Cryptocurrency Investment
The Bitcoin Saga

Bitcoin price follow up & some “bold” predictions

Burgess COMMENTARY

Peter Burgess

DK Entrepreneur, Fund Manager, Ex-Consultant and Hobby Ice Hockey Player. Child of the Sun. Any opinions personal, never investment advice, sometimes parody May 7 Bitcoin price follow up & some “bold” predictions I need to start this by clearly stating that this is my personal opinion. It is neither my professional opinion nor is it to be construed as financial advice. Any asset can rise parabolically in value or crash to zero and my guess is as good as the next person’s guess as to what happens. I have been asked numerous times to update my bitcoin chart scenario, but it took a public holiday in the UK for me to finally find the time to sit down and put a few thoughts online. I will talk about price as well as more recent developments. Chart outlook I am by no means a sophisticated chartist (and I happen to believe that once there is any kind of fundamental value that people can agree on, like in almost all asset classes except for crypto, charts cease working well), but I do believe that people behave in a similar manner when faced with similar tug wars between fear and greed over time. Despite the many critics (at least in crypto), I have found that Elliot Waves, mixed with a bit of trading experience tend to describe this behaviour reasonably well. Just like any chart method the predictive powers are limited in my view, but at least it helps with possible scenarios. Let’s start with the past. In my previous articles (the last one linked below), I said that bitcoin would first rise to above $15,000 (Nov 29th article) and then correct to “as low as $5,500 to $7,500”. I have to admit that I did not expect these predictions to turn out so accurate myself. If you flick through the Twitter thread also liked below, you can see that the same exact chart helped guide the entire move down over three+ months. Observations on the Cryptobubble, Ripple and bitcoin price prediction update With the year 2017 drawing to a close and seemingly the entire world going mad about blockchains, it is time to revisit… medium.co Thread on Bitcoin Price Charts Over time In my view we find ourselves at a very interesting point in time currently. If you look at the chart below, you can easily spot the first “A-B-C” correction (small a, b, c letters in red). In Elliot Waves (or the way I like to think about it personally: whenever people trade solely on fear and greed), a correction of the dominant trade direction (in this case up) takes place in three waves (down — up — down) that themselves are made up of three sub waves. I rationalize this pattern by thinking of myself when I am trading with all my savings (which I never do anymore) and have been caught by some sort of mania. When the first move down (a) happens, I might still have the staying power to not touch my positions, though I will certainly get scared. When the recovery happens (b) I get slightly euphporic again and believe I did everything right. However, I now have the memory of a painful way down (a) earlier and once the upmove falters without reaching new tops (or much more importantly: my entry price), I get so scared that I say “oh well, if it fell to x before it can fall there again and maybe even lower, I better get out”, ending in smaller and larger capitulations over time (c). This microcosm repeats itself across numerous classes of investors (categorized by their experience and especially their entry prices). The lower their entry price, the later they will panic (NB: this explains all your permabullish early investors on twitter; no they are not stronger than you mentally and can “hodl” better, they just have lower entry prices so it is easy for them to be aloof and scold you for selling out). Only once the cycle has truly bottomed, a new uptrend can establish itself. Looking at the current situation, capital red A was completed picture-perfect with a capitulation. Capital B was a strong, fruitless recovery that mirrors small b as described above. Then things get difficult. I am not alone with having wanted to see a strong capitulation to end the bear market — many people much more “famous” for their charting than myself have echoed that sentiment time and again. My experience as a trader (I started trading equities just before the .com bubble burst and have not left trading till today) as well as historical examples of other bear markets all say the same thing: if you do not get a large sell off that provides true capitulation then you have not likely seen the end of the bear market. If I combine this experience with the Elliot Wave scenario that has played out so accurately from November to today that it is almost scary, then I can only conclude that what we have seen now is merely the small red “a” and “b” of the capital “C” wave that ends this bear market. In the chart above I have tried to denote what I mean. It appears that the capital C wave is extended and takes longer to unfold than wave A. If that holds true then we will yet witness the true capitulation in bitcoin that takes us to $5,000 and likely even lower. Granted, my confidence in this scenario is lower than it was when I saw the “bubble roof” building (when bitcoin exited its uptrend channel on the upside and started to go parabolic). Back then I was reasonably confident that we would rise more than 100% and then crash hard. Right now this is just my best idea based on my experience and the way I understand Elliot Waves to work (or rather how they have worked well for me in the past). I will say that if bitcoin were to actually keep going up from here (which I would not finally conclude unless it rises above $15,000 again), it is the easiest way I have ever seen a