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More pointless bitcoin price predictions are here just in time for 2018

Pauline Frederick in “Potiphar’s Wife” (Creative Commons via Bain News Service)

It’s the last week of the 2017, which means it’s time to get inundated with silly bitcoin price predictions for 2018!

When it comes to bitcoin, few things are as worthless as Wall Street analysts’ prognostications. For one, you have an asset solely priced on volatile supply and demand. While total supply is known, how much can and will hit the market is anyone’s guess, so long as that number is under 17 million coins at any given time. On the demand side, retail appetite, regulations, and the influx of institutional money are also all up in the air.

Yet analysts need to get paid and what better way to do so than throwing out random numbers and seeing what sticks?

DataTrek Research’s co-founder, Nick Colas, is one of the most quoted bitcoin analysts right now and his Street credentials are impeccable (he was a senior automotive analyst at Credit Suisse in the 1990s and spent a couple of years working under Stevie Cohen as a portfolio manager at SAC Capital).

Colas has a new note out and, at the moment, a story about it is at the top of CNBC.com. He sees bitcoin value as an alternative to some of the $1.1 trillion worth of $100 bills floating around outside the United States. You know, the ones that get stuffed into suitcases in all those movies and in envelopes by the FBI for ABSCAM kinda stuff.

As reported by the venerable Jeff Cox:

“Bottom line: bitcoin can rally to $22,000 and still be reasonably priced, or plummet to $6,500 and also be correctly valued,” Colas said in his daily note. “We expect to see bitcoin trade for both prices in 2018.”

Ultimately, he said a midpoint range of $14,035 would be a reasonable price point.

According to Colas, the lower end of that range was achieved by assuming bitcoin replaces about 10 percent of the Benjamins overseas. The upper end assumes bitcoin takes the place about a third of them.

But if those price points look remarkably familiar, it’s because that’s the range in which bitcoin has been trading since November.

Behavioral economists have a term for such a thing. It’s called availability bias. In a nutshell, it’s when someone makes assumptions and predictions based on the most recent data one can remember.

That’s not the first time people have done that with bitcoin.

Just last year, CoinDesk published a crystal ball piece for 2017 (indeed, the clip art was a crystal ball full of coins and the title was “What Will the Bitcoin Price Be in 2017?”). Three of the four participants pinned a midpoint price of about $1,200 to $1,400 per coin, with BTCC CEO Bobby Lee predicting “several multiples” of $1,150.

Bitcoin closed 2016 at roughly $970 after rallying nearly 33 percent over the previous two months. Assuming that bitcoin would rally by another third to $1,300 wasn’t all that absurd. It was as if everyone expected it to follow its most recent history but stretched out for 12 months.

Yet we know how 2017 turned out. Investors who sold when bitcoin reached the $1,300 price target in April missed out on the subsequent 1,000 percent rally the following several months.

Which isn’t to say being all-in with bitcoin is a smart idea, either. Predictions can be overly bullish or overly bearish, as CoinDesk’s 2014 forecast wrap-up shows.

Getting back to Colas, his note predicts no less than four(!) crashes of 40 percent each. Why four? Why 40 percent? He does not elaborate and he may not need to. Volatility being what it is in bitcoin, it could happen. Then again, it may not.

The real bottom line is that trying to predict the price of bitcoin a year from now may make for fun cocktail discussions but anyone taking them seriously, regardless of the source, is doing so at their own peril.

Lawrence Lewitinn, CFA is editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.