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Bitcoin's Story Does Not End Here: Brace For More Turbulence In 2018 - Analysts

Kitco News


Editor's Note: View Kitco News' full 2018 outlook coverage

(Kitco News) - Bitcoin hijacked countless headlines from all types of publications in 2017, which raved about the cryptocurrency’s massive, never-before-seen gains. But, as we get closer to the new year, lots of questions remain – will the market continue to break records in 2018 or is bitcoin in a bubble that will soon burst?

Bitcoin’s Story Does Not End Here: Brace For More Turbulence In 2018 — Analysts

All analysts agree that bitcoin was truly the story of 2017, surprising most people with its rise from just under $1,000 level witnessed in January to nearly $20,000 in December.

“It’s hard to get past the crypto story this year, which will be continued in 2018. It’s been an explosive story and a disbelief for many,” Chris Weston, chief market strategist at IG, told Kitco News. “There’s been a big fear of missing out and from a more professional community there’s been a disdain to hold bitcoin because of implied volatility.”

Chief economist at ABC Bullion, Jordan Eliseo, also pointed out that bitcoin’s price gains have been absolutely phenomenal this year.

“Whether you are a bull, or a bear, or agnostic towards it, you have to recognize that it is the most exciting finance story in the post-global-financial crisis era, even though now, it has all the classic warning signs of a bubble,” Eliseo said.

A lucky few have made millions from investing into bitcoin early enough, but whether or not their streak will continue has turned into a very contentious debate.

Part of the problem is determining the fair value of bitcoin. “Everyone is trying to understand what it is worth. As strategists, we are told that everything has to have a value and there needs to be a universally agreed upon theory to determine that,” Weston said. “But, there is no way in the world that there will be one for bitcoin.”

Is It A Bubble? And When Will It Burst?

Bitcoin has been showing classic signs of a bubble, but there is no consensus as to when prices might start to collapse, or even if they will at all.

“Parabolic price increase is a warning sign, the speed at which the prices are rising, the ever more optimistic price projections, complete fear of missing out (FOMO is truly alive in this space), and lastly the arrival of people who are setting up newsletters and trading advice for the cryptocurrencies,” Eliseo said.

No one can say with one hundred percent certainty that bitcoin is a bubble about to burst, noted Eliseo, adding that investors need to be careful. “There is nothing wrong with speculating with a small amount of capital in bitcoin or crypto, but you should only invest what you are comfortable to lose,” he said.

The traditional finance space remains extremely skeptical towards bitcoin, Weston noted, which makes it a unique bubble, if you were to assume it was one.

“A lot of the institutional guys have been very much against bitcoin because it hasn’t got that transparency — both in the actual product and in the ability to value bitcoin and therefore they’ve kept well away from it,” he said.

Price Forecasts For 2018

A consensus in price outlooks is impossible to come by as well, with calls varying from outrageous sums to total wipeouts.

“I can’t give you a price target for 2018, I wouldn’t be surprised if it is $25,000 per bitcoin and I also wouldn’t be surprised if it is less than $100 per bitcoin,” said Eliseo. “It is essentially operating as a purely speculative asset. Most speculative assets end up bursting, but it could go a lot higher before it goes lower.”

Founder of Standpoint Research, Ronnie Moas, told Kitco News he believes that bitcoin is “significantly undervalued” and might easily see the $28,000 level in 2018. Moas also estimated that within the next 3-5 years bitcoin could go up to $144,000 per token.

“If bitcoin can fulfill the promise that people have in it, it probably deserves to be trading near where gold is on the valuation basis,” he said.

In terms of significant price drops, the $16,000 level is a key one to keep an eye on, according to Kitco’s senior technical analyst, Jim Wyckoff, who projected that bitcoin could start to dramatically lose value if prices fall below that target.

Problems In Crypto Space

There are a lot of serious red flags that are starting to appear in cryptocurrencies’ space that could pose a serious threat to bitcoin.

“You are starting to see problems: coins being stolen, exchanges shutting down, companies reversing their policy of accepting bitcoin as payment,” Eliseo said.

Moas also pointed to uncertainty surrounding future regulation, concerns over tax laws, and hacking.

“There could be a panic, where people will be rushing for the exits and you could see a collapse in bitcoin. This is a fragile situation. A lot of people are sitting on millions of dollars in profits right now and the minute they think this is going to crack, they are all going to sell at the same time,” he said.

Is Bitcoin Taking Away From Gold?

There were “some” investment flows that would have made their way into gold this year, if only not for the crypto craze, Eliseo pointed out.

Yet, there are signs pointing to that trend reversing next year and some safe-haven buying returning to gold. “2017 is probably going to remain the best year for bitcoin that we will ever see. Don’t think next year will be anywhere as good. So you might see some move towards gold again,” Eliseo said.

Moas also pointed out that interest in bitcoin throughout this year has taken away some of the allure from other assets.

“The money has to be coming from somewhere. If people are buying bitcoin right now, they are either taking money from their bank accounts, their stock accounts, their bond accounts, or their gold accounts. An argument can be made that people are selling their homes right now in order to buy bitcoin,” he said.

Kitco’s Wyckoff stated that it will take “decades” to determine whether or not bitcoin will be able “to ultimately compete” with historical safe-haven stores of value such as gold.

Wyckoff added that gold could greatly benefit from bitcoin’s volatility. “If the spike in bitcoin prices continues, the total value of bitcoin owned by the world’s investors will become big enough to rattle markets. And when the bottom finally does fall out of bitcoin, the scared money will most likely flock into gold.”

What Is Driving Bitcoin?

Bitcoin is largely a speculative asset and its main driver is its popularity, which is luring people into opening up new accounts.

“In 2018, I expect 80 million new accounts to be opened.” Moas said. “When demand keeps going up, but no one is willing to sell their coins to you, the prices will keep going higher.”

On top of that, there is a genuine dissatisfaction with economic status quo, according to Eliseo. “There are a lot of people who are looking for alternatives to stocks and bonds. Gold is one of the assets that people turn to in such environments, but bitcoin has clearly been another one,” he said.

Bitcoin’s potential, however, still largely remains untapped, according to Moas.

“We are in the beginning of this ball game as far as I'm concerned. Ninety-nine percent of the people in the world are not even involved yet. What happens when this hits 4-6% penetration and there is no supply to satisfy the demand. That is when you will see the prices go towards six figures,” he told Kitco News.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.