Bitcoin Price Forecast Update
January 18 2018 - Bitcoin: The Greatest Bubble of All Time By Elliottwave International
Excerpt from The Elliott Wave Financial Forecast -- January 5, 2018
Back in 2010, when Elliott Wave International first discussed the outlook for bitcoin, Elliott Prechter offered an extensive and positive review of its prospects. After detailing bitcoin's origins, purpose and operational features, the September 17, 2010 issue of The Elliott Wave Theorist concluded, "Bitcoin appears to have enormous potential"; at the time, it was trading at 6 cents. As a July 2017 EWT update noted, this "proved to be the buying opportunity not just of a lifetime, but so far of all time." From that point to its highest quoted value of $19,511 on December 17, bitcoin gained a hard-to-fathom 32 million% (roughly speaking, as peak times and prices vary among different exchanges).
In July, bitcoin was approaching $3,000 and Elliott Prechter warned of a mature Elliott wave pattern, optimistic psychology and fundamental constraints in the form of blockchain bottlenecks and stated that they "will lead to the collapse of today's crypto-mania." The bubble was not done inflating however, and bitcoin persisted in pressing higher. Still, throughout the latter half of 2017, EWT and The Elliott Wave Financial Forecast continued to point out the insanity and significance of the crypto-craziness. On December 1, EWFF cited a "rising sea of euphoria, ever-higher price projections and the capitulation of financial sophisticates" as a powerful combination of forces that would mark the demise of bitcoin's incredible upward trajectory. "We are more convinced than ever that bitcoin will disappoint its late coming enthusiasts."
Through the first half of December, evidence of a rarified sentiment extreme continued to mount. One prototypical occurrence in the life of any investment bubble is that fateful moment when investors become so enamored of fast-rising prices that they borrow to the edge of their means to purchase the asset. By December 1, bitcoin had clearly surpassed this hurdle. The president of the North American Securities Administrators Association observed that investors were taking out mortgages to buy bitcoins. "People do credit cards, equity lines," he added. In recent weeks, several firms touched off rapid increases in their share price by simply announcing plans to plunge into the cryptocurrency business. UBI Blockchain Internet is a prime example. In December, the company revealed that it will use blockchain technology to "trace a food or drug product from its original source." In a share offering that was filed on December 21, the company listed cash on hand of just $15,406 and monthly expenses of $220,000. The firm's president is a former executive at American Oriental Bioengineering, the developer of "UrinStopper Patch," a bedwetting inhibitor. Bloomberg reports that the product was "said to contain a ‘radioactive photon' that would ‘warm the acupoints.'" But the stock cratered soon after a Barron's story noted "tests of the patch ‘detected no radioactive elements.'" In the heat of the most intense speculation in history, history has no relevance. An offering of stock in the company was being prepared during the first fifteen days of December, and the chart at right shows what happened to UBI Blockchain Internet's share price during this time; it surged 2200%. As bitcoin continued its advance in the first half of December, similar share-price spikes were posted by several other companies after they "folded cryptocurrency into their business plans." When shares in a manufacturer of electrical supplies announced "plans to join the rush to unlock digital currencies," its stock skyrocketed. Bloomberg stated, "The magical kiss of bitcoin has turned another frog into a prince."
On the afternoon of Sunday, December 17, something happened that suggested strongly to us that the fairy tale part of the story was approaching its climax. As we entered a Cincinnati, Ohio watering hole, we were drawn to an animated discussion by the magic word of "Winklevoss," which could only mean bitcoin was the object of discussion. "It's supposed to go to $1 million," said one of the chatters. This comment seemed a sign that expectations were approaching something that continues to seem impossible to bitcoin's admirers, a final limit. Bitcoin's price peak to date occurred later that day.
Is the bitcoin mania really over? The odds are high that it is, for all the reasons previously enumerated here as well as recent issues of EWT and the Short Term Update. This banner headline summarizes our stance:
Elliott Prechter: I Wouldn't Touch Bitcoin, Risk of Collapse Too Big -- Newsmax, December 21
The response of the cryptocurrency faithful also suggests that the bitcoin bubble is over; they seem only to be emboldened by its decline from the December 17 high. On December 22, Bloomberg captured the following quote from the chief executive of a blockchain research firm: "As the meme says, ‘If you can't handle my 25 percent plunges, you don't deserve my 10x return.' Nothing goes up forever without stopping [occasionally]." At this point, steep but temporary corrections are just a facet of the blockchain dream state, which is considered a permanent reality. Our chart below of the share price of Long Island Iced Tea Corporation captures the fearlessness of bitcoin admirers. On a single day, December 21, a lightning-bolt rise of 288% occurred, four days after bitcoin's peak. The gain was sparked by the company's announcement that it was changing its name from Long Island Iced Tea to Long Blockchain Corporation. At the same time, the "obscure microcap" said it "will now seek to partner with or invest in companies that develop blockchain." The firm currently "has no agreements with any blockchain firms." In the first nine months of 2017, the company lost $11.6 million on sales of $3.9 million. How will a company that did so poorly in the iced tea business make it in a complicated technology business that is being inundated with well-funded competition? In the upside-down world of bitcoin, one trader explains, the best strategy is to come up with "the most superficial understanding" imaginable and then assume "that's how the market will act." We've seen it before. In the technology mania of 1999-2000, earnings and then sales were cast aside for "burn rates" in which a company was celebrated for how quickly it burned through its venture capital financing. The object was not making money but losing it slower than other available technology stocks. Yes, Virginia, pockets of insane optimism still do exist; but not for very long, in our opinion.
