Bitcoin Investors: Expect Wild Fluctuations in 2018

2018 is expected to be another wild year for bitcoin, according to one analyst, who foresees huge fluctuations in the world’s leading cryptocurrency.

Volatility Continues

The value of bitcoin is in for a wild ride next year, according to Nick Colas, Wall Street analyst and co-founder of DataTrek. In a recent interview with CNBC. Colas argued that the digital currency over the next 12 months could fluctuate between $6,500 and $22,000, with the midpoint likely coming in at around $14,035. The midpoint  represents a more than 10% drop from Wednesday’s level.

“Bottom line: bitcoin can rally to $22,000 and still be reasonably priced, or plummet to $6,500 and also be correctly valued,” he said. “We expect to see bitcoin trade for both prices in 2018.”

When it comes to evaluating bitcoin’s true value, he added:

“Bitcoin and cryptocurrency are hard to value and their economic utility relies on use cases that are not yet built. Of course the volatility we’ve seen will continue.”

In addition to huge fluctuations, Colas envisions four market “crashes,” which he describes as a price drop of 40% or more.

Bitcoin posted a string of record gains through December before a sharp correction erased thousands from its value. At press time, the value of a single token was $15,397, according to the CCN price index. The digital currency traded as high as $16,521 earlier in the day.

Earlier this month, bitcoin’s market cap rose above $300 billion. All the major altcoins came along for the ride, with the total market cap for all cryptocurrencies peaking near $650 billion. The total market cap has since moderated to around $598 billion, according to CoinMarketCap.

Institutional Demand No Guarantee of Price Stability

Colas’ prediction is even more compelling when we consider the influx of institutional capital into the bitcoin arena. Although the recent launch of bitcoin futures on the CBOE and CME exchanges has been heralded as a watershed moment for cryptocurrency, it is no guarantee of success, and it is certainly no guarantee that prices will become more stable.

As Hacked reported last week, institutional investment presents somewhat of a conundrum because nobody knows how the so-called ‘bitcoin billionaires’ – those who control large swathes of the market – will react. As it currently stands, 1,000 investors hold about 40% of all bitcoin in circulation for an average of $350 million per head.

It remains to be seen whether traditional investment vehicles like futures contracts will compel these holders to reduce their stake in the digital currency in exchange for cash. If this were to happen, a certain percentage of tokens will be taken off the market, which may contribute to greater price stability.

Of course, there is no guarantee that large investors are interested in reducing their position. In fact, history has clearly demonstrated that bitcoin investors are eager to buy on the dips.

In addition to bitcoin futures, talks of exchange-traded funds (ETFs) are also heating up. It was only last week that CBOE filed to list six ETFs with the Securities and Exchange Commission.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi