Bitcoin's Price Forecasting: Understanding the Future

For over five years, I have been vocal about the implications of inflation in the U.S. economy. In my public talks on financial markets, I consistently advised friends and family to invest in tangible assets like gold, silver, and real estate, often adding, "and Bitcoin for fun." This wasn't merely casual conversation.

With a strong foundation in investment banking, I have managed my personal investments since the 1980s and currently own a sizable property business in the UK. My advocacy for physical assets stems from what I view as financial mismanagement within the American economy. Tangible assets act as a natural buffer against inflation, much like Bitcoin. However, it's essential to recognize that Bitcoin may not suit everyone; the phrase "Bitcoin for fun" reflects its notorious volatility. Those who cannot handle such fluctuations should reconsider their interest in this cryptocurrency.

I shifted 71% of my retirement savings into gold and silver in 2019 and have been purchasing Bitcoin on a weekly basis for nearly a decade, which has proven beneficial, as demonstrated by the chart below.

Bitcoin experiences an event known as "The Halving" every four years. I created a video for my university students shortly before the 2020 Halving. If you are unfamiliar with this event, the video provides valuable insights.

With the recent Halving in the past, discussions now focus on Bitcoin's future price. Numerous predictions circulate, but I seldom see grounded, quantitative assessments. Instead, opinions, aspirations, and fears dominate the conversation.

As a retired Wall Street quant, I rely on data rather than emotion—except perhaps when purchasing discounted steaks from my local butcher (a secret I keep from my wife). In a previous article, we examined how long it might take for Bitcoin's price to double, using historical price data from two previous halvings.

Bitcoin: Post-Halving Price Assessment

What if we tried to predict Bitcoin's price one year after the Halving by analyzing past data? Specifically, we can look at the percentage price increases from previous halvings.

Wall Street quants are often regarded as "Masters of the Universe," so let's assess the last three halvings and Bitcoin's price one year later. We will use two perspectives: a simple average and a weighted average. In financial forecasting, there is rarely a definitive answer; forecasts depend on the criteria used. We must remain calm if our predictions prove incorrect, as everyone is continually learning from the market.

Essential Notes for All Calculations

These calculations were performed on an Excel spreadsheet and summarized visually. While I strive for accuracy, errors can happen. Notably, the last halving occurred on April 20th, 2024, with Bitcoin priced at $63,843 at that time. We will also track the percentage price increase for each halving one year later. Our initial findings using the "simple average" forecasting method are summarized in the table below.

The table illustrates three methods to forecast Bitcoin's price one year from now.

1. The simple average of one-year price gains across all three halvings yields a staggering 2,971%, projecting Bitcoin's price at $1,896,563 in one year.
2. Excluding the 2016 data point, which seems atypical compared to the other two, provides a 4,134% gain when averaging 2012 and 2020, suggesting a future price of $2,754,187.
3. Focusing solely on the 2020 price gain of 559% implies a future price of $356,882.

Simple and Straightforward Approaches

These methods are easy to understand. However, they treat the one-year price gains from all three years equally. Given the evolving nature of the Bitcoin ecosystem, we will apply different weights to each year based on their significance. Newer data is more relevant, so we'll perform the calculations multiple times with varying weights, leading to differing outcomes. This is known as the "weighted average" approach.

For Weight Set One, we assign 20% to 2012, 30% to 2016, and 50% to 2020. This yields a one-year price gain of 1,979%, projecting Bitcoin's price at $1,263,134.

For Weight Set Two, we adjust to 10% for 2012, 25% for 2016, and 65% for 2020, resulting in a 1,241% gain and a price forecast of $792,451.

In Weight Set Three, we assign 5% to 2012, 15% to 2016, and 80% to 2020, leading to a 893% gain and a price of $570,278.

Finally, Weight Set Four allocates 1% to 2012, 4% to 2016, and 95% to 2020, giving a 623% gain and a projected price of $397,806.

The weighted average approach yields four forecasts based