The first three months of 2013 saw the value of the digital currency Bitcoin rise from around $5 to almost $260 in April before crashing fast to a low of around $60.
Since then there’s been some recovery and at the time of writing Bitcoin is fluctuating somewhere around just short of $100.
People are now asking where the Bitcoin price will go from now.
What Will Happen to the Bitcoin Price?
To answer this question you have to bear in mind one crucial point.
Bitcoin is not a normal currency with normal price fluctuations. It’s band of volatility – from one day to the next, is extreme and it’s of a kind not seen in any of the traditional Forex currencies, nor even in gold or silver or most commodities.
First let me say I think it’s unlikely that the Bitcoin price will suddenly shoot back up to above $250 in a hurry in the near future. This price level was shown to be too ambitious for Bitcoin at this stage and people are now too wary.
Upward progress is likely to be much slower, with pauses and fallbacks at intervals as the market takes stock and people sell off again to realise their profits along the way.
But I think Bitcoin will recover to 200 and above eventually, maybe over the next month or two.
This is actually a good thing. Slow steady appreciation is always better than sharp sudden upward swings.
Where we are now in mid April is basically where we would have been, had the growth of January to March continued at the same rate through March and into April. And this growth was in itself substantial by any comparison.
So in that sense, little has changed. Anyone who had taken a break from all the Bitcoin news in from late march to mid April and had suddenly returned to check the Bitcoin price would not have noticed that anything unusual had happened.
The real danger comes if we get another parabolic rise occurring with the Bitcoin price like in the last weeks of the March Madness of 2013. That would be a sign to get off the bus quickly because any asset price index is inherently unstable whenever it gets into that situation. Steady growth is always better than parabolic growth.
Also, when everyone is saying it’s going to rise further and further right away and is piling into Bitcoin, then that’s the time to be sceptical and exit.
All the positive fundamentals for Bitcoin still remain as they were. For example, ease of transfer, speed of transfer, no fees, no banks involved, no bureaucracy.
There is also continued increasing interest and take up of Bitcoin. So all these positives still apply and they still point to an upwardly appreciating Bitcoin price in the future.
One thing we can be less sure of is that the Bitcoin currency will appreciate in an orderly fashion over time. It looks likely that we’ll be seeing heavy swings up and down over time.
Bitcoin may well see a mad up and down over the coming months as people test it out and push the price to the limits and then down again. So people will have to get used to substantial fluctuations in the value of Bitcoin.
Another thing to bear in mind is that as newcomers find out about the digital currency and enter the market who aren’t used to the volatility of financial markets, they will be the people most likely to panic whenever a fall in the Bitcoin index occurs. This will be the group most likely sell immediately and so make the falls worse.
Obviously, all the above is only my opinion. No one ever knows for sure what asset prices will do in future. Least of all the price of an asset as new and volatile as Bitcoin.
Disclaimer and Disclosure
WARNING: The value of all investments can go down well as up. Always seek independent professional advice before making any investment decision. Never invest in any asset or scheme that you do not understand. Never invest more money than you can afford to lose.
DISCLOSURE: The author holds investments in currency and the stock market at the time of writing this article.
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