Bitcoin - $16,000 To $28,000 By Year-End

Summary

• The odds seem to favor a higher bitcoin price.
• Low could be $3,410, but average cost of mining and fair value based on transaction volume and vendors is about $6,000.
• Most common end of the year range is $16,000 to $28,000.

Breakout! Or is it? Bitcoin (BTC-USD) (COIN) (OTC:GBTC) seems to have finally hit bottom and broken out from its six-month downtrend. I have written four bitcoin articles with the first, third, and fourth including many experimental pricing models.

• Bitcoin: Tales From The Crypt And Future Pricing Models
• Bitcoin: Short-Term Pullback But Long-Term Gain
• Bitcoin To Reach About $142,000 Or More
• Bitcoin - A Possible Triple By The End Of The Year

Most of the models seem to point to higher prices in the long run. The third article was what I predicted to be the maximum price of bitcoin based on data from December 10, 2017. But the maximum price could be anywhere between 2021 and 2027. What about the short term? After surging nearly 1300% in 2017, bitcoin peaked at $19,343 on Sunday, December 17, 2017 and bottomed 69.2% lower at $5,957 early Tuesday, February 6, 2018.

It seemed to be making a comeback, surging to $11,480 on March 4 before plunging again to $6,463 on April 1. It then bounced up to $9,827 on May 5 but failed to break its downward trend and plunged to $5,941 on June 22. After briefly moving higher, bitcoin finally broke support and fell to $5,848.28 on June 28, and now appears to be making a comeback. Was this finally the bottom, or will bitcoin fall more? What about its value based on transaction volume and vendors? Is it worthwhile to hold bitcoin? I provide updated models, an estimated maximum value, and an updated Elliot Wave graph.

Was this finally the bottom?

Based on the technicals, it probably was the bottom, at least in the short run. In the early hours of June 24, bitcoin bottomed at exactly $5,826 twice and at $5,796 about 6 hours later before moving higher. It retested the 5,800 level on June 28 and closed that day at $5,848.26. The triple bottom on the 1-year graph is starting to look more like a falling wedge. Both are reversal patterns.

If the price breaks above $9,000, the target would be about $12,116 about 5-6 months after breakout. While the W%R and RSI are neither overbought nor oversold, the price increased in each of the three times the RSI and W%R were at the same level over the past year as shown by the vertical green lines. The lower Bollinger Band is $5,881.79, and the upper Bollinger Band is $6,851.52.

Source: Yahoo Finance

Sentiment seems to point to a bottom forming but also says that prices could go lower. Fellow Seeking Alpha member Avi Gilbert often states that gold (GLD) tends to peak and bottom based on sentiment. In my previous articles, I wrote that bitcoin can be seen as similar to gold. Using the Crypto Fear and Greed Index, sentiment hit 32 (fear) on July 15 versus 15 (extreme fear) on June 24. The previous two cycles bottomed when sentiment hit about 10, as shown by the red lines.

Thus, bitcoin could fall until its sentiment hits about 10. Likewise, the previous two cyclical peaks happened when sentiment hit about 65-75 (greed), as shown by the green line. The current sentiment is shown by the yellow lines. While a bottom happened in one of the five times when sentiment was at the same level, the price fell in three of the five times.

Source: Sentiment Index

If it falls more, how much lower can it go?

As I pointed out in my fourth bitcoin article, the last 8 months looked a lot like late 2013 and 2014.

• In late 2013, bitcoin surged 750% in less than two months "largely due to Chinese demand as a way to invest a lot of money out of China." The bubble then popped as "China's central bank barred banks from handling bitcoin transactions." In the next 19 days, bitcoin plunged 70.3% from $1,009 to $300. After recovering nearly half of what it lost, bitcoin then declined to $219 over a year later, a total drop of 82.4%.
• In the current spike, bitcoin surged 750% in five months before plunging 69.2% from $19,343 to $5,957 in 1 month and 20 days. It then made a comeback to $11,479 before falling again. If bitcoin drops 82.4%, the bottom would be about $3,410.

And just like in 2013, regulation and possible government bans were the source of the panic. Now it is South Korean hacks. In 2014, it was Mt. Gox failure. The graph below shows the 2013/2014 surge and plunge with the 1-year price graph of 2017/2018 surge and plunge superimposed. Notice how similar they look. The superposition seems to say that the bottom could happen about 2-3 months from June 24 at about $4,262, and bitcoin will hit $19,300 about 15-16 months after that. Further, the next major peak would be about $53,125 about 20-23 months from June 24 (February-May 2020).

