In 2018, will Bitcoin turn out to be another pets.com-style overhype, an Amazon.com surprise or just what it is: the beginning of a new type of digital currency going through its ups and downs?
As an investment, many academics urge caution, as some projections say that Bitcoin could reach a price of $20,000 or more in 2018. It is clear that the price of Bitcoin skyrocketed in 2017, but it is far from certain what will happen to the currency next year.
Early this week, Bitcoin was selling for well over $11,000. There are those who predict the price of Bitcoin will continue to increase next year. “I don’t think it is going to stop any time soon,” Ronnie Moas, founder of Standpoint Research, told ThinkAdvisor.
He recently predicted that the target price of Bitcoin is $20,000 for 2018 – and it “could go higher,” he said. “It would not shock me to see it hit $100,000 next year.”
Moreover, if the Securities and Exchange Commission approved an exchange-traded fund for Bitcoin, “there would be a stampede,” Moas said. “There wouldn’t be any Bitcoin availability.”
“I could see money coming out of the stock market and people doing this on their own,” Moas added.
Recently, the U.S. commodity Futures Trading Commission approved Bitcoin futures trading on the Chicago Mercantile Exchange. “It was like a stamp of approval,” Moas said.
But Moas also cautioned he does not have a “crystal ball” and investors may want to have a diverse portfolio of coins, not just Bitcoin. For instance, another currency, Iota, recently jumped in value.
This interest in Bitcoin is also being seen by many financial advisors whose clients have been asking about investing in the currency.
(Related: Bitcoin Goes Bonkers and So Does Twitter)
“Advisors are being asked about Bitcoins and cryptocurrency today, and this puts advisors in a really tough spot,” Jamie Hopkins, a professor at the American College of Financial Services, said. “The reason it’s a tough spot is that most U.S.-based advisors don't have a great deal of experience with currency trading and investing. In other countries, currency trading is much more common than in the U.S. As such, advisors are often ill-prepared to discuss the benefits or drawbacks of general currency trading, let alone a digital currency.
“Most advisors today are steering their clients away from such high-risk investments. This is the safe and conservative approach. However, there can be a huge downside of doing this, too, as many investors don't want to feel like they missed out on the next big thing. I’ve already run into investors lamenting the fact that they missed out on investing in Bitcoin.”
Yet, many academics urge extreme caution. When asked about the price of Bitcoin next year, Christian Catalini, a professor at MIT, told ThinkAdvisor, “It is difficult to predict.”
“As institutional investors come in and start investing in this space, the market may stabilize, but right now there is clearly a lot of volatility, enthusiasm and uncertainty,” he said.
Panos Mourdoukoutas, an economics professor at Long Island University, when asked about Bitcoin pricing, responded that “it’s certainly a bubble, but it will continue blowing bigger before it pops.… They are extremely risky investments, driven by hype.”
Also, Joshua Gans, a professor at the University of Toronto, said Bitcoin prices “can be subject to wild volatility. But that said, I couldn't forecast where it will go next year.”
There are some other possible issues related to Bitcoin on the horizon. For instance, John Grable, a professor at the University of Georgia, points out that the Internal Revenue Service requires disclosures of the account numbers and transactions of any American who owns a Bitcoin. “The implication is clear: holding this asset is likely to prompt scrutiny by the IRS,” he said.
Also, Andrew T. Levin, an economics professor at Dartmouth College, raises the issue of central bank digital currencies.
He explained that “privately issued cryptocurrencies may be useful in facilitating certain types of payment transactions but cannot serve as an adequate substitute for legal tender. Indeed, this is the crux of the rationale for moving ahead expeditiously in the establishment of central bank digital currencies (CBDC). The Swedish central bank is currently at the frontier in developing a CBDC, and a number of other major central banks (including the BoE, BoC, and PBOC) are actively engaged in considering CBDC.”
As far as the U.S., Federal Reserve Vice Chair Randall Quarles recently gave remarks in which he indicated that the Fed is not actively considering the possibility of launching a CBDC, Levin said. Yet, Marvin Goodfriend was recently nominated to the Federal Reserve Board, and last year Goodfriend gave a speech “in which he noted that CBDC could be a crucial tool for monetary policy because it would allow the central bank to cut interest rates below zero in response to a severe adverse shock,” Levin said.
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