All About Bitcoin Price Predictions
Just how valid are price predictions and does it really matter?
Price predictions. The white elephant on any trading platform. The ever giving source of hope, fear and discourse. Everybody wants to hear them, and there’s plenty of people who will gladly give them. But are they any good?
The short answer is no! Why not? Because regardless of who you are or who you think someone else is, no one can see the future.
”But so and so has successfully predicted this and that!” Sure, so have I and so have you. But how many things have you or I or him been wrong about? Don’t fool yourself. We may get lucky from time to time, we may be in flow with the market for a while and it sometimes feels like we can predict its every move. But it’s all an illusion. An educated guess that played out. That’s it. That’s all there is. The problem is that we can never really have all the information that influences the market. There is always an infinite amount of unknowns and unpredictable variables that can completely change the behavior of the market, invalidating any and all predictions, trends or patterns.
Don’t get me wrong, I have many opinions about price movements and I also like to joke around making predictions myself. I just don’t live in the illusion that there’s any truth to it, or for that matter, usefulness in trading or investing. I like to write down these predictions with some friends, so that in a few years we can all laugh about how brainwashed we were in that given moment. It’s illuminating to see just how different the world, our opinions and feelings are now, compared to back then.
Here’s a few examples of my predictions from the last couple of years.
When I started trading Bitcoin and crypto in 2017 I was a skeptic. This whole magic internet money thing seemed so pointless, so stupid, so worthless, I was always afraid it would simply disappear into nothingness, going to zero overnight. Prediction wise, I could maybe see Bitcoin going to 5,000 USD, and when I discussed that idea with my friends and family, they all thought I was nuts. As in, no way was it going to reach that high. Like, what are you smoking, dude?! It seemed impossible, even I couldn’t keep a straight face making that claim. Needless to say I sold everything on every bounce. I simply couldn’t fathom this growth being sustainable.
By the time Bitcoin climbed to almost 20,000 USD, I was in absolute disbelief. I made money, sure, but I would have made a ton more if I had just stayed in Bitcoin and simply did nothing. And that hurt. Maybe I was wrong this entire time, I started thinking. Maybe it can go up forever. Maybe these people (believers, hodlers, crypto twitter) and the market know something I don’t.
I was a convert. A Bitcoin believer. Moon wasn’t far enough for this orange thing. There is no stopping it. Everything was exceeding all of our expectations and there really seemed to be no end to the bull run. And so we made some pretty wild predictions. Bitcoin was going to 100,000 USD and Etherium to 10,000 USD. To hell with reason, to hell with logic and math!
I think you all know by now, that this was the exact top of the market for a few years. Not to mention that even after the next bull market, five years later, we’re still nowhere near those numbers. And so it goes with our psychology. We can never rely on our mind, to see things objectively. It’s practically impossible. We’re all just emotional little machines, plagued by our beliefs, observing the world through an inner filter, living under the illusion that what we’re doing is actual thinking.
It wasn’t all bad though. I did much better predicting the bottom of a bear market being at 3,000 USD and that buying Ethereum under 100 USD was a good deal. So did I see the future in this case? Did I somehow develop a fortune telling skill that enables me to correctly predict the future? Was I just that fucking smart? It sure seemed so.
So let’s see what happened then. I was right, the trend reversed, the low was in. Of course I didn't capitalize on it, for by the time the bear market ended, I was naked, hungry and barefooted. Not to mention scared and depressed after two years of eating metaphorical shit in the markets. But we're talking fortune telling stories here, so let’s continue.
By then it was rather obvious that the trend was now bullish, sky's the limit, squiggly lines on charts were drawn, every single one of them pointing squarely at the moon. How high does it go this time? Most, myself included, simply assumed that history would repeat itself in some way or form. So 10-20x for Bitcoin from the previous top to the next top, putting the price between 200 and 400,000 USD.
And lo and behold everything was going so well, but then disaster struck at mere 14,000 USD! Covid 19 panic time and back down we went, much lower than we all expected and much, much faster!
Most thought, shit, it’s all over. Myself included. The words and pictures from the news were terrifying. Whole countries closing down, businesses on hold, fear and uncertainty like we haven’t seen in a long time. Any logical thinking, especially one based on the old economic models of supply and demand, were screaming that hard times were ahead for the markets. It was indeed only logical. Life on earth in most western countries was basically put on hold for two years. Surely that can’t be good for the markets. Right? Right? Wrong!
The powers that be simply decided to print record amounts of new money and pretend like nothing is happening. Economy is great, people are spending, all is well. Nothing to see here, move along. And move along the markets did! The bounce everywhere was beyond anything I’ve ever seen before, especially given the fundamental context. But I guess that doesn’t matter if some giant entities have a money printer and just make shit up as they go along. Enter a few big and loud players with billions in their pocket and well, all predictions and rationale until that moment can be thrown right out the window.
Who could have predicted this latest bull market? Some, sure. I couldn't. It looked so forced and fake for a very long time, so unreal, that I again played half of it in fiat. I did manage to get my head out of my ass and jump back on the bull at about 9,000 USD, but I sold the retest of the previous all time high at 20,000 USD, counting on a substantial pullback that never materialized.
