Bitcoin’s initial trades in July 2010 ranged from $0.0008 to $0.08 per Investopedia.org and didn’t break above $1 until April 14, 2014, according to bitcoinitity.org. At its current price around $7,550 Bitcoin will be the best performing investment for the past decade with a return of 100,000 times or more on the initial trades. Even with a cost basis of $1 it will have generated more than a 700,000% gain vs. Netflix, the best performing stock for the decade, at about 4,200%.
Unfortunately, for those who bought during the craze of late 2017, when Bitcoin hit $20,000, to the first part of 2018, those investors have seen their investment halved. As the disclaimers note below, investing in Bitcoin and cryptocurrencies is not for the faint of heart.
There are some very big bulls on Bitcoin
Tim Draper from Draper Associates, a prominent Silicon Valley VC and early Bitcoin investor, believes that Bitcoin can hit $250,000 by 2022 and maybe as early as 2020. This prediction is based on using the cryptocurrency’s exponential price chart and projecting it out.
Brian Kelly on CNBC walked viewers through a similar chart to the one below (noting that this is not his forecast) that by using an upward channel analysis the upper bound of the channel could hit $200,000 to $250,000. Note that the right side Y axis for Bitcoin’s price would scale very quickly through 2020 and 2022.
Keep in mind that at $250,000 Bitcoin’s market cap would be $4.5 Trillion vs. the S&P 500’s current $28 trillion. Making Bitcoin’s value one-sixth of all of the S&P 500 companies would mean it is worth more than Apple, Microsoft, Amazon, Alphabet/Google and Berkshire Hathaway combined. And keep in mind Warren Buffett’s disdain for Bitcoin since it does not generate any revenue or profits.
Needs to break above $9,000 and beware the Death Cross
Depending on what start date you use Bitcoin is down 61% from its all-time closing high in December 2017, essentially doubled since the start of this year and is down 42% from its second peak in June this year. Needless to say, Bitcoin is very volatile and can move hundreds of points in a few hours.
Two technical or price patterns that have emerged over the past two years are downward channels, which are a series of lower highs and lower lows. The first started in early 2018 after the collapse of Bitcoin’s price from its all-time high. Over the course of 10 months the cryptocurrency fell from 12,000 to a low of 3,000 in December a year ago.
It rallied over the next six months to peak around 14,000 in June and since then has fallen into another downward channel. It rallied on Sunday, moving over $350 higher to $7,550, which puts it in the middle portion of the channel. Bitcoin will need to break above $9,000 to escape to the upside and if it doesn’t it could easily fall back towards $6,000 and then below.
A Death Cross is a technical pattern when an asset’s 50-day moving average price falls below its 200 day moving average. In the chart there have been three instances (blue circles) where this has occurred for Bitcoin.
The first was in May 2018 with Bitcoin around $9,500. It then fell to $3,000 in December 2018.
The second cross was in May this year with the 50 day moving above the 200 day when Bitcoin was around $4,500. It took less than two months for it to rally to $14,000.
The second cross to the downside happened in October at $9,000 and close to where the first cross occurred. Technical analysis is not perfect, but if Bitcoin’s downward movement comes close to the previous one there is a lot of pain ahead for crypto investors.