BITCOIN - HOW TO PREPARE FOR THE INEVITABLE "CRASH"

As we are all well aware, bitcoin has had an amazing year with a price rise from approximately $1000 aud (January 01 2017) to its current price of $15995.20 aud (29/11/2017). This leaves us with the question - will bitcoin go higher or is this the peak of the mountain?

To understand, and ultimately answer this question we must first understand what drives and potentially limits bitcoins price increase. The answer to this is speculation. Since bitcoin acts only as a store of value its worth is derived only from the amount of money invested into it. So who is buying bitcoin? Although we can not know for sure, I would suspect that the majority of bitcoin holders have held and increased their position over a moderately long period of time (>3 months). I would also expect that due to bitcoins increasing popularity, there will be a significant number of people who want to buy bitcoin and "get rich quickly".

In my opinion, the intelligent investors who have bought and increased their position in bitcoin over the past two forks will and should begin to scale out of their positions in bitcoin. As a result of this, the price of bitcoin will fall. As we have seen numerous times, irrational investors will begin to sell off their positions in fear of losing everything. This will cause the price of bitcoin to fall even further (I would estimate the % fall of bitcoin to around 30-40 % --- slightly greater than the last significant pullback ). I would then expect intelligent investors to re-buy their positions at a lower bitcoin price (provided a rivalling crypto-currency doesn't gain popularity).

To answer the initial question; I do not believe that this is the "peak of the mountain" for bitcoin, however I do expect a significant pull back in the near future. I also strongly believe that there are a series of altcoins which will provide significantly higher returns in the near to long term future.

Warren Buffett - “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.