bubble burst or a market correct. Given who is currently invested in this (namely private individuals who for the most part invested a big part of their savings on the promise of getting rich quick and have never traded any other assets actively), I highly doubt that is the case. But I have been wrong before and would not mind to be wrong this time. I just don’t think so really. The positioning of all the moving averages kind of add to my scepticism. So to conclude the chart section, my best guess is that the current wave runs out of steem some time sooner rather than later and the price then (first slowly, then in a very steep fashion) falls to $5,000 or possibly as low as $2,000 before it finds a true bottom. I’d give that a 60/40 chance of happening. In my experience, by the way, chart formations don’t have much higher odds to work in general, so one should never invest purely on charts. Fundamental outlook I want to add a few thoughts on more fundamental developments in the bitcoin and crypto space that I believe are important to consider when looking at the asset class. The “Security Token” debate I believe that commentators are much too focused on this whole issue. There is not a doubt in my mind that all (yes, all) token that were ICOed or even airdropped by start ups and that are directly related to the success of that start up are securities. The important question to ask yourself is: do people buy the token at inception or in the early months because they view the possibility to use it in a future product as the main value proposition or because they want to either bet on the success of said start up or benefit from price appreciation. It is quite obvious that the only reason people buy or trade these token is because they want to profit financially. That makes them securities. I am not going to quote the SEC chairman again, but let’s just say that cat is out of the bag. Regarding the current “is Ether a security” question, by the way, I actually believe that the SEC will conclude that it was not, at the time of its ICO, a security. I don’t even think that is a big hallmark decision that has any influence whatsoever on the current generation of token. Back when ethereum ICOed, I would claim that the vast majority of people who took part in the ICO actually believed in a vision, were technically adept and wanted to build a smart contract platform that would enable a new technological leap forward. I do not think most people had in mind to get rich quickly by trading ethereum, nor do I think the participants in the ICO had much in common with today’s generation of investors. Of course, I could be wrong, but what must be obvious to the most innocent of bystanders is that the ethereum value proposition was strongly different from 99% of current ICOs who all try to portray a way of getting rich. The debate itself is not very relevant in my view because I think regulators have demonstrated that they want crypto innovation to flourish and won’t just bring down the entire industry. So despite all these being securities, the regulatory action is unlikely to be so stark that it would actually threaten the market. What is much more likely now is that, over time, more and more equity and debt will be traded on a blockchain (note that this is very likely going to be a centralized blockchain owned by banks that enables them to get rid of one of the largest systemic risks there is — clearing houses) and therefore people will wake up to the fact that the current set of “altcoins” is mostly just hot air being traded for inflated prices. I have made this comparison frequently — if you have the choice to either buy equity in amazon (or even real equity in the “next” amazon if you must think that way) on the blockchain or buy some token that has no current use, no rights and provides absolutely no ownership in the underlying company, which will you buy? So the security token debate will solve itself. By the way, the “huge wave of institutional money waiting on the sidelines, just aching to enter crypto” will be buying the real equity, not the fancy logos of the current generation (unless they add equity-like rights). The never-ending bullishness of early investors I truly apologize if I repeat myself here, but I think it is simply not being said enough: everyone who has written books on crypto assets, invested really early in it or was part of the first wave of crypto businesses and therefore has a lot of crypto in his or her portfolio shares the following traits: a) they have a strong (sub-conscious?), non-evil incentive to always talk up bitcoin and other cryptos. Their bank account (in fiat, which is funnily what they do look at mostly, which itself should give you pause) swings hugely with the prices of crypto b) they entered crypto at prices so low that it is extremely easy for them to sit out any large correction UNLESS that correction goes lower than $1,000. I find that unlikely, but if it ever happens, the pain will be real and a lot of these 20,000+ follower accounts will be interesting to watch as that will be when the regret of not selling higher will sting I am just putting those two points out there. No judgement intended from my side, also no hypothesis regarding any kind of bad intenttions. Just stating two facts. You can derive the conclusion yourself as to how good these accounts are in terms of taking trading direction from them. You decide. I have actually started taking screen shots of some of the more outrageous claims on twitter and will be publishing a “twitter cemetary” of them IF the day ever comes that this space really tanks. The future will tell ;-). Crypto’s perceived aversion to regulation and celebration of criminal individuals It continues to be mind boggling to me, how the tone in the