Bitcoin and Ethereum, the two largest cryptocurrencies by market capitalisation, had a wild ride over 2017. When Bitcoin started January of last year with an exchange value of roughly $1000, no one predicted it would touch $20,000 before then end of 2017. But it did. Ethereum, or Ether as the Blockchain smart contract platform’s cryptocurrency units are called, saw even greater gains. In January 2017, an Ether was changing hands for around $10 and by the end of December almost $800. For those lucky enough to have held Ether at the start of the year, that added up to an investment return of almost 8000%!
Many financial experts believe that cryptocurrencies are in a bubble. The spectacular gains of Bitcoin and Ether have been mirrored by other cryptocurrencies. The market capitalisation of the wider cryptocurrencies market was $17.7 billion at the beginning of January last year and $822.5 billion at the end of the year.
There is a distinct likelihood that cryptocurrency prices are in bubble territory. The chart below shows Bitcoin’s price, and only up until August last year, a few months before the really big price movement took hold, in comparison with other historical financial asset bubbles.
However, there is a counter-argument that rather than being in a price bubble, Bitcoin, Ether and the wider cryptocurrencies market simply hit tipping point into the mainstream. Some industry experts believe that as adoption and awareness moved mainstream last year, the huge price surge was a natural consequence of the increase in demand. Major developments such as the introduction of Bitcoin futures on regulated derivatives exchanges also played a significant role in driving prices towards the end of the year. This marked the entry of cryptocurrencies into mainstream financial markets and the involvement of institutional capital in Bitcoin trading for the first time.
Of course, cryptocurrencies could have reached tipping point into mainstream finance and the public consciousness and be in a price bubble. The two are not mutually exclusive by any means. The beginning of this year has already seen major price corrections for Bitcoin and Ethereum, and the wider cryptocurrencies market. Over January, Bitcoin’s price has dropped from a 6th January high of over $17,000 to below $11,000. Ethereum’s high of over $1340, recorded on January 13th, has given way to a drop to below $1000.
However, what is in store for Bitcoin and Ether’s price over the rest of the year? Has the cryptocurrencies bubble burst and prices will keep going down? Is this a correction and an upwards trajectory will resume? And if so, at what pace might prices go beyond the highs of December last year? Of course, no one knows with any certainty what 2018 holds in store for price movement with so many potential influences. However, let’s take a look at some of the forecasts for Bitcoin and Ethereum prices provided by industry experts, observers and analysts and their reasoning behind them:
Bitcoin 2018 Price Forecasts:
The case for new highs: in its list of ‘outrageous predictions’ for 2017, Saxo Bank called a tripling of Bitcoin’s price over the course of the year. The reality of course turned out to be far more than a 300% gain, with an almost 2000% rise the December high. In this year’s equivalent list, Saxo has called a potential 2018 high of $60,000. Saxo analyst Kay Van-Petersen went a step further, stating that she ‘wouldn’t be surprised’ if Bitcoin prices had a year high of somewhere between $50,000 and $10,000.
New highs would potentially be supported by Bitcoin consolidating its foothold in mainstream financial markets. Futures trading provides the opportunity for institutional capital to take on Bitcoin exposure which would provide much greater liquidity and market depth. This could have the snowball effect of further increasing capital inflow from institutional investors. If even some of this trickled into buying actual Bitcoin and not only derivatives, it could increase demand significantly, driving prices up quickly.
However, Saxo has also predicted a heavy crash before the end of the year, which could see Bitcoin fall to significantly below the $10-000 to $12,500 range of early 2018.
The case for a stable channel: there are also voices predicting a middle ground, with Bitcoin prices neither crashing nor soaring this year. Tom Lee of Fundstrat has called $11,500 as the average price over the first half of the year and Ronnie Moas of Standpoint Research $14,000 the 2018 target.
Those calling a $10,000-$20,000 channel for 2018 base the argument on the fact that Bitcoin now has enough traction and mainstream finance foothold to not fall away but lacks the fundamentals to make significant progress this year. Bitcoin’s scalability issues, which have meant transaction costs and times have risen considerably over the past year are a bottleneck, along with very volatile value, preventing it from becoming a really viable fiat replacement. The ‘channel’ argument is that until those issues are resolved with changes to the Blockchain protocol, or this ambition gives way to becoming a ‘digital gold’ store of value, Bitcoin will struggle to gain the additional traction needed to break and hold long term above $20,000.
The case for a Bitcoin price crash: many commentators, particularly those from the mainstream traditional finance industry, are still convinced Bitcoin’s current price range is well into bubble territory and expect it to crash back to $1000 or below this year. That argument is based on the ‘intangible’ nature of the cryptocurrency and that it is a passing fad. Among recent commentators to that effect include Yale professor and Nobel prize for economics winner Robert Shiller and Peter Boockvar, chief investment officer at Bleakley Advisory Group. Warren Buffer has also predicted “[cryptocurrencies] will come to a bad ending”
Ethereum 2018 Price Forecasts:
Ethereum doesn’t attract the same level of wider commentary as Bitcoin but many analysts believe that the no.2 cryptocurrency could well overtake Bitcoin in the medium to longer term. While Bitcoin’s utility is purely as a fiat currency alternative, Ether has a particular function – payment tokens to use to Ethereum Blockchain smart contract platform which make Ethereum 2018 Price Forecasts that little bit harder.
The number of smart contracts and decentralised applications being built on the Ethereum platform is steadily rising and there is no reason to believe that won’t continue to be the case as more engineers learn to use Blockchain technology and it becomes generally more popular. Huge internationals such as HP are already developing Blockchain applications on the Ethereum platform. The one big risk to Ethereum is the potential for a new more advanced Blockchain platform to offer a comparable but improved smart contract platform. NEO, known as the ‘Chinese Ethereum’ already offers a comparable alternative that allows developers to use common coding languages and not a platform-specific language like Ethereum’s Solidity.
The case for $5000: as well as a strong, steady rise in the use of the Ethereum platform for the creation of smart contracts and decentralised applications, many ICOs have also been built on the Ethereum platform. If even some of the companies behind those ICOs go on to have success this year and their token values rise considerably, that could have a very favourable impact on the price of Ether over the year. Many believe it could go as high as $5000 if a few apps or ICOs built on it go big.
The case for $1000-$2000: with the market price of Ether less tied to speculative investment than that of Bitcoin, and more to use of the Ether platform, there is less fear of a ‘crash’. More conservative predictions for Ethereum 2018 Price Forecasts, based on steady growth in use of the platform would support a price range of between $1000 and $2000 this year.