Bitcoin In 2018: "There Will Be At Least 4 Crashes Of 40% Or More"

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by Tyler Durden
Wednesday, Dec 27, 2017 - 13:20

By Nicholas Colas via,

When you see something titled “Bitcoin 2018 Predictions”, you are probably most interested in just one thing: “Where will it go?” So let’s start there, but then add some other observations on a variety of topics.

#1: We expect bitcoin will trade for between $6,470 and $21,600.

Here’s how we get there:

  • Bitcoin’s primary “real” use case right now is personal asset protection. Yes, that includes money laundering and tax evasion. But it also incorporates the legitimate desire of honest people living in countries with less-than-exemplary rules of law to shield some of their assets.
  • At the moment, the primary instrument used globally for these purposes is the $100 bill. Yes, the European Central Bank also issues high denomination notes. But the gold standard of paper currency is the American C-Note. (Oxymoron intended).
  • While bitcoin doesn’t have the backing of the US government, you can’t forge a bitcoin (and there are likely as many fake $100s in circulation as real ones). Plus, you don’t need a locked aluminum case and a handcuff to transport it. So we’ll call it a draw.
  • There are $1.1 trillion of legitimate $100 bills in circulation, and by the Federal Reserve’s estimate some 80% live offshore.
  • If bitcoin were worth 10% of the $100s in circulation, its value would be $6,470. The math: $110 billion divided by 17 million bitcoins equals $6,470.
  • If bitcoin were worth 33% of all the $100s in circulation, it value would be $21,600. Same math as prior point. Could bitcoin get to 50% of the value of all $100s? Possibly, but that level of adoption likely requires more time.

At the average of the high and low, we get to $14,035. That’s not far off the current trading price, which gives us comfort we’re on the right track with our valuation. The only way it goes substantially higher is if/when someone comes up with a large-scale business that uses bitcoin. That may come in 2018. But for now that scalable use case is asset protection, so that’s how we value bitcoin today.

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

#2 Bitcoin will lose market share to other crypto currencies in 2018.

There is essentially a “Civil war” in crypto currency land between competing offerings. That wasn’t really the case until Q4 2017, but we expect more strife next year. The reason: bitcoin is still about 44% of total crypto currency market cap. Backers of other crypto currencies have an outsized incentive to encourage bitcoin holders to switch.

#3 Many major US brokerage firms and asset manager will announce plans to open a crypto desk.

Early adopters of bitcoin and other crypto currencies are an untapped source of profitable new clients for high net worth brokers and asset managers. But in order to access that wealth, these firms will have to offer an exchange mechanism to sell the underlying and diversify these clients’ holdings.

#4 There will be at least 4 crashes of 40% or more.

Bitcoin and crypto currency 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.

#5 Coinbase will improve operational quality ahead of an IPO, helping crypto currency adoption rates.

Coinbase (a popular wallet app) closed a Series D round in August of this year. In total, they have raised $225 million and that last round gave them a $1.6 billion valuation. Given the dearth of “Real” crypto currency plays in US equity markets, we expect the company could do an IPO in 2018 at a $5 billion valuation or greater. And since it is VC funded, we expect many investors will be looking for exit sooner rather than later.

The reason why this matters: Coinbase needs to improve its customer experience a lot, and quickly. The system did not work well during the recent bout of volatility. But when it does improve (and it will, if it wants to go public), more investors will feel comfortable buying crypto currencies.