Will the price of bitcoin fall back to $25,000?

Bitcoin has had a wild 2021 with a new all time high of nearly $70,000 and a low of $29,000. This has led to quite a bit of speculation that the price of bitcoin could fall back to $25,000 or lower. 

We find the odds of this happening rather low for a few reasons that we will explain in this article. Now, we are not the type of people that believe Bitcoin will have a continuous price increase for the rest of time, though it is possible, we simply find the odds of such a heavy price drop small. 

Here’s Why Bitcoin Probably Won’t Fall To $25,000

We have a few reasons to believe that the price of bitcoin will not fall all the way to $25,000. The reasons really are not that complicated and are based on rather simple monetary policy by the United States combined with the general direction of the technology. 

Inflation

The main reason the price of bitcoin will not fall to $25,000 actually has nothing to do with Bitcoin or the technology. Instead, it relates to the unit of account for measuring the price of bitcoin. 

Basically, we have a situation where the unit of account (United States Dollar) loses value each year because of inflation. This makes measuring the price of bitcoin in US Dollars a little confusing because inflation must be factored into the price. 

To put it simply, if the price of bitcoin falls to $25,000, then the real value (ie. the amount of goods you can buy with that money) of that will likely be less than $19,000 in 2017. 

That might be a little difficult to understand because the amount of inflation is not that much. But it’s basically the same as having a $100 bill from 1973 – it’s still worth $100, but $100 will buy you much less in 2021 than it would have in 1973. 

Anyway, we find it extremely unlikely that an asset will fall in value in times of high inflation. The general trend throughout history has been for assets to rise in price during times of inflation, why? 

No one wants to hold fiat currency because it’s guaranteed to lose value. Bitcoin, gold, property, and other assets have a tendency to hold their value in the long term or even beat inflation. 

Bitcoin and real estate have both done a great job at beating inflation over the past decade. Obviously, Bitcoin has done better, but both have done much better than inflation. 

As for when inflation will stop, it will not stop by the nature of how fiat currency works. In fact, it will likely continue to get worse as the United States continues to print money at an unprecedented rate.  

Mass Adoption

Next, Bitcoin is on the cusp of mass adoption. It has already become legal tender in El Salvador. We know El Salvador is not a big country, but it’s the normalization of it more than the actual use of it.

Not to mention that countries that rely on the US Dollar or have a currency crisis may follow the lead of El Salvador. 

Something called Metcalfe’s law also comes into play in relation to the price of bitcoin. Metcalfe’s law, which isn’t even a scientific law, states that the value of a network is correlated to the amount of network users. 

It sounds complicated, but it’s easy when you apply it to something like fax machines, social media sites, or telecommunications. A fax machine is useless if you are the only person that owns a fax machine, who would you send a fax to?

The value of the fax machine network increases the more people that own a fax machine. 

The same applies to Bitcoin. Its value was very, very low when it was only Satoshi, Hal Finney, and a handful of cryptographers on Bitcointalk using it. However, the value increased very rapidly as more and more people began using it. 

Now, Bitcoin might seem popular, but it’s really not that popular outside of tech and investment circles. The general public has little to no understanding of it, especially the older segment of the general public. 

That’s a good thing because it means Bitcoin has a lot of room to grow in price. 

We’ll put it this way, maybe 5% of the world population holds Bitcoin and the price is already hovering around $50,000. Imagine what the price would look like when more countries make it legal tender and the total use goes up to something like 40%?

The price would likely be sky high at that point. It could very well become the world reserve currency at that point, which would only further increase the price according to Metcalfe’s law. 

To summarize, Bitcoin still has not achieved any semblance of mass adoption. This will most likely occur at some point in the medium-term future. At that point, the price of bitcoin would never fall below $25,000 if we use Metcalfe’s law as a model for predicting the price. 

Bitcoin Never Falls Below a Previous All-Time High

Bitcoin has an interesting pattern – it never falls below the all time high from the bull market before the most recent one. Here are some examples for reference: 

  • 2013 Bull Market: Bitcoin reaches an all time high of ~$243.
  • 2016-2017 Bull Market: Bitcoin reaches an all time high of ~$19,000.
  • 2018-2020 Bear Market: The price of bitcoin never drops below $243. It falls to around $3,000 at its lowest in March 2020. 

We know it’s a small sample size, but this pattern makes sense when you combine it with Metcalfe’s law and the runaway inflation inherent to all fiat currency. It would actually be very, very bad if the price of bitcoin fell below the all time high of the 2017 bull market. 

For one, $19,000 in 2017 is nowhere close to $19,000 in 2021 or 2022. It would also likely mean that Bitcoin is losing users, which is never good for a network. 

Is Bitcoin a Good Investment?

Bitcoin is probably a safe investment. We find it extremely unlikely that the price will drop below $25,000. That is not to say that the price will increase forever – Bitcoin will experience plenty of dips. But the overall price trajectory of the project is up and to the right. 

Due to that, we believe Bitcoin is a good investment. Of course, you should do your own research and come to your own conclusions before making any investment. Especially with something as risky and volatile as cryptocurrency. 

Closing Thoughts

That sums it up for whether not bitcoin will fall all the way to $25,000. We find that extremely unlikely at this point in time. In fact, if bitcoin falls to $25,000, then the entire project has a risk of becoming irrelevant. 

Fortunately, the odds of that happening are low enough that you should not worry about this happening too much. 

Will the price of bitcoin fall back to $25,000?