Why $1 Million Is the New Psychological "Ceiling" for Bitcoin |
"Bitcoin is almost $100,000. How much higher can it go? I'm selling today." |
Every morning, I walk to a Starbucks near my apartment in South Florida for a cup of coffee. There's always a group of guys hanging outside and chatting about the stock market. |
But one morning in November, something strange happened. For the first time, I heard them talking about bitcoin. |
Naturally, my ears perked up. On that day, bitcoin (BTC) was steamrolling to $100,000. And one of the guys tells the others that he's ready to sell. |
Apparently, he got in at a much lower price and was ready to take some nice profits. |
While it's never a bad idea to take some profits off the table when you're sitting on massive gains… I wanted to tell him that selling all of his bitcoin right now would likely prove to be a mistake. One he'd regret. |
If you're a longtime reader, you know our research suggests bitcoin could hit $150,000 during this bull cycle… And up to $1 million by the end of the decade. |
As much as I wanted to share my research with this random person at a Starbucks, I didn't want to come off as presumptuous. |
He didn't know me. And you know how most people feel about unsolicited advice… |
So I decided to use his story as a cautionary tale for any readers who are considering selling their bitcoin now that it's crossed the $100,000 mark. |
Don't do it! |
In today's essay, I'm going to do something different. |
Instead of sharing a bunch of numbers that explain why I believe bitcoin will move multiples higher than $100,000 in the coming years… I'm going to show you why $100,000 is more of a psychological barrier than a physical barrier for most investors. |
In short, it's all in your mind. |
Don't Let This Bias Affect Your Investment |
Look, I get it. The idea of paying $100,000 for a single BTC is A LOT of money. Especially when Daily editor Teeka Tiwari recommended it for around $425 in April 2016. |
That's a 23,430% gain – enough to turn every $1,000 into $235,300. |
Now, of course, you don't need to buy an entire bitcoin to get exposure to and profit from this asset. |
But when you put bitcoin's current price in context of its overall price trajectory, you'll see that $100,000 is still a bargain compared to where it's headed over the next decade. |
Generally, this is where I'd hit you with a bunch of charts and statistics. But as I mentioned above, I want to do something different today. |
I want to dig into the psychological aspect of investing. |
You see, when an asset like bitcoin adds another zero to its price, people worry that it has hit a top. They don't believe it can go any higher from there. They make the nice round number a "ceiling." |
As I'll show you below, we saw this type of negative investor sentiment occur when bitcoin crossed the $1,000 and $10,000 price ceilings. We even saw this phenomenon play out when gold crossed the $1,000 mark. |
In psychology, this phenomenon is called "anchoring bias" or "anchoring effect." |
Anchoring is a largely unconscious process in which people rely heavily on the first piece of information they receive to make quick judgments. Anchoring affects our lives and behavior every day. And that includes investing. |
It usually occurs when individuals rely on an initial piece of information (the anchor) to make a decision. The initial piece of information sets the reference point for subsequent decisions. |
Here's the thing… |
Even when faced with newer information, individuals might still give disproportionate weight to the anchor point. |
It's why car dealers usually show prospective customers their most expensive cars first. All the other cars seem cheap by comparison. |
And it's why employers generally lowball employees during contract negotiations. They bank on the employee's counteroffer being closer to their initial low-ball offer. |
"How does this apply to bitcoin?" I can hear you asking. |
Just think about it… |
Bitcoin generally makes news when it does something historic. And there's nothing more historic than crossing nice, round numbers like $100, $1,000, $10,000 and $100,000. |
Most people are only paying attention to bitcoin when it hits these new all-time highs. |
And that's why for the first time ever since I've been going to that Starbucks, I heard the stock guys talking about crypto. |
And it's why I so badly wanted to share with them the information I'm about to share with you… |
$1,000,000 Is the New Ceiling |
As humans, we're obsessed with big, round numbers… Networks flashed: BREAKING NEWS when gold first crossed $1,000 per ounce… When the Dow Jones crossed 10,000… And when government debt first crossed $1 trillion. |
These milestones are historic. After all, they can take decades or centuries to reach. But when you look back, they were just blips on the chart. |
Today, the price of an ounce of gold is over $2,600. The Dow now trades above 43,000. And the national debt is above $35 trillion. |
The price of BTC is another example of this anchoring effect. Every time it crossed a new milestone – $100, $1,000, $10,000 – investors questioned whether this was the end. |
These big, round numbers acted as an anchor – imaginary hurdles that shook out weak hands before the asset price eventually moved higher. |
Just take a look at the charts below. |
This first shows how bitcoin struggled to convincingly clear the $1,000 price level. |
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As you can see, bitcoin cleared $1,000 in December 2016. It fell below $1,000 in January 2017 and again in March and April before it was off to the races. |
This was likely the last time you could buy bitcoin for under $1,000. |
This next chart shows BTC crossing the $10,000 hurdle. |
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It popped to $11,000 then fell back below $9,000 twice. It didn't take bitcoin as long to clear $10,000 for good as it did $1,000… But a lot of weak hands got shaken out along the way. |
This was likely the last time you could buy bitcoin for under $10,000. |
You can see the same anchoring effect play out in the gold market. |
In 2008, gold breached $1,000 but quickly fell to $700. The yellow metal spent the next 19 months consolidating below $1,000 before the weak hands finally capitulated. |
This was the last time you could buy gold for under $1,000. |
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I could show you plenty more charts. But I think you get the picture. |
As you can see, big, round numbers are just arbitrary psychological barriers that we place upon ourselves. |
If you hold quality assets, there's no reason why a $1,000 investment can't turn into $10,000… $10,000 into $100,000… and $100,000 into $1 million. |
Bitcoin's price trajectory comes down to one thing and one thing only: Adoption. |
As long as the adoption story remains intact, bitcoin's price will increase. |
For us, the next price target is $150,000 during this cycle. And between $500,000 and $1 million by the end of the decade. |
When it comes to bitcoin, the sky's the limit. Our research backs it up. And so does history. |
Hopefully, the guy I saw at Starbucks will read this essay. Because selling all of your bitcoin right now just because it cracked $100,000 doesn't make sense. It's financial malpractice. |
In the coming years, major corporations and national governments will start buying bitcoin as a reserve asset. |
They won't care if bitcoin is trading at $90,000 or $110,000. They will want exposure to the best digital version of gold out there. |
If bitcoin reaches parity with gold, it would trade at $902,500 per token. That's a 736% increase from today's levels. Even at just half of the price of gold, we'd see a 318% gain. |
At that time, you may want to consider selling some of your bitcoin. |
Regards, |
Houston |
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