With a fixed supply of 21-million coins and block rewards halving every four years, Bitcoin should increase in value over the long term providing other cryptocurrencies don’t become more widely accepted. Only time will tell which forecasts were right, but one strategy recommended by many is to buy bitcoin on a regular basis to DCA (Dollar cost averaging) through the ups and downs.
Nobody can ever hope to predict the absolute top or bottom of a market within any given timeframe, and 90% of speculators lose money trying to second guess the market. Thomas Lee, Managing Partner and the Head of Research at Fundstrat Global Advisors has previously analyzed the effects of trying to time market buys and sells for S&P 500 listed stocks. If you remove the top ten performing days each year from S&P 500 portfolios, the returns are almost halved.
When Mr. Lee does the same analysis for bitcoin, the value of the portfolio is 25% lower without the inclusion of the top ten days each year. With S&P 500 stocks, the growth is around 5% per annum without the top ten days, but with bitcoin, his work shows year-on-year declines. This confirms it’s a very dangerous strategy hoping to buy low and sell high throughout the year with bitcoin. For most investors, simply holding your investment will produce higher returns.
A recent article published by Investopedia included the forecasts provided by Mr. Lee for Bitcoin in Q2 and the end of 2018. By the middle of June, he expects bitcoin to rally to $20,000 and be at $25,000 by year-end. Some might consider these forecasts to be too bullish with the price in early April 2018 below $7,000, but based on previous price spikes nothing can be discounted when it comes to bitcoin.
Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.