Dying Star or Supernova
Since its release on January 9, 2009 at an initial price of $.08 per coin, the value of Bitcoin tokens has followed a meteoric if erratic rise to an eventual peak almost eight years later of $19,783.06. As of the writing of this blog, bitcoin hovers just over $7,000. Overall, it’s had a rough year in 2018. What does the future have in store for bitcoin investors? Is bitcoin a dying star in the firmament or is it about to supernova more spectacularly than anyone could have ever imagined?
Fundstrat’s Tom Lee is probably one of the most vocal and bullish supporters of bitcoin, and he has stated on several occasions his conviction that the token will hit $25,000 later this year. He sees bitcoin’s recent drops as normal market volatility and believes that its rebound is imminent. In fact, based on historical averages, Fundstrat’s latest research suggests that the coin should hit $36,000 in 2019. He actually believes that it will experience a robust recovery and eventually reach $125,000 by 2022.
Tom Lee isn’t the only big name bullish on bitcoin. As recently as this April, venture capitalist Tim Draper, a leading investor in Skype, Tesla, Twitter, and SpaceX, publicly proclaimed that bitcoin will reach $250,000 by 2022.
Kay Van-Petersen, an analyst at Saxo Bank who accurately predicted the price rise of bitcoin in 2017, once suggested that it could take ten years for bitcoin to hit the $100,000 mark. She now believes bitcoin could hit $100,000 as soon as late this year.
Jeet Singh, a portfolio manager with a six-year history in cryptocurrencies, made the statement at the World Economic Forum in Davos, Switzerland, that bitcoin could reach as high as $50,000 this year. He warned of continuing volatility in the marketplace, something that might frighten short-term investors, but suggested that investors in it for the long run will do just fine.
No one has ventured further in their bitcoin optimism than John McAfee of computer security fame. In July of last year, he made several bold predictions regarding the eventual value of bitcoin. He stated that it could reach $500,000 within three years, and then followed that up by saying that it could actually reach as high as $2.6 million within that same time frame. In November, he compromised, and settled on a figure of $1 million.
However, some who are bullish on bitcoin believe it will take substantially longer to realize stable and sizeable growth. Kristjan Dekleva, the Swiss-based financial expert in the areas of private equity, corporate finance, and asset management, believes that it will be a “decade of turbulence” before the true value of bitcoin is realized. He suggests that this will not happen until the currency gains world-wide acceptance by all the leading countries, including China.
Cameron Winklevoss, co-founder of Gemini, and currently (with his twin brother) the fourth wealthiest cryptocurrency investor, calls bitcoin a “very underappreciated asset.” At the same time, he also believes that it will take perhaps 10 and as many as 20 years before the dust completely settles and cryptocurrency takes its rightful place in the world financial marketplace.
However, not everyone believes that bitcoin is headed upward, either in the short or in the long term. For example, Kenneth Rogoff, Harvard University professor and former chief economist at the International Monetary Fund, says, “I think Bitcoin will be worth a tiny fraction of what it is now if we’re headed out 10 years from now… I would see $100 as being a lot more likely than $100,000.” He cites regulation as the primary dampening factor and concludes that if all the patently illegal uses for cryptocurrency are eliminated (e.g. money laundering and tax evasion), it’s actual utility is very limited.
What have some other big names in finance said about bitcoin? Jamie Dimon, CEO of JPMorgan Chase & Co., stated last year that bitcoin was a “fraud” and that “eventually it will be closed”. Billionaire investor Howard Marks, co-chairman of Oaktree Capital, initially called bitcoin “nothing but an unfounded fad” and he attributed its initial success to “financial naivete, willing risk-taking, and wishful thinking.” However, he’s since backtracked a bit, stating that he’s broadened his view based on discussions he’s had with others, and now sees tokens as a potentially viable currency rather than simply as an investment vehicle. He remains skeptical, though, positing, “Think about the fact that the price of bitcoin has risen more than 350% so far this year and 3,900 percent in the last three years. You might want to consider whether a real currency can do that, or whether speculative buying is determining bitcoin’s price.” He now says, “I consider it a speculative bubble. I’m willing to be proved wrong.”
Warren Buffet remains a staunch critic of all cryptocurrency, once calling it “rat poison squared.” His primary objection is that “the asset creates nothing.” Following May’s annual shareholder meeting, Buffet said, “When you’re buying nonproductive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along.”
Nobel Prize winning economist Richard Thaler directly cites Buffet’s advice in eschewing cryptocurrency investments for himself. Intriguingly, he characterizes this advice in this way: “Warren Buffett says a lot of smart things, and one of the things he says is, don’t make investments in things you don’t understand.” So perhaps it’s not cryptocurrency itself that Buffet and Thaler object to, but rather the fact that at present they simply do not understand it. As seen above, Jamie Dimon’s opinions softened when he was “educated” by others. Perhaps, then, the opinions of Buffet and Thaler may improve over time as their grasp of this relatively new market evolves.
Regardless of one’s belief about the future of bitcoin, there is almost universal agreement that the market will remain volatile for the moment, with wild short-term fluctuations based on speculation, market news, and even occasional fraud. However, there are solid reasons to believe that, over the long term, the value of bitcoin will continue to rise. Exactly how much is anyone’s guess.