A lot of newbie investors search for online asset price predictions and then invest based on those predictions.
In this post I’ll present my opinion on why this is nonsense.
If you’re here, then it means you’re still curious about price prediction and whether it works.
Well, it doesn’t. And here’s why.
Map to the Goldmine
Selling maps to gold mines is probably one of the oldest business scams there can be.
Since the Wild West, snake oil salesmen would promise riches to whoever was able to reach the gold mine pointed to by the map.
This is an obvious and primitive scam – but a lot of people fell for it.
Either the mine was already depleted or it simply didn’t exist where the map pointed to. And the reason for this is obvious: digging gold is much more profitable than selling maps.
This should be obvious, but unfortunately, to a lot of folks, it still isn’t.
Zero Sum Game
Deflationary markets, where currency emission is restricted – such as in Bitcoin and other cryptos – can be thought of as zero sum games in the short term. In the long run, tens of thousands of Bitcoins will still enter the market, but in the short term (months, not years) the float varies vary little. The amount of crypto available for speculation is relatively stable. Unlike Fed-money which may be printed out of thin air and pumped into the markets by the hundreds of billions in a matter of months.
The emission of Bitcoin is so controlled, that when you win on a trade then you’re most likely taking your profits from someone else’s losses. For all practical purposes, it’s a zero sum game.
Given this fact, it should be obvious that nobody will provide you with accurate info on how to defeat them using their own info. They’ll use the info to their own advantage.
If a piece of relevant information was made public, everyone would use it and the market would find an equilibrium level where the new info is now fully priced in.
The only way to make money from this kind of information is to use it to your advantage before the masses find out. Why, then, would anyone provide this information and not use it?
Some expensive newsletters will sell analysis and sometimes even insider information against a periodic fee.
This type of publication only gives readers an advantage during a short period of time.
After a large enough group uses the information contained in the newsletter, it’ll reach equilibrium and no longer gives readers and advantage.
There is an obvious conflict of interest in newsletters as well: if the information is so hot, then why wouldn’t the author use it to his advantage instead of publishing it against a usually much smaller profit margin?
In fact, newsletter authors may use their publications to multiply their profits by buying in on an asset that’ll be the target of hot info in a future issue.
Bitcoin Price Predictions
Price predictions are mostly just opinions. You can’t sue someone for giving an opinion, so these predictions will usually sound informal. In case a lot of people lose money and decide to go to court, they’ll use this informal tone to their advantage.
That’s why some influencers make controversial statements along with their predictions – in case there’s a lawsuit they’ll just say it was supposed to be a joke. I’m sure you can think of some examples of such surreptitious market manipulation tactics.
The Price Prediction Market
Here’s how famous folks make $ off the price prediction business.
Well known personalities will usually buy a large stake in some cryptocurrency and then emit some outrageous prediction 100’s of times higher than their average purchase price. Sometimes this large stake is given to them by the crowdfunding project (ICO, IEO, etc) in exchange for publicity. When the influencer receives her/his bag, they instantly begin to shill it on social media, predicting 100 to 1000x gain in price, new lambo, “moon” and so on.
Here the rationale is very simple: the potential profit from the initial crypto purchase will offset the value of the opinion – by far. Note how this is different from selling a map to the gold mine.
After buying in, it becomes the influencer’s main mission to pump the price up.
This is a very common practice both in the traditional stock market and in the cryptocurrency markets as well. Many popular stock market TV shows are simply trying to pump stocks that they or some other stakeholder have interest in.
Most market gurus will do all this with a humorous and informal demeanor so they can apply the necessary plausible deniability when the lawsuits come.
As you can see, this article does not paint a favorable picture about Bitcoin price predictions.
In most cases there’s some obvious conflict of interest going on.
The least harmful of these types of predictions is the one where an influencer has bought a large bag of a certain crypto. Unless they dump it all, in which case it’d be downright dishonest, this kind of shilling can promote a win-win situation where everyone gains from the value increase.
Otherwise most other price prediction cases are plain simply maps to the gold mine, where there is no gold to be found.