If this mania is not over, it should be very soon. History's most important lesson is that after a mania ends, a crushing bear market follows. By studying past manias, EWFF has demonstrated that their termination may be confirmed by the appearance of a new reality in which fraudulent practices and other shortcomings, overlooked during the manic phase, begin to make news. EWFF discussed the importance of this phase as the dot.com bubble began to unwind in mid-2000. In a June 2000 section titled, "Financial Shenanigans Coming to Light," EWFF noted that a "return to sobriety is uncovering all kind of techniques that have allowed firms to pyramid stock market gains." In time, the same transition from a bullish atmosphere of widespread credulity to a bearish vibe of distrust and skepticism will develop in the crypto-coin market. Firms such as UBI Blockchain Internet will be cut down by the dominance of a negative mood just as Enron and Martha Stewart's insider-trading antics were in the early 2000s. For some, we suspect that the journey from blockchain to chains and a cell block will be a quick one. Even at this very early stage of a trend reversal, the evidence of a growing hostile environment for cryptocurrencies is taking form. In recent days, bitcoin has been identified as everything from a corrupter of youth to an environmental hazard. The former charge was leveled by the South Korea Prime Minister Lee Nak-yeon. Likening cryptocurrency trading to a social pathology, Nak-yeon said "it could cause kids to get into crime such as drug trafficking or pyramid schemes." South Korea's Ministry of Justice says it may close all of the country's cryptocurrency exchanges. As the bear market heats up, governments will attempt to get in on or simply overturn the cryptocurrency bandwagon. Russia and Venezuela have announced plans to issue cryptocurrencies, and the Bank of England is exploring setting up a sterling-based cryptocurrency. As EWI has discussed previously, governments are always the last to act on a financial trend; their involvement usually means the trend is near exhaustion if not past it. The reputed environmental impact of bitcoin mining will probably serve as another excuse for heavy-handed government involvement. A Bloomberg column notes that bitcoin mining operations may equal the energy use of "three million U.S. homes." "If we start using this on a global scale, it will kill the planet," says one crypto-critic. More emerging bitcoin fiascos are hinted at by these recent headlines: "Bitcoin Intensifies Pain for Some as Ransom Demands Skyrocket;" "Large Bitcoin Exchanges Say Hackers Are Attacking Again;" and "Bitcoin Is a Fraud." The last is from the Daily Express (U.K.) on December 22; it notes that bitcoin "has received a great deal of negative press in recent days." The bad press will only get worse as the great Bitcoin Bust intensifies.
Of course, bitcoin's biggest problem is that it no longer works for its intended purpose. EWT pointed out this shortcoming in July; it is now starting to be discussed more broadly. A Bloomberg column on December 27 says, "Bitcoin Is an Implausible Currency." As a medium of exchange, bitcoin's flaw is that it is becoming less efficient as it becomes more expensive to complete every transaction. As a store of value, a currency's other primary function, it was more than adequate for a time; it added astronomically to early buyers' original outlay. Since December 17, however, holders have not been so fortunate. Instead of storing value, their bitcoins are shedding it, sometimes in double-digit percentage chunks in merely minutes.
Interested in the "wildest financial craze ever"?
Few investors imagined Bitcoin would ever fly as high as it did ...
Yet, its price fluctuations look remarkably familiar on a chart.
Yes, Elliott waves are at work in this brand-new asset class just as they are in the established markets.
EWI was one of the first (possibly the first) financial publisher to ever talk about Bitcoin. Cryptocurrencies have the world's attention now, yet U.S. stocks, gold, bonds, crude oil and more offer opportunities for investors in the know. Our Financial Forecast Service will help you get there.
Award Winning Forex Broker AvaTrade
Trade Currencies Commodities Indices Equities and Bitcoin