Here’s Why The Bitcoin Price Predictions By Top Analysts Are Often Found To Be Wrong
A quick look into the bitcoin prices. What do analysts observe of the fluctuations? This is a detailed study from over a few months before to the present condition.
What Are The Bitcoin Price Predictions?
We now find that the bitcoin price predictions by analysts seem to be wild along with the BTC options that have implied volatility and producing conservative estimates and it is here to decide which group has fared better?
Rallying above $19,000 in 2017, Bitcoin (BTC) according to crypto analysts thereby issuing an amazingly wide range of price predictions on the date as the value of the next all-time high or low.
Rooted in deep fundamental and technical analysis are some of these predictions while otherwise, they are simply nothing more than off-the-cuff estimates issued at whim.
It was found that useful insights were provided into traders’ expectations that include the mathematical probabilities for an asset’s future prices are the options markets and allowing one to better assess the likelihood of analysts’ estimates is the Black & Scholes valuation algorithm since the early 1970s and remains to be used widely.
Tending to underestimate the odds of the substantial movements, is the Black & Scholes option pricing model that does provide precise and conservative estimates.
Adding more than a couple of days to an estimate, it is similar to weather forecasting reducing the precision by a logarithmic proportion as it is a must to consider that the model has to predict a binary outcome along with a $9,500 option deemed worthless in case the expiry price is $9,499.
Pundits Price Predictions Are Therefore Often Way Off The Mark
Tending to exaggerate their estimates, many analysts make a bold statement and attract media attention or their predictions are based on various types of bias.
Hereby most of them do not expect gold bugs similar to Peter Schiff drawing a bullish Bitcoin estimate as the same is said to be expecting a bearish prediction from Stock-to-Flow model author PlanB.
Investors should be asking questions as exactly how far off are those estimates when compared to Bitcoin options pricing and further on should one even have to consider these analysts and pundits opinions.
Consider The Options Mathematical Probability
Even though the options pricing model of Black & Scholes can be complicated, its usage is pretty straight forward and in the case of informing the current BTC price, strike level, days until expiry, and annual volatility, here the model instantly provides the odds above and below a specific price.
Expiring on the last Friday of every month is the most active option strikes and when previously explained, these figures come to be seen as conservative. Signifying a mere 50% probability, there are both August and September strikes as the Bitcoin price remains above $9,000.
Effectively neutral is a 50% odd as the mathematical models' state odds above and below such targets that are pretty much the same.
The probability for an $ 8,500 on the July expiry by contrast now sits at 76% where the model becoming more confident as they approach maturity where one should not expect options to price 90% plus odds for the contracts with more than two weeks left.
The Pundits’ Predictions Are Thereby Often Unreasonable
One needs to stack those odds against the Black & Scholes model, to assert whether analysts and pundits ‘ predictions fare better than options markets pricing requiring four basic inputs that are current price, strike(prediction), days until expiry, and implied volatility.
November 1, 2019: Changpeng Zhao Predicts $16,000
He has said numerous times that he isn’t an active trader as Binance founder Changpeng Zhao often likes to publicise the predictions. CZ thereby declared in early November that BTC is set to hit $ 16K soon as one should assume four months.
Bitcoin Price: $9,130
Implied volatility: 74%
Days to expiry: 120
Strike (prediction): $16,000
Black & Scholes probability: 9%
Thereafter, CZ had missed the mark by 35% as it was found that Bitcoin failed to break $ 10,500 level that was within four months and it was not a lousy call but rather way too optimistic when indicated by the Black & Scholes model.
November 20, 2019: Willy Woo Calls The Drop To $4,500
Reflecting on the previous year cycle low of $3,100 as well as estimating that Bitcoin could drop 71% from its $12,800 high is analyst Willy Woo, as it reaches $4,500 before the next halving and rather seeming unlikely at the time but a six-month timeframe in the cryptocurrency is a very long time.
Bitcoin Price: $8,100
Implied volatility: 72%
Days to expiry: 170
Strike (prediction): $4,500
Black & Scholes probability: 11%
Causing a brief test of the $4,000 level was the March 13 infamous crash and hats off to Willy Woo on this call. Buying protection for such a long timeframe costs substantial money despite being correct that a $ 6K put option would have also cost Woo $540 back then.
November 21, 2019: Peter Schiff Predicts $1,000
Peter Schiff the notorious Bitcoin basher spotted a head and shoulders pattern thereby issuing a $ 1,000 prediction as although there was no timeframe set based on such pattern as the three-month time frame seems reasonable.
Bitcoin Price: $7,600
Implied volatility: 68%
Days to expiry: 90
Strike (prediction): $1,000
Black & Scholes probability: 0%
To deem such predictions as unreasonable, one doesn’t need to be a statistician and according to the options model, there is a $5,000 target back that would still have shown a limited 10.7% probability.
Remaining bearish, Peter could use a more reasonable goal according to options markets at that time.
January 17, 2020: Peter Brandt Predicts $6,000
Saying that BTC has already hit the floor, the 40-year market stalwart along with investors waiting for a price dip to $ 6,000 having missed their opportunity as there was no timeline mentioned although a 3-month prediction would have pleased most investors.
Bitcoin Price: $8,000
Implied volatility: 68%
Days to expiry: 90
Strike (prediction): $6,000
Black & Scholes probability: 12%
The sudden bitcoin collapse less than two months after that tweet on March 13 thereby proved Peter Brandt’s prediction wrong.
February 4, 2020: Tom Lee Predicts $27,000
Fundstrat senior analyst Tom Lee in an interview suggested that Bitcoin’s technical achievements have paved the way for 200% gains within six months as halving acting as a catalyst.
Bitcoin Price: $9,100
Implied volatility: 67%
Days to expiry: 180
Strike (prediction): $27,000
Black & Scholes probability: 1%
Though it seems very unlikely, with less than 20 days to fulfill such a prediction there was a need to at least buy a $23K call option costing $ 65 as a bargain considering a $ 4,000 upside to Lee’s target.
February 10, 2020: PlanB Predicts $10,000 Before Halving
Revealing his belief that Bitcoin would not return below $8,200 was the creator of the stock-to-flow model as PlanB also mentioned he was expecting levels above $10,000 near Bitcoin halving in May.
Bitcoin Price: $9,850
Implied volatility: 65%
Days to expiry: 90
Strike (bottom prediction): $8,200
Black & Scholes probability: 28%
Strike (halving prediction): $10,000
Black & Scholes probability: 49%
PlanB’s $ 8,200 support level was broken less than a month later although the $10,000 prediction for halving was pretty close as it was off by only 3% to 5%.
Although the bold $10,000 prediction could have earned him good money using a butterfly spread strategy as one might say PlanB got it 50% right.
And Finally, We Have The Options Pricing Providing Guidance, But It Isn’t An Oracle
As a useful tool to understand how far a prediction might be from options pricing, Black & Scholes makes what is clear that the pundits seem to exaggerate their takes leading to huge misses and misinformation in the form of bad analysis being spread through most of the major media outlets.
The wild guesses do hit the mark in some cases for example Willy Woo and PlanB certainly could have profited defying options model pricing but generally, it is better to research on your own whereas not following calls from leading analysts.