Wondering how high bitcoin will go? One analyst says $55,000+ by end of year 2021. Let’s keep an eye on him.
Update: Analyst accountability is a big thing at Finance Gourmet. Sometimes, I wish watching, rewarding, and outing analysts was a full-time job I could get somewhere. Until then, it’s time to give out some credit, where credit is due for bitcoin analyst Michael Novogratz and his November 2020 call, as bitcoin prices hit 40,000, just below his bitcoin prediction of $55,000 by EOY 2021. Originally published 11/18/2020.
Michael Novogratz – November 18, 2020:
Some recent bitcoin buzz comes courtesy of Michael Novogratz who is out saying that bitcoin prices could rise to $55,000 or $60,000 by the end of 2021. With bitcoin trading near $18,000 that’s more than just being bullish. Is he right, and just how high will bitcoin go?
Good Bitcoin Analysis?
Unlike most financial publications, I believe in financial analyst accountability. Anyone can blurt out a prediction, hope to be right, and then going around telling people that you called it, while failing to mention any other “calls” that weren’t so good. So, let’s take a look at Mr. Novogratz’s track record as a bitcoin predictor.
In May 1999, Mr. Novogratz said on CNN that bitcoin should cross $20,000 within 18 months. — It’s November 2020, approximately 18 months later and bitcoin is trading near $18,000. It might not make $20,000 by the end of the month, but that hardly counts as a miss. (Bitcoin did indeed hit $20,000+ in 2020.) After all, predicting $20,000 in 18 months when bitcoin was trading at $6,000 after many people were wondering if THAT price was too high after nearly doubling in the previous six months is surprisingly accurate.
He also called bitcoin $10,000 in the next six to ten months in October 2017. He was right. Bitcoin rose over $10,000 in December 2017.
Bad Bitcoin Predictions
Of course, no one is right all the time. Novogratz also called a “bottom” in bitcoin in September 2018. The bottom came, but not until four months later. We could chalk that up to just being early, but the bottom came another 50% down later. That’s hard to say is just bad timing. In fact, bitcoin wouldn’t trade back to September 2018 levels until April 2019. Certainly, anyone who held on through the whole bottom did fine, but anyone relying on that call likely did not see it as a good one.
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One key thing missing from Mr. Novogratz’s predictions is any “down” calls. You can’t claim to be a good analyst, or prognosticator, without also being able to see the time to sell bitcoin as clearly as you see the time to buy bitcoin.
We’ve seen this kind of thing before. Goldman Sachs analysts Abby Joseph Cohen was famous during the internet bubble for always being “right” when calling for higher and higher stock prices. But, she missed the bubble popping, and actually calling on investors to “buy the dip.” In the end, her predictions were not so much accurate, as just guessing that everything would always go up.
Investors have a term for folks who are always predicting higher prices and sunnier days for any kind of investment: permabull. Permabull means someone who is permanently bullish. Permabulls don’t necessarily make the best investing gurus because you already know what they think, “Buy!”
Why Bitcoin Will Rise
For reasons that bitcoin prices will keep going up, Novogratz cites the growing argument that bitcoin acts as an inflationary hedge as one reason for bitcoin’s rise. The idea is that, like gold, bitcoin isn’t necessarily tied to any one currency. While inflation continues to remain tame, or even non-existent, in these uncertain economic times, there are those who worry that there is too much stimulus out there, and that central banks like the Federal Reserve will be too slow to withdraw it once the economy starts to recover in post-Covid landscape.
Others point to an overvalued stock market, and investors looking for somewhere else to invest money. Bitcoin prices do not seem to correlate with the stock markets, making it an alternative investment like other commodities, and even bonds, whose value doesn’t necessarily move in the same direction as stock prices.
Why Bitcoin Will Fall
With a big bubble-like increase, the fear of a bitcoin crash is real.
All investments have ups and downs, and assuming “this time is different” almost always ends in trouble. In fact, bitcoin has proven to be spectacularly volatile in the past few years. There are several reasons bitcoin could fall.
First, and foremost, is that bitcoin is nothing. There is no backing to bitcoin other than that there are some people who insist it has value simply because there is a limited supply. If people decide to stop believing it has value, then there is no value.
One could make the argument that the U.S. dollar is no different. However, the dollar is backed by the US government, which is a very real thing.
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Second, as an alternative investment, bitcoin may, like gold, suffer the whiplash of investors leaving for “better” investments when times change. In a bull stock market with less fear, the need for alternatives to stocks and bonds declines, resulting in lower demand, and lower prices for investments like bitcoin.
Third, and maybe most importantly of all, is the uncertain governmental reactions to bitcoin. Many of bitcoins biggest swoons have come on news of increased regulation, or outright banning of the currency by certain governments.
Should I Invest In Bitcoin
As always, for long-term investors, a well-diversified portfolio constructed to meet your goals and risk tolerance is the best investing strategy. Bitcoin could be a part of such a portfolio for some investors, particularly those seeking additional alternative investments. For most long-term investors, bitcoin is an unnecessary, even if not poor investment choice.
For short-term bitcoin investors it is important to remember that bitcoin prices do not move like stock market prices and should not be traded in the same way. Bitcoin moves quickly and volatility on news that often cannot be predicted such as government announcements, bitcoin hacks, and other news.
Investors should be prepared for volatile and unpredictable prices.
As always, this is not an offer to buy or sell securities. This article is informational in nature and does not represent individual advice. For advice specific to your situation, consult your financial advisor or tax professional.