Wall Street strategist Tom Lee is urging investors to exercise caution following the bitcoin price’s staggering advance during the first week of November.
The bitcoin price has risen to dizzying heights this week, and that advance continued on Friday as bitcoin began to test the $7,500 mark for the first time in its history. At present levels, bitcoin is up 25% for the week, nearly 75% for the month, and more than 700% for the year.
As Bloomberg reports, Wall Street strategist Tom Lee is concerned that bitcoin be setting itself up for a correction. Lee, the head of research at Fundstrat Global Advisors, urges investors to exercise caution, even in the wake of optimistic news such as the recent announcement that CME Group will launch bitcoin futures contracts.
Lee’s tepid tone is not unusual on Wall Street. Many executives and analysts remain unconvinced that bitcoin has staying power.
However, unlike the legion of skeptics in the mainstream financial industry, Lee is one of bitcoin’s most ardent supporters and has earned a reputation as the biggest bitcoin bull on Wall Street. For months, Lee has grabbed headlines with his prediction that the bitcoin price will reach $6,000 by mid-2018 and $25,000 by 2022.
However, the bitcoin price has now exceeded Lee’s short-term price target by more than $1,000, and he is concerned that the rally is getting ahead of itself, citing “contemporaneous fundamentals” in a note distributed to Fundstrat clients this week.
Fundstrat’s bitcoin valuation strategy is modeled off of Metcalfe’s law and predicts that bitcoin’s fair market price is the square of the number of its users times the average transaction value. Lee claims that this model accounts for bitcoin’s recent trajectory with more than 90% accuracy, and he does not believe the network’s user base has grown enough to justify the present bitcoin price.
In the near-term, Lee recommends purchasing bitcoin if it falls into the $5,500 range and purchasing shares of the Bitcoin Investment Trust (OTC: GBTC) at $750, but he maintains his mid-2018 price target of $6,000 and five-year target of $25,000.