Another week, another outrageous prediction for the price of Bitcoin. We just saw a forecast at more than 75 times the current value of the currency. The figure is $700,000. Is Bitcoin really about to take off to the Moon or has it been shot down?
The honest answer is that nobody can say this with certainty. It’s probably not the answer you expected but we are more interested in giving you accurate information than false enthusiasm. Before we give you our view on the matter, let’s get to know the $700,000 claim. In an article on the Fortune website, we read:
John Pfeffer, a partner at his London-based family office Pfeffer Capital, is not only betting on Bitcoin, but giving it a bold price target of $700,000—about 75 times the current Bitcoin price of nearly $9,500.
But Pfeffer has even higher hopes for Bitcoin—that it could eventually be to central banks what traditional foreign reserve currencies are today. (From euros to Japanese yen, governments hold foreign cash to pay down international debts and complete other cross-border transactions.) “It’s imaginable that Bitcoin displaces some form of reserves over time,” Pfeffer said at the conference.
Total foreign reserves are currently worth $12.7 trillion, he added. While it’s unlikely Bitcoin would fully replace all foreign reserve currency, Pfeffer also modeled scenarios in which Bitcoin would account for a quarter of foreign reserves, which would imply a 20x return from current prices. And if the total value of Bitcoin does rise to the equivalent of all foreign reserves, or $12.7 trillion—including both gold bullion and reserves combined—then that would mean a Bitcoin price of $700,000.
“As an investor, what interests us most at this point is that Bitcoin might become the dominant non-sovereign currency,” said Pfeffer. Although he puts just 1% odds on Bitcoin actually hitting $700,000, the possibility alone is enough for him “to make a small, venture capital-style, buy-and-hold longterm bet on,” he said.
Peeling back layers of the answer, we see that the $700,000 is not as outrageous as it might seem at first sight. Why? Mainly because of the probability associated with such a scenario: 1%. Is there a 1% chance of Bitcoin going to $700,000. Again, nobody can tell. But it seems a whole lot more probable than claims that Bitcoin will go to $1,000,000 “for sure.”
Pfeffer also incorporates some more conservative targets for Bitcoin, for instance at $90,000, which doesn’t seem all that incredible given how Bitcoin has been trading in the past. Our main point here is that you can definitely view Bitcoin as a vehicle which could go up a lot – it has done so a couple of times already. At the same time, we wouldn’t bet heavily on it going to the Moon – we would rather view it as a private-equity-style investment, with very small positions potentially improving the overall portfolio. This is not investment advice, though. Each investor has different needs and constraints so there are no one-size-fits-all investment strategies here.
Do we see any signs of Bitcoin taking off right now? Some commentators seem to believe this. We are skeptical, at least for the time being. Charts might explain why.
Reversal Pattern in Sight
On BitStamp, we actually do see one important change. It’s probably not what you would expect reading stories all over the Internet. Namely, Bitcoin reversed course yesterday on elevated volume. This looks like a classic reversal pattern at first sight. But is it one?
...[ Continue to next page ]
Share This Post
