Crypto winter! Bitcoin below $17,000 against $250,000 prediction

For some, Bitcoin was supposed to reach $250,000 by the 2022-end, but all the predictions and hopes are dashed as it traded for under $17,000 on Friday.

In fact, the Bitcoin has sunk around 75 percent since reaching its all-time high of nearly $69,000 in November 2021 while more than $2 trillion were wiped off the value of the entire cryptocurrency market.

What and what went wrong? The CNBC tried to explain the reasons in article which recalls Tim Draper, the famed Silicon Valley investor, who at a 2018 tech conference in Amsterdam had predicted bitcoin reaching $250,000 a coin by the end of 2022.

Describing 2022 as start of a new “crypto winter”, the article says the events of the year took many investors by surprise and made the task of predicting bitcoin’s price that much harder.

The crypto market was awash with pundits making feverish calls about where bitcoin was heading next. They were often positive, though a few correctly forecast the cryptocurrency sinking below $20,000 a coin.

“It began in May with the collapse of terraUSD, or UST, an algorithmic stablecoin that was supposed to be pegged one-to-one with the U.S. dollar. Its failure brought down terraUSD’s sister token luna and hit companies with exposure to both cryptocurrencies.”

Then came the November collapse of FTX, one of the world’s largest cryptocurrency exchanges which was run by Sam Bankman-Fried, an executive who was often in the spotlight. The fallout from FTX continues to ripple across the cryptocurrency industry.

From $250,000 to $10,000 price calls

On top of crypto-specific failures, investors have also had to contend with rising interest rates, which have put pressure on risk assets, including stocks and crypto.

However, Draper says that $250,000 “is still my number” — but he’s extending his prediction by six months.

“I expect a flight to quality and decentralized crypto like bitcoin, and for some of the weaker coins to become relics,” he told CNBC via email.

“My assumption is that, since women control 80% of retail spending and only 1 in 7 bitcoin wallets are currently held by women, the dam is about to break,” Draper said.

Similarly, Antoni Trenchev, the CEO of crypto lender Nexo, had thought the world’s biggest cryptocurrency could surge above $100,000 “within 12 months”. He now acknowledges it is improbable that bitcoin will rally that high anytime soon.

“I am pleasantly surprised by the stability of crypto prices, but I do not think we are out of the woods yet and that the second and third-order effects are still to play out, so I am somewhat skeptical as to a V-shape recovery,” Trenchev said.

Guido Buehler, the former CEO of regulated Swiss bank Seba, which is focused on cryptocurrencies, said his company had an “internal valuation model” of between $50,000 and $75,000 for bitcoin in 2022.

“The war in Ukraine in February triggered a shock to the paradigm of world order and the financial markets,” Buehler said, citing the consequences of raised market volatility and rising inflation in light of the disruption of commodities like oil.

Another major factor was “the realization that interest rates are still the driver of most asset classes,” including crypto, which “was hard blow for the crypto community, where there has been the belief that this asset class is not correlated to traditional assets.”

Paolo Ardoino, chief technology officer of Bitfinex and Tether, was expecting bitcoin end the year “well above” $50,000.

“As mentioned, predictions are hard to make. No one could have predicted or foreseen the number of companies, well regarded by the global community, failing in such a spectacular fashion,” he says now.

“Some legitimate concerns and questions remain around the future of crypto. It might be a volatile industry, but the technologies developed behind it are incredible.”

The Deutsche Bank analysts published a note in June that said bitcoin could end the year with a price of approximately $27,000. At the time of the note, bitcoin was trading at just over $20,000.

It was based on the belief from Deutsche Bank’s equity analysts that the S&P 500 would jump to $4,750 by year-end.

Marion Laboure, one of the authors of Deutsche Bank’s initial report, thinks they now expects bitcoin to end the year around $21,000.

“High inflation, monetary tightening, and slow economic growth have likely put additional downward pressure on the crypto ecosystem,” Laboure told CNBC, adding that more traditional assets such as bonds may begin to look more attractive to investors than bitcoin.

She said, “In addition to the lack of regulation, crypto’s biggest hurdles are transparency, conflicts of interest, liquidity, and the lack of reliable available data. The FTX collapse is a reminder that these problems continue to be unresolved.”

In a Nov 9 research note, JPMorgan analyst Nikolaos Panigirtzoglou and his team predicted the price of bitcoin would slump to $13,000 “in the coming weeks.” They had the benefit of hindsight after the FTX liquidity crisis, which they said would cause a “new phase of crypto deleveraging,” putting downside pressure on prices.

The cost it takes miners to produce new bitcoins historically acts as a “floor” for bitcoin’s price and is likely to revisit a $13,000 low as seen over the summer months, the analysts said. That’s not as far off bitcoin’s current price as some other predictions, but it’s still much lower than Friday’s price of just under $17,000.

Ian Harnett, co-founder and chief investment officer at macro research firm Absolute Strategy Research, warned in June that the world’s top digital currency was likely to tank as low as $13,000.

Explaining his bearish call at the time, Harnett said bitcoin, in the past crypto rallies, had subsequently tended to fall roughly 80 percent from all-time highs. In 2018, for instance, the token plummeted close to $3,000 after hitting a peak of nearly $20,000 in late 2017.

Meanwhile, Veteran investor Mark Mobius has probably been one of the more accurate predictors of bitcoin.

In May, when the price of bitcoin was above $28,000, he told Financial News that bitcoin would likely fall to $20,000, then bounce, but ultimately move down to $10,000.

Bitcoin did fall below $20,000 in June, and then bounce in August before falling again through the rest of the year. However, the $10,000 mark was not reached. Mobius told CNBC he forecasts bitcoin to hit $10,000 in 2023.

In December 2021, a month on from bitcoin’s all-time high, Carol Alexander, professor of finance at Sussex University, said she expected bitcoin to drop down to $10,000 “or even more” in 2022.

Bitcoin at the time had fallen about 30 percent from its near $69,000 record. Still, many crypto talking heads at the time were predicting further gains. Alexander was one of the rare voices going against the tide.

“If I were an investor now I would think about coming out of bitcoin soon because its price will probably crash next year,” she said at the time. Her bearish call rested on the idea that bitcoin has little intrinsic value and is mostly used for “speculation.”

Bitcoin didn’t quite slump as low as $10,000 — but Alexander is feeling good about her prediction. “Compared with others’ predictions, mine was by far the closest,” she said.

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