Source: Coindesk's Bitcoin Price superimposed on Yahoo Finance's Bitcoin Price

YouTube member The Traveling Crypto gives an interesting Elliot Wave graph of bitcoin from 2012. He explains that bitcoin is either still in or has just ended Wave-C (Wave-4 in the supercycle) and the bottom could be anywhere between $4,000 and $6,000.

But will it go that low?

Probably not. On May 23, Fundstrat's Thomas Lee said the global average cost of mining bitcoin is about $6,000. And interestingly, Business Insider wrote on August 18, 2017 when bitcoin was still $4,159 that Lee had forecast that bitcoin could hit $6,000 by mid-2018. It seems like he was right. Gold (GLD) seems to have a minimum price at about the cost of mining. And the price graph of gold from 1970-2014 looks awfully similar to the graph of bitcoin from May of 2013 - May of 2017.

Source: Created from Bitstamp's Bitcoin Data and Gold Prices 1970-2014

But while the global average cost of mining bitcoin is about $6,000, the cost varies from country and even within a country. In the image below, I boxed the countries where the average cost is $4,000-$6,000 in green and boxed the countries where the average cost is below $4,000 in red. 27 countries have an average cost of $4,000-$6,000, and 27 countries have an average cost below $4,000. If each country provided an equal amount of mining to the bitcoin network, the average cost would be $7,275.

But bitcoin mining is heavy in China ($3,172), Canada ($3,965), Iceland ($4,746), Sweden ($4,746), United States ($4,758), Singapore (5,936), and Japan ($8,723). Surprisingly, South Korea, which used to be one of the dominant bitcoin exchanges but now makes up less than 3%, is $26,170. Thus, support lines below $6,000 would likely be about $4,700 and $3,900.

Source: Created from Bitcoin Mining Cost Data

How about bitcoin's value as a currency?

As I mentioned in my April bitcoin article, the price seems to match the transaction volume if you exclude the spikes.

Source: Bitcoin Continues Exponential Growth in 2016: Blockchain Letter, February 2017

The table below shows the calculation of bitcoin's price using data for transactions per day, market price, and supply in circulation. The calculated price for March 31 at 0:00 UTC was $5,552.56, about $1,380 less than the actual price of $6,935.48. The calculated price for July 13 at 0:00 UTC was $6,883.51, about $660 more than the actual price of $6,217.61.

Below is the graph of bitcoin's actual price (red) vs. the calculated price (blue) from January 1, 2016 to July 14, 2018. The calculation does not seem to match the spikes well, but it does seem to roughly match the lows.

Thus, the minimum future value of bitcoin as a currency can be estimated by its future transaction volume in dollars. News of the sending of $300 million in bitcoin for a fee of only 4 cents and a transaction time of only a few minutes proves that bitcoin is cheaper and faster than a bank when sending large amounts of money. And on May 23, an Argentina bank started allowing international payments in bitcoin, which "will reduce transfer times by up to 24 hours." Based on the image of the location of bitcoin venues, there are currently 12,925 bitcoin venues worldwide estimated on July 17, up from 12,162 bitcoin venues worldwide on April 3, mostly in Japan, Europe, and America.

Source: Coinmap.org

The table below shows that while the number of brick and mortar businesses accepting bitcoin has been growing about 7.7% per quarter since the first quarter of 2017, bitcoin's price have grew on average 72.9% per quarter. On January 3, 2017, there was 8,207 bitcoin venues worldwide, and bitcoin's price was $1,023.14 that day at 0 UTC.

Based on that price, the estimated price would be $1,090.48 on April 4, 2017 assuming a 5.79% growth rate. The outlier appears to be $17,608.35 on December 19. 2017. If that December price is omitted (shown in red), the estimated prices for April 3, 2018 and July 13, 2018 become $5,233.16 and $5,636.11 respectively, assuming a 7.7% growth rate.

Update to my pricing models:

Below are updates of the three models I made in my first bitcoin article.