Now, I’m no indicator of the fallacy of making predictions. Clearly my crystal ball is broken! Perhaps smarter for the experience, I then “stopped thinking”and just went along with the price, riding the bull from around 30,000 USD to 65,000 USD and when I smelled the bears around the corner, I exited fully into USD. I also managed to pile into longs heavily during the summer of 2021 between 28,000 USD and 36,000 USD again riding the bull to the new ATH, selling around 60,000 USD as I was simply counting on a larger retest of some previous levels, to pick my Bitcoin back up again. At this point in time I was absolutely convinced that at least 125,000 USD was in the books for Bitcoin. Everything pointed to that probability (and up to 400,000 USD for some models). The bull was back in full force! And I was on a roll, baby!
By now I’ve learned that none of my predictions and whatever I thought I knew was worth anything, so even though I did go for that 50,000 USD or thereabout long on the pullback, I cut that position as soon as my invalidation was hit, without hesitation. That saved my ass in the coming bear market. Did I predict the future right? Hell no! I got lucky and because I was careful and experienced enough, I ruthlessly cut my positions and ignored my bullish bias as soon as the charts told me to do so.
When deciding between what the market is telling you and what you believe should happen, always go with the market. It is right and you are wrong.
I learned to embrace the uncertainty, unpredictability and the utter madness of the markets. How? By never allowing myself to open positions without having an exit strategy (for spot), with a hard stop (for futures). Now it doesn’t matter whether I’m right or wrong, because no matter what, I’ll be just fine.
How did other traders and large brain individuals do in these past few years? Some predicted certain things right and other things wrong. Some got most right, some were completely off the ball. The winners were celebrated as heroes and the losers of the cycle were shunned and spit on, as usual. And maybe next time the roles will reverse. It’s a hard truth, no one really wants to hear. But it’s the truth nonetheless. What you think is one person’s fortune telling ability or some out of this world genius, is just survivorship bias of the moment. Nothing more, nothing less.
The people who have such strong beliefs in their power of prediction that they completely disregard any and all risk management principles, might be the ones who make the most money when things are going in their direction, but end up giving it all back as soon as the tides turn. And the tides always turn, it’s only a matter of time. Nothing goes up or down forever. No one is always lucky and right. Remember the whole investment fund disclaimer: “Past results don’t guarantee future performance”?
“The Only Thing That Is Constant Is Change -” ― Heraclitus
This year, most of the people, even really big brains with really deep pockets, got things completely wrong. No supercycles to be seen, no 400k BTC, no extended cycles, not even regular four year cycles completed by any measure of accuracy in price targets.
Who can we blame this time for ruining our predictions? Putin and his war? USA slowly crumbling into madness, losing all sight of reality? Stock going down? Supply shocks? Runaway inflation? A slightly warmer summer? The FED tightening? Who or what was it this time?
The truth is that it doesn’t matter. The future is unpredictable and lies fully in uncertainty. Anything can happen at any time, and that is especially true for the markets. If you want to survive in the markets, as a trader or investor, you need to make peace with uncertainty. The sooner, the better.
But how can you trade or invest, if you can’t predict the future?
By finding your edge in the market and always protecting your money, without exception. Only then can you hope to survive the adverse conditions and live long enough to thrive later down the line. Survival and adaptability. Not predictability and certainty.
In trading and investing we’re dealing with probabilities and risk to reward ratios. Since we can’t know what will actually happen, we have to find our own EDGE, something that over time enables us to extract profit from the market. That EDGE can be anything, as long as we have a reason to believe that over a large sample size of trades, we will come out in profit. No one can predict the outcome of the next trade, but over a large enough sample size, things do get a bit more predictable. The simple truth is that we can’t know what will happen in our next trade, nor do we have to in order to make money. That’s where risk management comes in, combined with a trading system with an appropriate risk to reward ratio. We either need a good enough win rate or a high risk to reward ratio.
The above image shows the required balance between risk to reward (R-Multiple = how big your wins vs how big your losses are on average) and winrate in order to be neutral. Improve one of the factors in practice and you’re making money.
I find reading “Trading in the zone” by Mark Douglas an absolute must for any aspiring trader or investor. He spends his whole book encouraging you to accept uncertainty and unpredictability of the markets and giving you hints on how to deal with it. And then a quick dive into the “Market wizards” series by Jack D. Schwager, where you’ll meet some of the world's best traders and see that they too make mistakes and lots of them.
So how do I now go about predictions myself?
I see them as a fun experiment into the current mood, mine and the markets, giving it absolutely zero significance. I try not to trade my predictions and do my best to recognize what the market is telling me, not what I believe it should do. I always go about it in a way that if and when I am wrong, the cost to my portfolio will be minimal. Remember, it doesn’t matter if you’re right or wrong on one particular move or trade, you just need to survive the wrong ones in order to thrive in the right ones. In the end, it’s a numbers game.
If these last couple of years have taught us anything, it’s that we can never really predict or even dream up, what the future will bring. From my point of view this current timeline is one crazy ass parallel universe, I simply don’t remember voluntarily stepping into. But hey, here we are and we must somehow find our place in all this random madness.
My mantra remains: The only thing I know for certain is that I know nothing.
Sharing is caring, especially in the online digital world.