In 2018, Tim Draper, a notorious venture capitalist, made a bold prediction: he claimed that the price of Bitcoin would hit $250,000 by 2022. Hoping to capitalize on the future price of Bitcoin, people have since been in a state of anticipation. In this article, I will try to outline my personal views on this topic.
Predicting The Future In Trading
Around a century ago, W.D. Gann (the author of the Gann Theory and one of the pioneers of technical analysis) made astounding financial predictions; he believed that the past could predict the future. Gann believed that by observing data and aligning certain historical events with astrological activities, anyone could determine a so-called “master time factor.”
Around the same period, Ralph Nelson Elliott, a professional accountant, studied 75 years’ worth of yearly, monthly, daily, and hourly indexes during his spare time. The accountant discovered that bullish and bearish trends come in waves (Elliott waves). Each trend begins with an impulse or motive wave (influenced by fear and greed), followed by a corrective wave (skeptical buyers exit early). Then, there is another bullish impulse, followed by another corrective wave, and so on. Elliott waves come in cycles that repeat themselves. Smaller Elliott waves form larger Elliott waves, and these waves can allow one to predict the future over centuries and generations. The Bitcoin price is no exception: it has its own cycles.
Fear, Greed, And Herd Mentality
The majority of market decisions are driven by fear and greed. People want to get rich quickly; thus, they jump on more risky opportunities (the dotcom boom was a great example). Buying fuels more buying, and prices rise to excessive levels, making people experience FOMO (fear of missing out).
With Bitcoin, the “crash” (or the corrective wave) occurred after the BTC price hit $20,000; then, the reversal pattern took place. Retail investors were fueling the price to its limits, and market makers were preparing to “disembark from the ship.”
It is crucial to notice that what happened with the Bitcoin price back in 2017 is simply a corrective wave that will be followed with a bullish wave. It is also essential to understand how the BTC price changes and who influences it.
What Is A Market Maker? How Do Market Makers Work?
While any particular party does not set the asset’s price, multiple factors are involved in the process. There is one specific market participant worth mentioning: this participant is called a market maker (the party that creates liquidity and determines the course of an asset’s price).
To create liquidity and influence the market, market makers use HFT bots that automate purchase and sell orders; these bots are programmed to create trading patterns. HFT, or high-frequency trading, is a subset of algorithmic trading. In simple words, it is a type of computer-assisted rule-based trading that involves the use of algorithms to make rule-based decisions and place orders automatically. The entire process is dynamically controlled by software. To influence the market and create fear or greed among traders, the market maker pushes the market toward one direction or the other. In other words, if the market maker intends to drive the market up, it will create an initial pump to spark activity among the crowd. The same rule applies when the market maker wants to lower the price of an asset.
As you may guess, market makers use automation trading software to manipulate people to act in certain ways. Because the crypto market is relatively small, this becomes easier to do compared to the stock market. Any large purchase or sale is significant, making cryptocurrencies extremely volatile and, thus, unpredictable. By making large purchases of BTC, market makers can pump the BTC price by 10% to 20% in just a matter of minutes.
Will The Bitcoin Price Hit $200,000 By 2022?
Without further ado, I firmly believe that the BTC price will bypass the $20,000 mark and will undoubtedly approach the $150,000 mark. However, whether the price will reach $200,000 to $250,000 or not is hard to tell at this moment.
Bitcoin represents a highly volatile asset that can be extremely profitable for market makers. The BTC price will likely be pumped to $20,000. From there, a new wave of hope and FOMO will cause things to take a turn. When certain price targets are met, the market maker will make an exit, and history will repeat itself.