Model 1: Below is a graph of bitcoin's price from June 30, 2013-July 15, 2018 at 20:30 UTC. The green line is the 200-day moving average, and the red line is the 50-day moving average. The black line is the polynomial best fit trendline, which gives a price of $11,483.63 on July 16, 2018. Notice the trendline seems to touch most of the maximum prices. I added an orange line to connect most of the minimum prices. This orange line will help determine the outliners in Model 2.

Source: Created from Coindesk's Bitcoin Data

Bitstamp's bitcoin forecast shown below gives a short term price of $6,578.96 on July 16, 2018 and a long-term price of -$6,439.34 on November 9, 2018. Model 1 gives a price of $15,023.92 for November 9, 2018.

Source: Bitstamp's Bitcoin Forecast

Model 2: The price of bitcoin seems to follow a minimum price, as shown by the orange line in Model 1, which can be modeled by omitting the price spikes (outliers). Below is a graph of bitcoin's price when omitting outliers from June 30, 2013-July 15, 2018 at 20:30 UTC. The green line is the 200-day moving average, and the red line is the 50-day moving average. The solid black line is the polynomial best fit trendline, which gives a price of $6,622.97 for July 16, 2018 and $8,773.87 on November 9, 2018.

Source: Created from Coindesk's Bitcoin Data

Model 3: As mentioned above, the fundamental minimum price for gold seems to be the cost of mining. If bitcoin is seen like gold, the fundamental minimum price of bitcoin should be the cost of mining the cryptocurrency (cost of electricity), which could be estimated by using the hash rate. Below is a graph of bitcoin's estimated cost of mining from June 30, 2013-March 31, 2018.

This was estimated by using the points ($150, 2/7/15), ($150, 10/2/14), ($100, 8/15/14), ($100, 6/16/14), and ($50 for 2/18/14) and a conversion factor (hash rate divided by price). The polynomial best fit trendline gives a cost of $16,252.60 for July 16, 2018 and $24,109.86 on November 9, 2018. The green line is the 200-day moving average, and the red line is the 50-day moving average.

Source: Created using hash rate

The table below calculates where bitcoin will be at the end of each year over the next 10 years. As stated above, Model 1 and 2 can be seen as resistance and support lines, respectively.

But notice that Model 3 gives a cost of mining of 2.2 times above Thomas Lee's average cost of mining and about 1.8 times above the cost if each country provided an equal amount of mining. But Model 3 seems to closely match Lee's model, shown on the right in the image below, which says bitcoin will hit $25,000 by the end of the year and $91,000 by March of 2020. This is because Lee uses a "historical average of 2.5 times mining costs." Bitcoin bull John McAfee's prediction that prices would reach $1 million by mid-2020 seems to also match Model 3, which says prices would hit $1 million at the end of 2023.

Source: McAfee's $1 million bet and Lee's $91,000 prediction

Further, it is interesting that a random price generator using the Monte Carlo simulation gives $24,000 as the most probable price for bitcoin on the 31st of December 2018. This also roughly matches Model 3.

If like gold, what is bitcoin's maximum value?

In my third bitcoin article, I argued that bitcoin could reach the total investment value of gold. On April 1, 2017, the value of the world's gold (GLD) was $8.128 trillion. As of July 15, about 3.5 months later, world's gold was valued at $7.621 trillion, and 34% (or $2.591 trillion) of that is used for investment. The maximum circulation supply is estimated to be 2.78 million-3.79 million less than the maximum mined supply. Thus, the maximum circulation supply may be only 17.21 million-18.22 million bitcoins. This would give a bitcoin price of:

• $142,214 if 18.22 million is used for the maximum circulation supply
• $150,560 if 17.21 million is used for the maximum circulation supply

This nearly matches Lee's statement on a 1% investment in bitcoin. He mentions that a total of $297 trillion are in real estate, stocks and other equities, and gold. Lee states that if bitcoin captures just 1% of that market, it would translate into about $150,000 per coin.

What does the Elliot Wave graph say about bitcoin?

As noted earlier, YouTube member The Traveling Crypto created a detailed Elliot Wave graph of bitcoin from 2012. He explains that bitcoin is either still in or has just ended Wave-C (Wave-4 in the grand supercycle) and the bottom could be anywhere between $4,000 and $6,000.

