Why Bitcoin Crashed in January 2018
“Too big to fail” is a phrase often ascribed to the banking industry giants who have become so huge that their failure poses a threat to the entire economy. For some governments, Bitcoin is now becoming the cryptocurrency equivalent of these “too big to fail” enterprises.
It is ironic that the very technology that promised to break us free from the clutches of money-hungry sharks is now being viewed as their equivalent. Yet, this idiosyncrasy strengthens our Bitcoin price prediction for 2018.
Bitcoin’s meteoric rise, not just as an alternate currency but also as an alternative investment asset class has gotten governments wary. Just take the example of South Korea—the country that allegedly triggered the great cryptocurrency crash of 2018.
South Korea is one of the biggest markets for cryptocurrencies in the world. From minors to seniors, citizens from all ages and walks of life have been trying their luck with these alternative investments.
As billions began to flow into this niche market, the government felt the urgency to put a stop to Bitcoin’s growing influence. The Korean government feared that Bitcoin’s expanding stronghold posed the risk of a systemic meltdown in the event that it failed.
If Bitcoin crashed, it could wipe out billions in life savings of a significant proportion of the Korean population. And because Bitcoin is decentralized, there’s little the government can do to control it.
Their best bet was to ban it altogether. Basically, they decided to nip the evil while it’s still in the bud.
South Koreans panicked and sold their cryptocurrency holdings in fear of losing all their money. The price drop was significant enough to get registered on the world stage. Investors in other countries, who would have remained completely unaffected by the ban, just ended up dancing to the Korean tune.
Although public backlash forced the Korean government to backtrack on its ban plans, the death scare was enough to show us a brief glimpse of what an ugly crash could look like.
The lesson to learn from this fiasco is that decentralization could be both a boon and a curse for Bitcoin.
As more and more governments begin to fear Bitcoin’s emerging “too big to fail” persona, expect them to come lashing out at it. This could add to Bitcoin’s volatility in the short run.
In the long run, however, the only thing investors should be concerned about is how big Bitcoin is truly getting. This is where big money is to be made.
Should You Invest in Bitcoin Now?
Last year in May, I addressed the exact same question when Bitcoin was trading at around $2,400. I put a $5,000 price target on Bitcoin in my yester-year post on the Bitcoin price prediction. Turns out, I was way too conservative. This time, I’m setting a wilder price target but with a lot more conviction.
My reasoning to support Bitcoin, however, has not changed. I still believe that with supply being constant, growing demand for this digital currency will eventually take prices straight to the moon, which is my BTC price forecast is nothing but bullish.
To gauge its growing influence, take note that just this week, the International Monetary Fund (IMF)—one of the biggest global financial authorities—has called out to government regulatory bodies across the world to come to the table for drafting international regulations on cryptocurrencies. (Source: “IMF Calls for Global Talks on Cryptocurrencies,” Bloomberg, January 18, 2018.)
Simply put, the world powers are going to put their heads together to create a level playing field for Bitcoin.
Now that Bitcoin is trading at nearly half of its all-time high price, we believe that investors may have been presented with a potential million-dollar opportunity that only becomes available once in a blue moon.
Here are a few reasons why we’re bullish on Bitcoin.
Firstly, 2017 was a groundbreaking year for Bitcoin. This is not only because Bitcoin ended the year with a staggering 1,400% in gains but also because Bitcoin somewhat earned legitimacy in the investment world.
For instance, the U.S.-based options trading markets, Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE), became the first derivative exchanges to offer the first-of-their-kind Bitcoin futures for trading.
Then, some banks also began offering Bitcoin trading and Bitcoin asset management services. Take the example of Swiss banks Falcon Private Bank and Vontobel Holding AG (SWX: VONN). (Source: “Swiss Banks Say Bitcoin’s Best Days Are Still Ahead,” Bloomberg, December 8, 2017.)
Also, by the end of the year, over 2,000 Bitcoin ATMs were functioning across the globe. Exactly five years ago, this number stood at one. Now, just try to visualize where this number would stand another five years from now. Meanwhile, Bitcoin debit cards have also become ubiquitous.
At the same time, more and more retailers are continuing to accept Bitcoin as an alternate mode of payments. Just last week, KFC Canada became the first major food retailer to begin accepting Bitcoin. Likewise, some Subway franchises in the U.S. have been accepting Bitcoin for a while now.
Other major retailers that accept BTC for payments include Microsoft Corporation’s (NASDAQ: MSFT) online store, home e-tailer Overstock.com Inc (NASDAQ: OSTK), travel booking web site Expedia Inc (NASDAQ: EXPE), and electronics seller Newegg.com. There are countless other big and small companies, local stores, and businesses now accepting Bitcoin across the world.
With all of these tailwinds working in Bitcoin’s favor, industry analysts are beginning to put hefty price tags on Bitcoin.
Just last week, Tom Lee—an equity strategist who has formerly worked at the Wall Street—predicted that Bitcoin could hit $25,000 in 2018. (Source: “Tom Lee, bitcoin’s earliest and most bullish forecaster on Wall Street, is even more positive after crash,” CNBC, January 18, 2018.)
Thomas Lee runs Fundstrat—a research firm that conducts market research—and is a renowned Bitcoin bull. He’s known to have racked up on Bitcoin every time prices pulled back.
Lee believes that the ongoing fear in the market, sparked by the South Korean government’s ban threats, could force prices to hit $9,000 and that’s when he would go in and buy some more BTC. To him, this could be the “biggest buying opportunity in 2018” and I can’t agree more.
I’m a Bitcoin enthusiast but I have no qualms in saying that Bitcoin is not a stable investment made for the faint-hearted. If you’re looking to invest in Bitcoin only in the short run, then you must know that Bitcoin is an extremely volatile wager, meant only for daredevils. In my view, the best way to invest in Bitcoin for an average investor is to hold it for the long haul.
My Bitcoin price prediction 2018 is conservatively aligned with Tom Lee’s bullish Bitcoin forecast. I believe Bitcoin could once again double from here. I’m setting a $20,000 BTC price target for 2018.