cryptosphere in regards to regulation can be this negative. Regulators are not out there to take away your toys, their mission is to protect you. As you can see with the very, very measured approach that Western governments have taken vis a vis crypto so far, they too do not want to stifle innovation. They are on your side. All they want is to make sure that scammers do not have such an easy time to take people’s money. I know that many in the cryptosphere identify as “libertarian” politically, meaning there is no social network to help each other and everyone forges their own fortunes. That is a view that for better or worse most people do not share. Without going into the political debate (which I do not care to pick up), society has established some rules and not all are simply made by the evil banks that don’t want you to profit. Insider trading, wash trading and pyramid schemes are outlawed for a reason and across different types of political systems. If autocrats, communists, socialists and democratic societies all agree on some forms of poor market behaviour — maybe there is a point to it? Just saying. Crypto should embrace regulation, especially of the thoughtful and measured kind that the SEC has demonstrated. We should all work with them to identify frauds and prevent the parts of society that are still crypto-illiterate from celebrating said frauds (which is currently happening in part). It would help if crypto society also stopped calling for the release of people who actually enabled drug trafficing, people trafficing and illegal sale of weapons via the dark net without stating any names here. The call for freedom of these people is a sad part of crypto. They aren’t martyrs, they broke the law. Also, perhaps some of you should watch the doc “Gringo” on Netflix or similar. Might change your opinion on some people. Crypto valuation I have previously tried to value crypto in an article here using old school methods. While my own try may not be the best, it certainly shows that whichever parallel you use, the value for all of crypto and bitcoin is much, much lower than where we currently are. The only exception is if bitcoin replaces gold in its entirety. But even in regards to that parallel, I believe that at roughly 5% of the price of all gold in the world, bitcoin is currently appropriately valued. As regards the rest of crypto, I don’t think it helps that blockchains can be forked (copied) and provide the same exact functionality in perpetuity. The point I really want to make is that (even ignoring the fact that coinmarketcap disregards large parts of market cap that is held by insiders; you can see an earlier article here) when the crypo market that (I repeat) provides no equity-like rights whatsoever is valued at close to $500bn, you have to start asking yourself if you would rather own 70% of Google or Apple, giving you access to c $20–30bn in profits each quarter or all of crypto. The proportion is just not right. I do not even think that if TCP/IP were a publically traded asset it would be worth this much currently. Especially if it can be copied easily. On a side note: when CNBC has a daily bitcoin price ticker and a crypto show, while literally everyone and their dog talk about blockchain and bitcoin at dinner, you are no longer an early investor. Maybe rid yourself of that idea. I have actually described my fundamental outlook on the space regarding surviving business models, etc in an earlier article and it still shows how I view the space: The Crypto-Awakening — or: what happens after the crash? You can read in my more recent previous articles how I think about the crypto bubble and its bursting as well as what I… blog.goodaudience.com What I would like to add here is a few “bold” predictions and we can see if they become true or not (before you rebel against them, note that they would not be “bold” if they were completely predictable at this point): When the blockchain changes the world, the first “killer app” that we all start using will actually happen on a centralized blockchain. It might be the Fed Dollar, equity trading on a bank-owned blockchain or something else Privacy coin market caps will evaporate the moment a “stable” privacy coin gains a big following The fact that blockchains can be forked and copied in perpetuity will lead to the realization that inflation is actually larger in the decentralized blockchain world than in fiat 99% of current ERC-20 token and similar will either add debt or equity-like rights or will disappear It will be more than two years from now until we can name every day uses of the blockchain that actually gain full mass adoption When and if people ever all look to exit again at the same time, the “liquidity” currently stated on many exchanges will proof to be very shallow indeed I am not sure if any of these become true. I am also still convicend that blockchain technology will change large aspects of the world we live in (referencing my article just above here again), but I think we in the cryptosphere still need a large dose of reality. The latest drop in prices was not enough in my opinion. This seems like a good time to remind you again that all of the above is merely an opinion. Thank you for reading. If you enjoyed this, please clap and have a look if you’d like to follow me on twitter at http://www.twitter.com/dke82. Lastly, the all important disclaimer: this is my personal opinion, not my professional advice. Most of all this is not investment advice in any way. Crypto assets can fluctuate widely in value and all of your capital can be lost. I have a 50/50 chance of being right. Any negative views expressed are solely aimed at the token in question, never at the development teams behind them for which I have utmost respect (if they are sincere).