Analysts trying to predict a future price for Bitcoin have recently presented theories - taking data from the gold exchange markets - suggesting that Bitcoin will go to $400,000 sometime in the next few years. Regardless whether this prediction comes true or not, what does that really mean to you? To answer this we have to go back at the very first few days of the digital asset.
How Bitcoin was intended to be used
Bitcoin was created back in 2008, with its concept going back to 1999. This was long before any exchange ever existed. In reality, its developer(s), had in mind that it would be privately exchanged through messages in bulletin boards, forums, or classified ads. In fact, that's exactly how the first value exchange transaction took place: someone posted a message in a forum, offering 10,000 Bitcoins for 2 pizzas. Bitcoin was developed to be used by developers and computer nerds, who were back then using bulletin boards and forums to communicate with other developers. Its intended use was similar to what we see today in Non-Fungible Tokens (NFTs): each transaction is different from any other transaction, and thus each Bitcoin has individual value agreed by the individual owning the coins in offer. In that first value exchange transaction, each Bitcoin was valued by its owner at around $0.002 each (provided that two jumbo-sized pizzas would cost back then around $20. Although this transaction was publicly announced, nobody though back then that each Bitcoin got a starting price of $0.002. Most miners were simply giving away their tokens for free, just to increase acceptance, and establish existence of the new asset.
The dark ages of the Bitcoin
Soon after, Bitcoin started to be used in illegal transactions, that needed to be untraceable. Drug dealers needed a token that could be anonymous, could not be forged, and could not be altered. Something like cash, but better. In the early days of Bitcoin, it was the drug dealers who were doing the market making for Bitcoin, though Silk Road (the first ever Bitcoin exchange). In fact part of the reason behind the first bull run and the crash that followed, back in 2012, was Silk Road, and the arrest of a junkie who used Bitcoin to buy drugs through the Silk Road website. It was the shut down of the Silk Road website that allowed Mt Gox to grow and become the first large Bitcoin exchange, although the nature of the transactions remained essentially the same. This way, all of a sudden, Bitcoin gained transactional value, and miners stopped giving away Bitcoins for free.
From transactional value to value storage
The success of Mt Gox lead others start competing exchanges, where Bitcoin would not be used in illegal transactions, at least not directly. For quite some time, transactions that were used to fund illegal activities were hand-in-hand with legitimate investment or commercial transactions. However, the illegal transactions were those driving prices upwards. If you hold a fraction of a Bitcoin, chances are this same fraction has been used in the past to finance some kind of illegal activity, from terrorism to drugs. In reality it was the Mt Gox going under (and the development of Ethereum) that allowed the crypto industry to move from illegal activities to legitimate transactions.
The myth of the $100,000 price point
As the market was moving to storage of value, investors needed something to aspire for, so the risk-reward connection could be established. It was exactly the price volatility from the dark ages of the Bitcoin that offered the concept of the $100,000 price mark. This aspirational flaw, drives investors to believe that once the price mark is achieved, the value is concrete, and will remain there forever. If you look at the price charts going back up to 5 years above, the only price that is consistent all this time, is the $3,200 point.
If someone had purchased Bitcoin on July 1st 2017, at $2,500 with the promise that the value would go eight-fold, at $20,000, this would become true only around the Christmas of 2020. If the same investor would invest in Bitcoin under the eight-fold promise at $50,000, at $6,250 only 3 months later, he would have to wait until this past February, and that price would only be true for just a week. Once that week was passed, the price would briefly go lower for another week, until it climbed again above $50,000, and go down again below that point. For this second investor, although the $50,000 price point was achieved, his Bitcoins are not worth that much any more. The investors who were promised the $100,000 mark, and bought their Bitcoins in the first few days of December 2017 (just 5 months later than our first investor), are yet to see their anticipated returns, and nobody knows when and for how long this price will be valid.
Among the three investors, only the first one had the full value he paid for stored in his Bitcoins. The second investor had around half of the time the value he paid lost, and the third would have the paid value stored in full for about one month, and then he would have to wait until mid-October of 2020 to have the value he paid restored.
HODL is easier to say than to do. Especially when you see 70 or 80% of your investment value being wiped out within just a few weeks - if not a few days.