Could bitcoin hit $25,000 by year end?

This week, bitcoin investors have been subject to a bout of volatility, the likes of which has come to define the cryptocurrency.

The price of bitcoin slumped 10% on April 26 to $8,800 from $9,700 following the news that the defunct cryptocurrency exchange Mt Gox moved 16,000 bitcoins from its vaults to an unknown address sparking concerns that a price crash was imminent. However, so far no crash has materialised, and the price has since recovered somewhat.

On the road to recovery

After a rocky 2017, the price of bitcoin has been more stable this year. It seems the market has matured to some degree and it is starting to attract more traditional investors such as George Soros.

Indeed, it was recently reported that the investor, who is best known for breaking the Bank of England, is looking to invest some of his $26bn fortune in the cryptocurrency market.

It's this interest from institutional investors, coupled with the financial community's increasing acceptance of cryptocurrencies in general, that has led one analyst to claim that the bitcoin price could hit $25,000 by the end of 2018.

The road to $25,000

Thomas Lee, co-founder and head of research at Fundstrat, is the man behind this forecast. He believes that the recent downturn in the bitcoin price can be blamed on tax selling. Specifically, Mr Lee believes that US investors owed a total of $25bn in taxes on bitcoin gains, and selling to meet these liabilities before the end of the tax season in April has depressed the price.

And now that the selling is over, the price is free to run higher according to Fundstrat's analysis. The team of analysts at the research outfit believe that sentiment towards the cryptocurrency is currently at a level not seen since 2014. Its proprietary "bitcoin misery index" suggests sentiment towards the asset is so depressed it is now a contrarian trade.

Time to buy?

Despite the bullish forecast from Mr Lee and team, personally, I can't bring myself to buy bitcoin. This is an asset I don't really understand, and while I believe that the blockchain technology underpinning it could be a revolutionary development, I'd rather invest in companies that are developing this technology rather than bitcoin itself.

Also, I am concerned about the ever-increasing number of hack attacks against bitcoin accounts, and I'm not sure I'm happy investing my money in any platforms around at the moment.

That said, this is my personal opinion, and other investors may be more comfortable with the level of security offered by some platforms, as well as bitcoin's potential.

So overall, yes there is a chance that the price could hit $25,000 by the end of 2018. Some estimates even suggest that the currency could rise in value to be worth $50,000 by the end of the year. However, this asset is only really suitable for those investors who know a lot about the subject matter and who are willing to take on the extra risks associated with ownership.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.