Why Predicting Bitcoin Prices Is Useless


Bitcoin’s price has been on a tear lately. And that has created a ton of FOMO in the markets. It’s all over Twitter, it’s all over mainstream finance news outlets, and it’s all based on fear. The fear of missing out.

This fear isn’t healthy, but it’s a part of how humans work. We naturally want to fit in, and when we see everyone else buying Bitcoin, we have an urge to do the same.

So I’m going to try and deflate some of that hype, and give you a reason why Bitcoin prices might actually go down after the halving.

But first, it’s important to understand one fact about Bitcoin. People with a low time preference have done orders of magnitude better than people with high time preference. Time preference is basically just your willingness to wait in order to get a future reward.

People who want to profit now have a high time preference. People who are fine with delaying their profit far out into the future have a low time preference. And Bitcoin’s fortunes have all been made by people with low time preferences.

Yesterday we discussed one reason that Bitcoin prices won’t necessarily shoot up before the halving. It has to do with the way Bitcoin is created. Every 10 minutes there’s a lottery, and every 10 minutes the computer power you provide to the network gives you a proportional chance of winning the lottery. And that lottery has seen a 50% drop in payout.

As a result, miners are likely to be forced into selling their coins both before and after the halving to fund their operations.

But in a chaotic system like Bitcoin, trying to predict future prices is futile. Short-term price action is unknowable, which should provide comfort to those with a low time preference.

If you are feeling fear about the halving and the immediate prices, you probably shouldn’t be in crypto. The stress of prices moving up and down all day will destroy your productivity and rational thinking ability.

But if you’re in it for the long-term and want a way to steadily begin buying, dollar-cost averaging is a great way to start. It gives you a robotic way to accumulate, allowing you to remain totally detached from Bitcoin prices and pick up extra coins on a regular schedule - regardless of price performance.