Bitcoin Price Prediction: How High Will It Go?

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Bitcoin was originally the star of the new breakout disruptive technologies. It was the crypto currency that was both going to completely revolutionize the way the monetary system worked and elicit change in a slew of other industries.  To others it was some sort of voodoo magic technology used in the black market that was going to just end up as some sort of fad. Both of these points of views are wrong about the current and future state of Bitcoin. Recently, the blockchain technology has taken over the spotlight as the underlying technology fueling crypto currencies.

Bitcoin Current Use

Bitcoin’s current use is going to fall somewhere within adoption on the retail and speculative level. Major companies like Microsoft, Intel, IBM, etc. are focusing more on experimenting with blockchain technologies instead to see how it will help them service their clients. Either way all of these new uses of the blockchain have been inspired by Bitcoin and it will still serve a very important focus, meaning that investors should still be putting their money into bitcoin one way or the other.

Some of the aspects these major companies are taking from the bitcoin technology is the multi-signature configurations combined with end to end encryption. All of these services are quite helpful in the financial and other related industries.  Nonetheless, bitcoin is still one of the most important examples of the blockchain in action and is going to continue to be an excellent place to invest in. Bitcoin is the only large scale and open source blockchain technology at work. It is also an example of a public blockchain. This is good for bitcoin because it means that they won’t have competition from large scale financial institutions or other types of financial technology to displace bitcoin, right now it is here to stay.  The creator of bitcoin, Satoshi Nakamoto, said that the current iteration of bitcoin he programmed would not last that long but would do so in another form. Now may as well be that transitionary shift and is evident in the current price and future price points for bitcoin.

Bitcoin Price Points

Approaching the middle of this year and entering the latter half of 2016, the general consensus and sentiment has been that the bitcoin price has been stagnant or at least leveling out. The price has not been moving or fluctuating much. At this moment bitcoin is seeing its first semblance of stability. For those following the bitcoin madness of 2015, right now is a reprieve from the past turmoil and volatility of the past couple years. The price had fallen right below $200 in January. Crypto currency investors were certainly feeling the pain at that time.

After this time bitcoin started to slowly rally upwards, staying at home around $230 for some time. In November the price started to rise upwards and reached $300 then back up to $330. Currently bitcoin has stayed in the low to mid $400s.  Bitcoin has finally found it’s stable price point devoid of volatility. Currently there are no signs of impending financial doom nor is there anything to make investors suspect bitcoin could collapse anytime soon, instead this is the time for speculation for future price points.

Onward to the Hopeful Roaring 20s

Bitcoin has become one of the best performing investment commodities of the past century. During the advent of bitcoin, a user could purchase bitcoins for pennies. Now that price is at $400. During the peak bust time, a single bitcoin was going for $1000 a BTC circa 2013.  Now granted if everyone who owned bitcoins at the time didn’t spend or utilize them, the current price wouldn’t be what it is today and the idea of the technology would be a failed proof of concept.

Still, many people out there are worried that bitcoin has peaked, but bitcoin hasn’t even begun to peak. When bitcoin does peak, investors all over the world are going to feel it.

There are several factors out there right now that lead to bitcoin being worth at least $1000 by 2020, if not close to it. Concerning these same factors it’s almost a guarantee that bitcoin will at least increase past its current market price. A large number of experts and crypto currency consultants have given their opinion on the upcoming price. Richelle Ross, a crypto currency consultant, believes that the price this year will hit at least $650. Daniel Masters, an owner at Global Advisor’s bitcoin fund (a multimillion dollar bitcoin fund), has said that  2016 could be the year bitcoin hits some all time highs. For reference, the highest all time high has been $1,124 dollars. Some estimates are even far surpassing the modest $1000 goal and some believe it could hit $4,400.

Investors could see their investments grow tenfold if any of these investments predictions turn out to be true. But of course no one can predict the future so it is important to dig deeper into the reasoning and multiple factors these price points may turn out to be true.

Underlying Factors

One of the most important underlying factors that will cause bitcoin to increase its value is in the very nature it is created. This currency was created with the intent to only appreciate in value as opposed to depreciating. Comprehending what this means is vital for intelligently investing in bitcoin.

The principle behind bitcoin is that the amount of bitcoins is only allowed a max supply of 21 million. That means when all the coins are mined there is no way for there to be created any more. On the other hand governments have the unlimited ability to print out new currency any time. Once the cap is reached there will no longer be any more bitcoins created, that is to say there will never be more currency issued.  Quick lesson on how bitcoins are mined.

  •  A block is created and then is solved using a computer through a complex set of algorithms.
  • Once the computer has solved this block, the miner is rewarded bitcoins in exchange.
  • This used to be easier and could be solved by even just using a home PC. Now the process is much more difficult.

Now the bitcoin supply number isn’t only capped, but the flow of bitcoins into the market is also slowing down as miners progress forward. That’s why it’s so hard now to mine bitcoins and requires specialized computers or having to join mining pools by linking with other computers mining. The types of computers in order to do this are specialized for just mining and quite expensive. So that becomes an investment in itself before even receiving any coins.

Every four years the number of bitcoins rewarded per solved block is cut in half. It used to be where 50 bitcoins would be awarded and then it went down to 25 bitcoins. Soon the number will be splitting again in 2016 and eventually around 2021. The nature of supply and creation is the most important aspect to take into consideration when investing in bitcoin. Satoshi believed that be utilizing this method it would have the intended effect of dramatically raising the price and value over time.

Now barring mention of the 2013 bitcoin bubble burst, the general consensus has been that bitcoin is constantly trending upwards. These trends are important observations to take note of. At times when there is a significant increase people get the idea that they have to buy at this time before prices get even higher, the basic premise of that strategy is so they can make more money later on. Sometimes this type of thinking can be negative and cause an artificial inflation in the price, causing an eventual crash until levels even out to a more secure price.

This is exactly what happens to the many different financial investment spheres. The most notable one was the housing market bubble, as well as the constant inherent boom and bust cycles unique to the oil industry. When speculation runs rampant there is the possibility for a bubble. Bitcoin had its overvaluation in 2013, but luckily the price rise happened in a short amount of time and the market correction has occurred.

Investing in Bitcoin Now?

As an alternative investment not directly tied to the stock market, bitcoin has the chance of being used as a safe haven currency investment. The year started off turbulent due to China’s lapsing economy and other various issues regarding commodities, federal interest rates and other varied fears compounded together. When stock markets are declining, people lose faith in the financial system as a whole. In the great recession of 2008, for example, prices for gold flared up as people became less confident with paper currencies as well.  If stock markets suffer another large hit in the future (which is a possibility), bitcoin prices could drastically raise.

These types of steady gains are going to continue in the future, the basis for this comes again from the slowing creation rate of bitcoin and increased validity as a currency.  If the price was just to increase by 15 to 25% per year, the price will either top off at around $715 to $1000 a bitcoin. These gains are more than possible and probably outpace any gains in the stock market, making this an ideal stable time to buy bitcoin.

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Mike Colagrossi is an analyst at ActivistStocks.com covering activist investors and major deals at hedge funds. He also regularly contributes to SeekingAlpha.com and has a strong interest in alternative investments and emerging markets.