Crypto asset price volatility is a problem that has plagued investors for the past 14 months. But the problem won’t go away anytime soon. If you’re an active crypto investor, or just curious, you’ve already seen the annual price predictions.
There may be no better expression of the difficulty of predicting cryptocurrency prices than the following title, reported by US TV station CNBC.
“Boldest bitcoin price prediction for 2023 – 1400% chance of up or 70% down”
Digital venture capitalist Tim Draper made the most optimistic prediction that Bitcoin (BTC) will hit $250,000 by the end of 2023.
On the other hand, Standard Chartered Bank was the most pessimistic at $5,000 (about 670,000 yen). When converted to market capitalization, there is a large gap between $4.75 trillion (about 635 trillion yen) and $95 billion (about 13 trillion yen).
Last year’s price predictions were similar, with many skeptics predicting Bitcoin’s price would fall below $10,000. Meanwhile, optimists such as Mr. Draper predicted that the $250,000 mark would be crossed. In comparison, Ark Investment’s Cathie Wood made a relatively reasonable-sounding prediction of reaching $100,000 sometime in 2022.
Of course, those predictions didn’t come true. Prices continued to stagnate as the FTB continued its austerity policies and a flurry of negative news demoralized investors. However, it did not fall as much as the most bearish predictions.
Difficulty in price prediction
Crypto assets operate on different fundamentals than traditional assets, and investor sentiment plays a much bigger role in pricing. Human sentiment is highly unpredictable and can be greatly influenced by unforeseen events.
This applies to all asset classes, not just crypto assets. That’s why, generally speaking, annual stock market forecasts often end up disappointing. At the end of 2021, when Wall Street was making its stock forecasts for 2022, all major analysts expected the S&P 500 to rise at least moderately. But it didn’t.
Due to the difficulty of forecasting, long-term investment forecasts are rarely taken seriously. Extremely optimistic or pessimistic predictions, such as a 1400% rise or a 70% decline, are good titles, but rarely come true.
Why Crypto Asset Prices Are Especially Unpredictable
Investors want clarity. Most investors interested in crypto assets still consider them speculative. Investors are the first to retreat from speculative asset markets when the Fed rolls back its accommodative policy. they want security.
Moreover, there are now many “known unknowns” when it comes to crypto assets, as former US Secretary of Defense Rumsfeld called them. Ranging from simple questions like “Will this token go bad in 2023?” and “Will I have access to liquidity?” .
The ‘known unknowns’ can also include all the problems facing all financial markets today. Inflation, rate hikes, and the possibility of a recession.
Furthermore, there are countless “unknown unknowns”. There are also so-called “black swan” problems that are unpredictable, such as the FTX bankruptcy. In 2023, no one knows if DeFi (decentralized finance) projects and stablecoins will fail or exchanges will collapse. Considering that the crypto-asset field has a short history and is not well-developed, it is safe to assume that various problems will arise in the future.
What we can advise
As a journalist covering the crypto space, I am often asked questions by friends and family. what about the stock market? how’s the economy going? What will happen to crypto assets?
My favorite answer to markets and prices is that they fluctuate. Not only does it reflect what I think about the volatility of risky assets like stocks and crypto, it’s also a reasonable prediction of what will happen in the year ahead. Will prices go up or down? I don’t think anyone can make an accurate prediction.
So the most important advice is:
Why Invest in Crypto Assets? How will you treat crypto assets within your overall investment strategy and portfolio?
Anyone who thinks of crypto assets as part of a coherent investment strategy is thinking about crypto assets over a period longer than just one year.
If you think of crypto as part of your long-term wealth strategy, don’t focus on one-year performance. Consider what happens to Bitcoin, Ethereum (ETH), and other altcoins when you need liquidity (cash).
Will those crypto assets survive life cycle milestones such as retirement? Is there a chance to liquidate or add positions? These are important points.
As we start 2023, make a pledge not to let short-term volatility make you unfulfilled by futile predictions.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original: The Fool’s Game Of Annual Crypto Price Predictions