Then bitcoin will form Waves I-II-III-IV-V (Wave-5 in the grand supercycle) up. He tends to give a conservative price of about $33,200 for Wave-5 based on a 1.618 Fibonacci level. Below is a snapshot of his Elliot Wave graph with the current price circled in light grey. I added trendlines from another article as well as my own. I labeled the trendlines 1-7, which I refer to in parentheses.

Source: Created from YouTube video Why Bitcoin's Price Could Surpass All Time High and Dead again? In Reality Bitcoin Is Up 729% Since Last February

It looks like bitcoin did hit bottom at $5,848.26 on June 28, 2018. Note that near the beginning of the article, I mentioned that a major peak could happen at "about $53,125 about 20-23 months from now (February-May 2020)." A rise back up to the red resistance trendline (3) gives a price of $55,000 by the end of 2018, while remaining at the red support trendline (5) also gives a price of $55,000 by mid of 2020, which nearly matches my earlier prediction. Below is a table of the date and price of each wave with predictions highlighted in green.

But the bitcoin price of $537,072 for August 8, 2021 seems too high, especially since I estimated that the maximum price for bitcoin is about $142,000-$152,000 based on the investment value of gold. However, maybe that is the maximum resting price of bitcoin where the spike can be seen as a bubble phase. That would make Wave-C closer to the maximum resting price of bitcoin than Wave-V.

How about the waves between Wave-C, which was June 28, 2018, and Wave-I, which is estimated to be November 28, 2019? That is 518 days. Elliot Wave theory says the each cycle of Waves I-II-III-IV-V-A-B-C is composed of a smaller cycle of Waves 1-2-3-4-5-A-B-C as shown below.

Source: Elliott wave principle

Between June 28, 2018 (excel format: 43279) and November 28, 2019 (excel format: 43797), there should be smaller Waves 1-2-3-4-5. If bitcoin increases in a straight line from $5,848.28 on June 28, 2018 to $21,130.77 on November 28, 2019, bitcoin's price will rise along the equation y = 29.50287x - 1,271,006.36967, where y = price and x = the date in excel format. But the waves rise and fall, oscillating along that straight line. The list of waves below gives a possible wave movement.

• Wave-1: $5,848.28 x (1+38.20%) = $8,082.32 on October 9, 2018
• Wave-2: $8,082.32 x (1-23.60%) = $6,174.89 on January 21, 2019
• Wave-3: $6,174.89 x (1+100.00%) = $12,349.79 on May 4, 2019
• Wave-4: $12,349.79 x (1-23.60%) = $9,435.24 on August 16, 2019
• Wave-5: $9,435.24 x (1+123.97%) = $21,131.78 on November 28, 2019

Assumptions:

1. The five waves are about equal in the number of days from one wave to the next.
2. The waves tend to follow Fibonacci retracements of 23.6%, 38.2%, 50%, 61.8%, 100%, and 123.6%.
3. The five waves roughly match the general description for each wave in Elliott wave principle, notably Waves 1-2 do not retrace more than 61.8%, Waves 3-4 fall less than 38.2%, and Wave-5 is the largest wave for commodities.

The percentages are also similar to that of my Elliot Wave graph in the April article. As for the predictions made in that article, only the first was relatively accurate. The predictions with actual numbers in parentheses and bold are listed below. Thus, use these predictions as a rough guide.

• Wave #2: $7,523.86 on March 27, 2017 ($6,620.41 on April 6)
• Wave #3: $19,210.75 on May 13, 2017 ($9,826.60 on May 5)
• Wave #4: $12,519.75 on May 27, 2017 ($5,848.26 on June 28)
• Wave #5: $75,058.65 on August 29, 2017 Probably far off

Conclusion:

The odds seem to favor a higher bitcoin price. It is possible that bitcoin falls all the way to $3,410 before moving higher. Transaction volume seems to indicate that bitcoin is currently worth about $6,884, while a price estimation based on number of brick and mortar vendors gives about $5,636 for current valuation. While Thomas Lee says bitcoin would be $25,000 by the end of the year, his use of a 2.5 multiplication factor says the cost of mining will be about $10,000.

Model 1 and Model 3 give $16,816 and $28,408 for the end of the year and $58,344 and $170,419 for the end of 2020, respectively. A random simulator gave $24,000 as the most probably price for the end of the year. Thus, a year end price between $16,000 and $28,000 seem most likely.

Disclosure: I am/we are long GBTC, MGTI, HVBTF, BTSC, BTCS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.