Why is it that some saw a Bitcoin price at $ 100,000 this year, but it was not met?
Writing for the press in these times is not an easy task. If you write a critical article, they accuse you of spreading FUD. And if you write a positive article, they accuse you of promoting the FOMO. It is not uncommon for the person to already have their opinions well formed and only read the news for confirmation. This means that anything other than a confirmation is automatically rejected. In many cases, analysts play the role of sounding boards for preconceived audiences. In periods of greed, everything is optimism. In periods of panic, everything is catastrophe. Views and likes are obtained by giving the audience what they want. And objectivity? Thank you and goodbye.
In this postmodern world, popularity is more important than objectivity. People distrust CNN or the BBC. But strangely enough, he blindly trusts an anonymous source on Twitter. Form your Youtube views. Believe the rumors. Listen to conspiracy theories. But it dismisses all official and formal sources. Apparently a couple of documentaries is enough to understand anything. So social media is packed with experts.
Let’s talk about the Bitcoin price predictions. A few months ago, it was all optimism. And greed was through the roof. Naturally, most of the predictions were for at least $ 100K by the end of the year. In the first place, all this positivism was a direct reflection of the atmosphere that was breathed. In other words, the predictions speak more about the present than about the future. If we read everywhere that price is heading toward a certain target, that doesn’t necessarily mean that price will indeed be heading toward that target. What it really means is that there is a lot of greed (or fear) in the environment. Unfortunately, consensus among analysts does not always mean the expected results. In most cases, it is a sign of overbought (or oversold). In other words, the trend is about to change.
Obviously it is extremely paradoxical. Everyone says the price is going to go up. And suddenly the price plummets. How do you explain this? Well, the markets are extremely emotional. And, for an analyst, the tendency to say what people want to hear is simply too much. Riding the wave gives you visits, followers and I like you. Saying what people don’t want to hear generates deep rejection. On the other hand, let’s say you are the CEO of an exchange or the manager of a cryptocurrency fund. Of course, it is not convenient for business to speak of a coming bear cycle. If the idea is to attract customers, it is best to maintain enthusiasm.
In many cases, the predictions are promotional campaigns. A goal is presented to raise spirits. Hoping that prediction turns into a self-fulfilling prophecy. However, when the prediction comes from such a charismatic figure as Elon Musk or a firm like PlanB, many retailers do think that there is a crystal ball somewhere on the planet. And these chosen ones have access to it.
Of course, not all predictions are white lies. Many analysts do make serious predictions supported by statistical projections. In other words, the study of probabilities. Usually a series of indicators are taken. And patterns of the historical line are identified. With these patterns, projections of the future can be made. What is the problem here? Well, the future is not always like the past. And the indicators taken into consideration are not always the only indicators in the equation.
The great enemies of predictions are exceptional events and system complexity. The exception contradicts probability. And the complexity causes the indicators to give off false signals. Let’s talk for a moment about the Stock / Flow model. That model relies on the supply and flow of Bitcoin. It revolves around scarcity as the primary source of value. In theory, everything is very clear and simple. In fact, I dare say that its popularity stems from that simplicity. But it fails quite a bit because it does not take demand into account. It completely ignores the macroeconomic and monetary realities. A pandemic, exceptional monetary policy, and a highly complex and changing macroeconomy challenge old patterns. However, many still insist on using the 2016-2017 charts to predict the future.
Now, in the world of investments, it is not a very good idea to be with the consensus. Thinking like others usually means, sooner or later, losing money. In this sense, you have to be very careful with collective opinions. “Bull markets are born out of pessimism, grow in skepticism, mature in optimism and die in euphoria.” This means that the dough is generally clumsy. Therefore, it is best to move in the opposite direction. For example. You have to sell the optimists and buy the pessimists.
The collective euphoria is usually a sign of overbought. All the predictions are bullish because that’s what the market wants to hear. If an analyst dares to suggest the possibility of a price collapse, he is usually heavily trumped on the internet. The euphoric mass is blind. However, a euphoric mass already bought. They are all up to their necks. And the one who was going to buy already did. Suddenly someone decides to sell. But the money to buy ran out. There the fall begins. And, with the fall, comes panic. Despite optimistic predictions by analysts, the price is plummeting. And confusion and bewilderment invade the market.
Finally, ideology is largely responsible for bad analysis. Libertarians represent Bitcoin as a hard currency (scarce, safe, and not confiscable). That makes it a “safe haven” in times of crisis. A hedge against inflation. However, that is more ideological aspiration than reality. Most investors view Bitcoin as a highly volatile speculative asset. Very profitable, but extremely unstable. That means it skyrockets during loose monetary policy. But it can collapse in a conservative environment. That is, a surprise change in monetary policy will have a great effect on the future of the price. It could certainly mean a turnaround. In this case, macroeconomics and investor perception outweigh ideology.
It may interest you:
- Inflation and Bitcoin: Why so much misunderstanding?
- Cryptocurrencies: Chaos or Revolution?
- Is crypto winter coming?