It certainly has been a sensational year for the Bitcoin price.
With the number one cryptocurrency now fetching US$8,178.01 per coin, it is up over 740% year-to-date.
Will Bitcoin crash in 2018?
With the Bitcoin price continuing to rise and seemingly showing no signs of slowing, more and more market commentators are warning that it has entered into bubble territory.
Invariably, when there's a bubble, there's a bust not far away.
But whether or not Bitcoin is a bubble is a matter of debate. The easiest way to judge this with other assets is to work out the asset's value and then compare it to its price.
This isn't so easy with Bitcoin. However, as I explained previously, there is one valuation method which has merit.
Kay Van-Peterson from Saxo Bank believes Bitcoin could be worth over US$100,000 in a decade if Bitcoin can grow to account for 3.5% of the average daily volumes (ADV) of global fiat currency trade.
Van-Petersen estimates that this would mean Bitcoin accounts for US$175 billion of the ADV. Based on a multiple of 10x ADV, Bitcoin would have a market cap of US$1.75 trillion. If we then divide that by the estimated 17 million Bitcoin that will be in circulation by 2027, this equates to a price of just over US$100,000 per coin.
So although Bitcoin does look like it is in bubble territory and could burst in 2018, I wouldn't be betting against it just yet.
Should you buy Bitcoin?
Due to the diversification it offers and its lack of correlation with any other asset class, Bitcoin could prove to be a good addition to a balanced portfolio. However, I would restrict any investment to just a very small allocation due to it being a high risk investment.
