Bitcoin could be heading down to $2,000 or up to $10,000, depending on the forecasting model applied to estimate the digital currency’s “intrinsic” or “fair” value.
Bitcoin has been falling fast, very fast, breaking one price “floor” after another.
First, it broke the $6000-mark — a “floor” the digital currency held for almost three months. Soon after, it crossed the $5700-mark, another “floor” according to some experts.
And eventually, the $5000-mark.
That’s a round number that could also be considered a “floor” for the digital currency by those who follow market charts closely.
All in all, Bitcoin is down close to 30% in just seven days, and close to 80% over a twelve month period.
What’s driving the sell-off? Chebotaev, CEO of Betmatch, blames the threat of the “hash war.” “I think the hash war will continue to cause a bit of havoc with Bitcoin and other cryptocurrencies, but now is the time to buy Bitcoin, and we need to give Bitcoin a chance to bounce, because it will rise again.”
Patrick Palacios, CEO and founder of LoyalCoin, blames several factors. “The Bitcoin sell off is a combination of everything, The BCH Hard Fork, trader groups pumping and dumping, lack of regulation, THE OKEx allegations of market manipulation, all leading to very emotional trading,” he says. “Couple that with Nouriel Roubini’s Mr. Doom talk and you have a very unstable situation, which will take a few weeks to stabilize.”
How “few” is a few weeks is hard to say. But based on the digital currency’s history, its price can be all over the map for weeks or even months before it reaches a new stable price.
That’s usually the “intrinsic” or “fair” value. What that would be depends on the econometric model applied to estimate the digital currency’s “intrinsic” value.
On the one side is Wheatley’s Model, which estimates the intrinsic value of Bitcoin by looking at the demand side of the price equation. It places Bitcoin’s value well below its current price, at $1,242.64.
On the other side is Hayes Model, which estimates Bitcoin’s intrinsic value by looking at the supply side of the price equation. It places Bitcoin’s value at $10,179.25.
Then there’s the Market Model, which looks at both the demand and supply side of the price equation. It places Bitcoin’s value very close to Hayes Model estimate, at $10,845.77.
“These three intrinsic valuations provide interesting insights,” says Greg Giordano, who ran the simulations of the three models after the recent Bitcoin declines. “First off, this is one of the first times the Market Model has ever risen above Hayes’ model. The reason for this is that mining revenue has fallen; however, transactions/block and unique addresses have actually increased, while mining difficulty has stayed steady. It is very interesting to see more users actually creating accounts for Bitcoin in such a bearish environment. Along with this, the amount of resources being put toward mining has not dropped off at all.”
While, it’s unclear which of the three models will eventually turn out to be right, one thing is clear: volatility in cryptocurrency markets will continue.
[Ed. note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment. Disclosure: I don’t own any bitcoin.]