In my post yesterday I compared bitcoin to gold and what happened to both when futures products were introduced.
As you might have guessed (or not), gold sold off rather sharply with the introduction of futures products.
In fact it sold off roughly 50% starting the very next day after futures were introduced.
Coincidence?
Keep in mind that bitcoin also just so happened to hit its all time high on the very same day futures products were introduced and then basically has been selling off ever since.
Coincidence?
Perhaps, but more than likely those products have played a significant role in the decline of both gold prices back in 1975-1976, and bitcoin prices now in 2018.
More about that can be found in my post from yesterday:
Now that we have seen that the prices of bitcoin and gold were affected initially when futures were introduced, what should we expect going forward?
This is where things get interesting.
As we saw in the post from yesterday, gold fell for just over 18 months until it finally reached it's low. Which was roughly 50% lower than its high that was achieved the day before futures products were introduced:
(Source: https://medium.com/@obiwankenobit/bitcoin-futures-and-the-ghost-of-gold-81418864c961)
That is interesting, but like myself, I am sure you are more interested in what it eventually did longer term.
That is where things get much more rosy!
Take a look at this chart:
(Source: https://medium.com/@obiwankenobit/bitcoin-futures-and-the-ghost-of-gold-81418864c961)
As you can see, prices declined initially after the launch of futures products, however, they spiked significantly afterwards.
In fact, prices went up by an astonishing 8X after bottoming near $100 an ounce.
Basically, the launch of futures products, though painful at first, was just a blip on the longer term chart of gold.
Hmm... could bitcoin do something like that?
If history is any indication, it absolutely could!
Even better, when might that happen?
Well, if we use gold as a model for what might happen to bitcoin we can see that it took roughly 19 months for gold to bottom.
If bitcoin bottomed in the middle of April, we can say that it bottomed in roughly 4 months. Which would mean that bitcoin moves at just over 4.7X the speed of gold in terms of price discovery.
Given that it took around 1200 days for gold to reach it's next high after bottoming in 1976, we could use that same pattern to get an idea for bitcoin's next high.
Since it moves at roughly 4.7X the speed of gold, we could estimate that bitcoin should reach it's high roughly 8-9 months from the time it bottomed. Which would put that high sometime in late December of 2018 or early January of 2019.
Awesome! How high might this next high be?
If the magnitude of this move is similar to that of gold where it went from $100 to over $800 on its next rally, we could factor in roughly an 8X multiple to the low of bitcoin seen in April of $6,500ish.
Using that 8X multiple and a price of $6,500 we get a bitcoin price somewhere in the $50k range as its next high.
Which, as mentioned above, would happen roughly by December of this year or January of next.
How's that for a bullish rally?
Some Caveats:
Remember these projections are all based on bitcoin following the same pattern that gold did in roughly the same way around the introduction of futures products, and it hinges on that April low around $6,500 holding for bitcoin.
If that low does not hold, then the entire model will need to be recalculated and adjusted to whenever bitcoin finally bottoms in order to get an estimate of the speed of bitcoin's price discovery vs. that of gold.
Which would push the time it will take for bitcoin to reach that high out significantly.
This model is merely a guesstimate based on a possibly related trend. It likely should not to be taken as investment advice or be used solely to base an investment decision.
It is merely a fun exercise to see what might happen if bitcoin were to follow a similar pattern to that of gold relating to its introduction of futures products.
What is interesting to me as well is that seasonally, this forecast also lines up with a very strong time for bitcoin and that is also when a lot of crypto analysts have made forecasts for a very high price for bitcoin.
Perhaps they were looking at a similar model. :)
Stay informed my friends.
