When Saxo Bank forecast last December that Bitcoin’s price would surpass $2,000 in 2017, it may have seemed like a stretch given that the digital currency’s value at the time was under $1,000. Now, soar to $100,000 over the next 10 years.
While Bitcoin fans say such projections are within reason, skeptics abound, with Vanguard founder Jack Bogle this week urging investors to avoid the digital money “like the plague.”
“Bubbles always pop,” Jonathan A. Martin, a professor of finance at MIT’s Sloan School of Management said by email. “And cryptocurrencies have value only because people believe they will have value in the future. As soon as that belief starts to fade, it’s over.”
Supply and Demand as a Determining Factor of Bitcoin’s Price
For some analysts, forecasting cryptocurrency prices simply requires examining current factors related to supply and demand. In an interview with The Motley Fool, David Drake, founder of LDJ Capital, asserts that bitcoin will reach $20,000 next year. He based this number on its fixed supply. (Only a limited number of bitcoins are mined each year.)
Indeed, Drake refers back to simple supply and demand: “There’s a fixed supply of it but growing demand, when that happens the price rises.” Drake also noted that the code underlying the creation of new bitcoins is capped at 21 million lines, but only 4.3 million of them are above the current supply.
Unfortunately, without a firm measure to guide cryptocurrency’s valuation, bitcoin’s high growth market leaves analysts prone to frequent forecast revisions. For instance, in early November, analyst Ronnie Moas (the founder of Standpoint Research, Inc.) revised his 2018 bitcoin price outlook from $7,500 to $11,000. Less than a month later, he took to Twitter, and revised the amount again—to increase from $11,000 to $14,000.
In early December, he increased his 2018 bitcoin price prediction a third time: $20,000. Moas bases his optimism on the fact that bitcoin’s market cap is relatively small ($130 billion), compared to the $200 trillion currently in stocks, cash, gold, and bonds.
Moreover, Moas notes that bitcoin investors expect several positive developments to occur for cryptocurrency in the near term. They include Square’s support for bitcoin mobile payments and CME Group’s plan to launch futures trading for bitcoin. He expects that the latter will greatly increase bitcoin’s trading volume, so it would decrease its volatility. In a recent report, he stated: “An argument can be made that the good news is still not fully reflected in the current price.”
Bullish on Bitcoin
Roy Sebag, Goldmoney: $0 in the long-term
The noted goldbug Roy Sebag, who runs the $2 billion Goldmoney fund, was once a bitcoin bull. But, according to Fortune, he sold most of his 17,000 coins this summer because he believes they will be worth nothing in the long-term. “It has completely devolved from the original promise,” he said.
Ronnie Moas, Standpoint Research: $14,000 in 2018
Moas made this call on Nov. 20 when bitcoin was trading at around $8,245. Moas has an excellent track record of bitcoin price predictions. He called bitcoin at $5,000 when it was trading at half that value earlier this year. He has since raised his 2018 forecast twice, to the current $14,000 mark.
Tom Lee, Fundstrat: $11,500 by mid-2018
Lee has a valuation framework that presumes some portion of gold investors will convert their assets to bitcoin. In the short-term he has a $11,500 call on bitcoin by the middle of next year. In the long-term, Lee believes bitcoin will trade for $20,000 to $55,000 by 2022.
Mike Novogratz, Galaxy: $40,000 in 2018
Novogratz led the flagship macro fund at Fortress, and he is a longtime bitcoin bull. He’s starting a $500 million cryptocurrency fund called Galaxy. Novogratz has a price target of $40,000 by the time 2018 is over. He also thinks bitcoin is a major bubble. Speaking at the CoinDesk Consensus: Invest conference in New York yesterday, he said: “This is going to be the biggest bubble of our lifetimes.”
Jim Cramer, CNBC: $1 million, “one day”
Cramer, the TV pundit, has the rosiest outlook on bitcoin of the assembled crystal ball gazers: $1 million per coin. But he is vague on when, exactly, he expects that to happen.
The more Bitcoin’s price runs ahead of its capabilities, bulls say, the more likely that its technology may catch up to the hype. “The financial speculation that’s going on … is so important to developing infrastructure,” says Demirors of the Digital Currency Group. The gusher incentivizes programmers and businesspeople to dedicate time and effort to Bitcoin-related projects. Already, farsighted zealots are pouring newfound riches into the cryptocurrency economy, creating blockchain-oriented businesses, like the Winklevoss twins’ Gemini, or starting cryptocurrency-specific hedge funds, as AngelList founder Naval Ravikant is doing. It takes money to make money.
Then again, the more wealth that flows into Bitcoin, the more conservative an approach its maintainers may take in updating it. This could present an opportunity for other crypto coins to outmaneuver their forerunner. “I think Bitcoin’s market share is a long-term downward trend because there are so many other interesting technologies being created,” says Olaf Carlson-Wee, founder of crypto hedge fund Polychain Capital. He adds: “As a rule of thumb, I never bet against cryptocurrencies.”
To Jerry Brito of Coin Center, the future of Bitcoin isn’t about just the potential for limitless returns, but the promise that his daughter will grow up in a better world. “It’s a world where you can keep your money safe … where you can trade with anybody else in the world,” he says. Bitcoin’s allure, in this view, is not about the money, per se, but about technology. Maybe that’s why Brito insists there’s no fiscal significance in the name he and his wife eventually chose for the baby. They call her Penny—but it’s short for Penelope.
For fans of Bitcoin, such as David Mondrus, the CEO of Trive, which rewards users who find fake news on the Internet, the case for the cryptocurrency is a largely matter of supply and demand. And while the former is strictly controlled, the latter is growing by leaps and bounds, driving up the currency’s value.
“Do you think that the US government will ever stop printing money?” he said. “There are only 21 million Bitcoins that can possibly be in existence — 16 million of them already exist.”
Bitcoin also has many attributes that ordinary money lacks, Mondrus said. For instance, Bitcoin is divisible up to 8 decimal points, making it easier for users to transact using fractions of cryptocurrency. And Bitcoin, unlike regular currencies, isn’t subject to the control of central banks, another plus in the eyes of its fans.
These characteristics are spurring enormous investor interest, if only to cash in on the short-term trading opportunities. According to Axios, more than 100 hedge funds specializing in cryptocurrencies have launched this year.