Bitcoin prices are soaring. Old money moving around the network and all the headwinds, including a price drop as the pandemic hit, could not stop the inevitable. But as much as we are all excited, Bitcoin is still quite a bit away from its all time high.
Here is what the nominal price tells us now and why we should be more critical.
Bitcoin All Time High
To understand what is happening now price wise, it is important to remember what the all-time high Bitcoin price was.
For our purposes, let’s assume BTC ATH was $19,000 USD in December 2017 – although many will point out that it was closer to $20,000.
Nominally speaking, Bitcoin price is above that $19,000 USD mark – at the time of publication. But that is only a nominal value that gives us a partial picture.
Always Adjust for Inflation!
Before you take that mark at face value, consider inflation. Assuming an inflation rate of 2% per year, we are not near the all-time high.
Here is the calculation of the inflation adjusted Bitcoin price for the three years since:
- December 2018 would be year 1 after ATH – $19,000 USD x 1.02 = $19,380 USD
- After year 2, we would have to add another 2% for inflation – $19,380 USD x 1.02 = $19,767.6 USD
- Finally, for year three, which takes us to December 2020, the inflation adjusted Bitcoin all-time high price is – $19,767.6 USD x 1.02 = $20,163 USD
- The purchasing power of 1 BTC at $19,000 USD in 2017 is the same as that of 1 BTC at $20,163 USD in December 2020
- In other words, the purchasing power of $19,000 USD today is less than that of the same amount of money in 2017
Interest rates compound and so does inflation. Therefore, we are about $1,000 USD away from a Bitcoin all-time high.
Bitcoin Nears All Time High, But Still Falls Short!
At this rate, Bitcoin could hit an inflation adjusted all-time high by tomorrow, but we all know that markets are volatile.
That is probably why you are better off taking the emotion out of it, which adjusting for inflation helps you do.
It is also important to remind yourself that:
- BTC does not care about price, ever!
- If you haven’t accumulated “enough”, prices will probably come down at some point and you can recur to a DCA purchase strategy
- Most importantly, if you are counting on Bitcoin to make you rich overnight, you are missing the point
Tempering Bitcoin FOMO
We must do our part to temper the FOMO. When prices are this high, it is crucial to make sure people around you understand what Bitcoin is really about.
Take Jameson Lopp’s words of wisdom into consideration. This is not about making money fast. Above all, it is about being truthful.
If you are true to yourself, and you are critical, you will figure out that Bitcoin still has some distance to travel to get to its inflation adjusted all-time high. But that doesn’t make it less valuable now than it was in 2017. Value and price are not the same.
Buy Bitcoin Sensibly
Hodl for all the right reasons and be sensible with your Bitcoin strategy. Remember:
- To take a look at your own finances before you pour everything you have into BTC
- Don’t be a victim of FOMO
- Understand what you have or what you are going to buy
- No one knows what the price will be tomorrow; take forecasts with a grain of salt
- Diversify your sources of information
On the other hand:
- People who bought at the top of the market in 2017 and held are almost profitable
- Most other cryptocurrencies are much further away from their ATH – it is not a good idea to bet against Bitcoin YFI holders!
- Bitcoin is so reluctant to die, that it has made the top brass in the financial world look really bad – Jamie Dimon, Peter Schiff, and others
Now, if you ask us if Bitcoin will achieve its inflation adjusted all-time high price, we will always reply with a classic “to the moon.” Don’t let that influence your decisions either! Take the pros and the cons, assess your situation, and then make a decision you can live with.