The calendar may have officially changed to 2018, but the amazement surrounding the cryptocurrency craze certainly hasn't changed one bit. Last year, the combined value of all cryptocurrencies jumped from a starting value of $17.7 billion to end at $613 billion, representing an increase of better than 3,300%! This was a lifetime's worth of gains for some investors that was essentially crammed into a single year.
While nascent virtual currencies really saw their valuations soar in 2017, it's bitcoin that remains the clear leader among all cryptocurrencies. Bitcoin currently makes up about 36% of the entire crypto market value and is easily the most tradable virtual coin in the world. It also happens to be accepted by more merchants than any other digital currency.
Though bitcoin's 1,364% gain in 2017 might seem disappointing next to the seemingly dozens of cryptocurrencies that exploded higher by 2,000%, 10,000%, or more, its gains over the long run are still more impressive than its peers. Let's not forget that in March 2010, bitcoin was valued at just $0.003 per coin. Bitcoin closed the year at $14,156 per coin -- which means that $1,000 invested in March 2010 would be worth $4.72 billion as of Dec. 31, 2017!
The (ridiculous) average price that investors would sell all of their bitcoin
Yet in the minds of many bitcoin stakeholders, the run has just begun. In mid-November, LendEDU, an online marketplace for student-loan refinancing, asked more than 560 bitcoin investors from around the country at what price they would be willing to sell all of their bitcoin investment. According to the results, the average price that investors are waiting for before they'll head for the exit is... (drum roll)... $196,175.79 per coin! Yep, nearly $200,000 per coin!
Mind you, this survey was completed when bitcoin was valued at around $6,490 per coin, meaning the average bitcoin investor was expecting an additional appreciation of more than 2,900%!
I know what you might be thinking: "Well, if these investors hold over the long run, 2,900% might be doable." Though true, the survey also asked these bitcoin investors how long they expected to hold onto their investment. Some 16.5% noted that they planned to hold for less than a year, with another 39.5% expecting to hold fewer than three years. That means only 44% of those people surveyed really expect to hold bitcoin for the long term, which therefore implies that most folks expect an average return of 2,900% in bitcoin over the short term.
Bitcoin investors are irrational and are ignoring blatant risks
Should these results surprise anyone? Probably not. I'm fairly certain that most bitcoin investors are irrational.
A separate poll from LendEDU conducted around the same time as the survey above asked respondents whether bitcoin's investment returns would exceed the returns of 2017. At the time of the survey (Nov. 9 to Nov. 13), bitcoin was up between 550% and 600% for the year. An overwhelming 77% said "yes," suggesting that they expected bitcoin to rise by at least 550% to 600% in 2018, compared to 9.6% who said "no." That simply seems out of touch with reality considering how few tangible catalysts investors have been given.
One of the biggest issues I have with the bitcoin hype is the expectation of cryptocurrency and blockchain adoption as a means of money transmittance and payment by consumers and business. In each and every instance throughout history, the adoption of new technology winds up taking longer than expected, bursting the always high hopes of investors
From 3D printing to mapping the human genome, the story always has been the same: the bubble burst. While blockchain offers unique advantages, it's also been around for years and has yet to really attract mainstream attention from businesses. That should be a wake-up call for investors that this parabolic move is likely unsustainable without a major correction.
Bitcoin also is set to see the effects of a "fair" market for the first time. You see, one of the primary reasons cryptocurrencies have fared so well is that there's no way to make money if they go down. Cryptocurrency exchanges allow investors to buy and sell -- that's it. Such a model works to incentivize buying on practically any dip.
Beginning in Dec. 2017, both CME Group and CBOE Global Markets began offering bitcoin futures trading. With futures contracts, skeptics now have an opportunity to bet against bitcoin and make money. Similarly, a number of bitcoin ETFs appear to be in the works. With institutional investors mostly remaining on the sidelines, but admittedly skeptical of bitcoin, it looks to be just a matter of time before bitcoin sees that pessimism manifest in a lower price.
While anything is possible, I'd call the average sale-price expectation of bitcoin investors laughable and unrealistic at this point.