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- Investor Louis Navellier says bitcoin is in a bubble, and Federal Reserve "tapering" could burst it.
- Navellier says that as rates rise and investors get risk averse, bitcoin could fall back to $10,000.
- Bitcoin has rallied from under $4,000 in March 2020 and to $67,000 in early November.
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Bitcoin has gone mainstream thanks to its soaring price — but long before that it was famous for its wild volatility.
The $1 trillion cryptocurrency fell by as much as 22% on December 4 to $41,967.5, and was down 38% since it hit an all-time high three weeks earlier. That's a difficult stretch, but in terms of its history it's not even notable.
Bitcoin first traded at $10,000 in February 2017, and after several reversals, it crossed the $10,000 mark again shortly before the pandemic-driven market crash. That crash knocked the currency under $4,000. It's climbed more than 1,000% since then — even though traders endured another 50% plunge between May and July 2021.
Investing veteran and author Louis Navellier says there are signs that worse is in store. He says it's becoming clear that there is a mania around bitcoin, pointing to the $100 million Crypto.com ad campaign that includes a TV commercial starring Matt Damon as evidence.
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Navellier has been picking stocks and writing about the market for more than three decades. According to data from Navellier & Associates, $100,000 invested according to his regularly updated Growth Investor Buy List in December 1997 would have turned into $1.77 million as of this year.
The longtime growth investor says a bubble is forming even though the Federal Reserve is now cutting back on the bond purchases it's used to keep interest rates low. In fact, it might try to fight inflation by reducing those purchases faster than expected.
"The Fed is tapering, and this should create a correction in risk assets, of which bitcoin is a part. The more the Fed tapers, the more volatility we should see in both stocks and bonds — and yes, bitcoin, too," he said in a recent note.
The last major risk-off phase in the markets occurred at the start of the COVID-19 pandemic, and bitcoin was initially hit hard. Its price dropped 50% between February and March 2020.
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Navellier says that if the recent sell-off continues, it will set off a deeply bearish reversal that will wipe out 80% of bitcoin's value.
"I would take a decline below $46,000 (the 200-day moving average) to be a yellow flag and a decline below the spring low of $28,500 to be a completed massive double top which points to a decline to below $10,000, which incidentally would match many of the multiple 80%+ declines in its storied history," he wrote.
In a double top, an asset reaches a new high, goes through a brief decline, and then returns to the previous high, a sequence that can convince investors that the asset has overcome a brief dip. But from there the price will drop back to the low it reached during that short decline, then breach that level and fall much further without an obvious base of support.
It's a scary pattern that is only clear in hindsight.
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While Navellier is making a dramatic prediction, bitcoin has endured a few 80% dives before, the most recent of which started in December 2017 and spanned most of 2018. There were plenty of causes, including the government's refusal to allow a bitcoin ETF to trade, fears about hacks, and warnings from prominent investors like Warren Buffett.
Navellier is far from the only bitcoin skeptic — JPMorgan Chase chairman Jamie Dimon has trashed it numerous times — but the financial community seems much more enthusiastic about cryptocurrencies today. Former doubters like billionaire investor Stanley Druckenmiller have embraced it, and Paul Tudor Jones says he prefers the original crypto to gold as an inflation hedge.
But as bitcoin's price has risen, so too have projections from enthusiasts. Mike Novogratz, an ex-hedge fund manager who now runs crypto investment company Galaxy Digital, said in February that bitcoin would hit $100,000 by the end of 2021 — and he remains bullish even though he's conceded his forecast probably won't come true.
Check out: Personal Finance Insider's picks for best cryptocurrency exchanges
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