On October 3 the price of bitcoin touched $360, marking a low for 2014. The week before, venture capitalist Tim Draper – the winner of the giant government bitcoin auction that saw Draper come into possession of 0.25 percent of all BTC – went on Fox Business to dispel any fears that the ride was over. Well, not only that the ride wasn’t over. That it was just beginning.
In talking up the currency, he said “I am still predicting, Bitcoin, $10,000 in three years. It is a hedge against a lot of fiat currency, because it is a new way of transferring cash throughout the world in a much more efficient way. And Bitcoin has a created a whole infrastructure of many, many companies some of which came out of Boost the incubator. And those companies are creating this whole new culture, and this whole new way of thinking.”
It’s a lot of justification for the big headline: bitcoin will hit $10,000 in three years. Why would Draper say this? He certainly might believe bitcoin is going to be the future, to be sure.
But the reason he’s going on Fox Business to make this claim is because he has a sizable stake in it. He needs people to believe bitcoin will increase 30 times in value. Or people will lose interest and sell, and he’ll lose even more millions (in USD) than he already has – Draper bought in when bitcoin was worth almost twice as much, and is on the hook for roughly $9 million in losses in just four months.
This is not to point out the obvious, the Draper is a businessman and he needs his investment to make money. Rather, it raises a question indirectly that a lot of bitcoin diehards need to ask themselves: is there any price point that would cause you to pull your money out of bitcoin?
A lot of people, even ideologues invested in bitcoin as an entirely new paradigm that can upset the accepted fiat currency system, are simultaneously hoping to make a little money with their bitcoin stake. While they might not spend a lot of time thinking about price, the major players like Draper certainly care. As does a large swath of the market. Because there’s the possibility of BTC going to $10,000 in three years.
And there’s also the possibility of it going to $1. Many of bitcoin’s ideological adherents tend to hold no matter what. But does that mean there is literally no point from which to cut losses and sell out? What if bitcoin goes back to that penny trading range? What if it stays there for a year? For five years? How long will you buy and buy and buy at a continual loss? Until you die?
People like Draper can talk a big game, but they are beholden to their investors, same as any business. And make no mistake, Draper has a point where he will cut his losses and move on.
Bitcoin could go to $10,000 and stay there, though it’s highly unlikely. It could also go to five cents and stay there (also highly unlikely). But one way or another, bitcoin players need to answer the question: am I willing to go down with the ship even if Draper doesn’t?