Bitcoin price analysis: Success story

With a little change of perspective, it’s easy to see the current bitcoin price as a success story,

29Aug

There are countless reports analyzing the price of bitcoin released every day. Each one is focusing on a different time frame and approaching the problem from a different perspective. Needless to say, many of those analyses have been negative this year. It’s obvious to see why: The price of bitcoin has crumbled in 2018 and nobody knows when a recovery might come around.

But, with a little change of perspective, it’s easy to see the current bitcoin price as a success story, even for the lows of sub $6,000 this year. That change of perspective is seen by simply changing the time frame of the analysis from daily or hourly charts to a yearly chart. When you look at it on this scale, things don’t seem that bad at all.

The bitcoin yearly chart

Looking at the average monthly prices in June for the last few years, you get:

● June 2018 ~ $6,343;

● June 2017 ~ $2,504;

● June 2016 ~ $672.

Even the June 2018 price of $6,343, the lowest monthly price in 2018 so far, is a 255% increase from the same time last year. Even more impressive, it’s a 950% increase from two years before. Going two years further back puts the percentage gains in bitcoin absolutely off the charts.

These figures make bitcoin the most profitable investment in the world over the last few years. That definitely makes it a success story.


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High volatility throws most people off

Along with being the fastest growing asset in the world, bitcoin is also the most volatile one. This crazy volatility, where the price routinely jumps and drops double-digit percentage points in a single day, can easily throw investors off the scent of bitcoin’s real, fundamental growth in value.

It’s so tempting to keep comparing the current prices to the highs of December 2017. After all, bitcoin was selling for almost $20,000. You may even have bought some bitcoin at that level and need to get back there to break even.

Although it makes much more sense to look at that price as an outlier, in the grand scheme of things, bitcoin is steadily gaining momentum.

Bitcoin has gone through these outlying bubbles before. Back in 2013, the price rose more than 10x from under $200 to over $1,000 in about a month, leading to a huge buying frenzy. People were touting it as the great breakout, and more and more enthusiasts jumped in to buy bitcoin. Of course, the price tanked shortly after to around $200-500 levels and stayed there for a good couple of years after.

Normally, a jump from sub $200 to $600 and a 3x increase in value from 2013 to 2014 would be a huge success story. But throw in the giant spike to $1,100 in the middle, and all of a sudden $600 doesn’t look that great. The exact same effect is happening right now.

Of course, these prices from 2014 seem like chump change now. We’d all jump at the opportunity to buy bitcoin at that peak hysteria price of $1,100 now. It may well be a while before the previous peak is reached again, but we are already at impressive price levels. They just look bad when compared to the peaks.

Will we see a repeat of 2013?

If so, we could be in for a long wait to crack record price levels again. It took around four years to reach those highs again that time. Bitcoiners that bought in December 2013 had to wait until 2017 to see a return on their investment. Of course, many didn’t because they sold as soon as things went south. That is one of the factors that drives a big crash. 

But on the grander scale, we are looking at here, we don’t need to hit record levels to have a good year. To continue the current trend from 2017-2018 we would need to have an increase in value of 255%, that means the price would have to push up to $16,286 by June next year. That’s lower than what we saw in 2017.

All of a sudden, that price target seems very reasonable for June 2019. This is especially true when you compare it to the many " expert predictions giving bitcoin a target of hundreds of thousands of dollars in a year or two.


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The bitcoin price is chugging away

Bitcoin’s proneness to volatility and huge bubbles gives it a bad reputation as a poorly performing asset. But when you zoom out and analyze things on a wider scale, it’s easy to see how exceptional it’s really been. As long as adoption and acceptance continue to grow and technological innovation can keep the network operating properly, the price should keep improving.

Takeaways

The two key insights from this analysis are:

  1. From a yearly perspective, the bitcoin price is a huge success story;
  2. Be very careful to not get caught out by volatility.

Bitcoin has been an exceptionally performing asset for years now. Though the prices we looked at here were from June 2017 to June 2018, if you bought bitcoin during peak hype in between those dates, you’re down on your investment so far. Volatility and price pumps are just things that happen with bitcoin, and they will likely continue to happen.

A good way to protect yourself against losing out by buying at the peak of a bubble is to spread out your investment. Buy small amounts every month to spread out the risk. If you had done this from June 2017 - June 2018, the price would have averaged out to around $7,200. You would have missed out on the lows but guaranteed yourself to avoid the peak too.

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