Warren Buffett has concerns about Bitcoin and Allianz’s Head of Global Economics & Strategy thinks it could fall to $0. But Tom Lee, Fundstrat Global Advisors’ Head of Research, thinks it could rise to $91,000 by March 2020. Fundstrat and Lee have compiled an impressive database, statistics and graphs on Bitcoin that helps to visualize short-term and long-term trends. They include the cost of mining Bitcoins, hourly, daily and monthly trading trends and technical analysis.
[Ed note: Investing in crypto coins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Lee also introduced the Bitcoin Misery Index, or BMI, just over a week ago that is at the second lowest point of the past 8 years. It is a contrarian indicator, meaning the lower it is, the more positive the outlook for Bitcoin to move up in price.
Short-term pain for long-term gain
Lee and his team have produced a new graph that shows Bitcoin’s four declines of 70% or greater since 2010. After the previous three drops it has experienced significant gains, probably eclipsing the returns of any other asset over the same time period.
Because the chart has a logarithmic scale Bitcoin’s price movements don’t look as pronounced as they would be if charted on a linear basis (how most graphs are depicted).
Keep the risks very much in mind
I want to reiterate three key facts. The first is that using graphs such as this is not infallible. Just because a trend has occurred in the past (and looks very compelling on a chart) does not mean it will happen in the future.
The second is cryptocurrencies are very risky. There are a number of forces that could negatively impact their price and create a substantial decline in their value. The SEC has released statements that helped Bitcoin fall over $2,000 in a week. I’ve also outlined 12 reasons Bitcoin could fall below $1,000.
Last, keep in mind that previous results do not in any way guarantee similar or even positive returns.
RSI and MACD also showing a bit oversold condition
Lee’s BMI index may be more useful than the traditional RSI (Relative Strength Index) and MACD (Moving Average Convergence/Divergence) indicators since he has compiled some additional information to go along with his analysis. Also Bitcoin’s price was relatively low until 2017, so RSI and MACD may not have enough historical data to be accurate vs. when they are applied to securities having a longer track record. That being said both the RSI, the top portion of the graph below, and the MACD, the bottom portion, indicate that Bitcoin is in a bit of an oversold condition.