Back in February, Fundstrat Global Advisors’ Head of Research Tom Lee predicted bitcoin (CCC:BTC-USD) would end 2018 at a price of $25,000, reaching $20,000 at the midpoint of the year.

It wasn’t a completely crazy idea … at the time. Although the cryptocurrency was peeling back then, it was peeling back from a red-hot runup that peaked at $19,343 in December. After taking a well-deserved break, it was widely expected to get on its horse again and continue riding higher.

Bitcoin missed Lee’s mid-2018 price target by a country mile, valued at $6,387 as of the end of June. And, presently at $6,590 and still testing the waters of lower lows, the year-end target of $25,000 isn’t looking all that plausible either.

Just for the record, however, Lee wasn’t the only expert observer calling for a heroic advance from bitcoin. In early July, the founder of bitcoin exchange BitMEX, Arthur Hayes, predicted bitcoin would soar to a price of $50,000 by the end of the year. The outlooks were just two of several calls that were wildly optimistic at the time. Lee is arguably the most credible and high-profile authority on the matter though.

So what gives? Why hasn’t the digital currency become what so many expected it to become? It’s time for some speculators to have an honest talk with the person they see in the mirror.

Bitcoin: Psychology at Work

As much as mankind would like to be able to say it has evolved, grown and matured through the current era — an era where unlimited knowledge and enlightenment is just a click away — it hasn’t. Boiled down to our core, we’ve yet to overcome our most basic, animal-like tendencies and rationalizations.

That’s especially true when we become part of a crowd, digital or otherwise. Any inhibitions we may have held onto that restrained us from making a grave error in judgment are wiped away when we see another person do what we’re not entirely sure we should so.

Why is that a problem?

In his 1841 book Extraordinary Popular Delusions and the Madness of Crowds, author Charles Mackay explains, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

People scoffed at the idea then, as they scoff now. That doesn’t make the assessment untrue though. It’s just that the idea has since been given legitimacy by virtue of its official social-science definition. Now it’s simply called “conformity,” though it frequently overlaps with “groupthink” and “confirmation bias.”

The Fly in the Ointment

Groupthink is defined as “psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome.”

Fans of the crypto movement will argue (and have argued) there’s nothing irrational about the desire to promote and utilize a currency that isn’t subject to the control and regulation of a central bank. And on the surface, that idea seems rational enough. In an environment where it’s widely presumed no governmental agency can be truly trusted and it seems like regulatory pressures somehow serve the regulators and work against the commoner, taking control back from an issuer of currency is desirable.

That’s the way bitcoin and other cryptocurrencies were sold to users and speculators anyway, though it certainly didn’t hurt that those commoners had been struggling for a while, financially, and were ready to see opportunity in an idea while looking past that idea’s flaws.

There is a gaping hole in the logic, though, that groupthink obscured. That is, in the case of money, centralized monetary control is far more advantageous than a decentralized, free-floating form of currency that’s intentionally unchecked.

Unavoidable Pitfalls

Two inherent problems arise when any currency including digital currency is left up to the free market’s own devices. First, the free market will create more alternatives. That is to say, if and when bitcoin becomes too expensive, another cryptocurrency will be created. When that one gets too frothy, another will be created, and so on. Demand is structurally limited, but the supply of cryptocurrencies in total (i.e., not just bitcoin) is infinite.

The second problem that surfaces with a non-centralized form of currency?

If left only to the auction process stemming from supply and demand, fear and greed will drive price swings that create far too much uncertainty in the value of that currency to make it a normalized means of compensation and transacting business.

We’ve already seen it, in fact. In December, one bitcoin would have bought a small-but-new car. Now, one bitcoin would be stretched to buy a decent used car of any sort.

Centralized control of a currency specifically aims to keep the value of a fiat or government-issued currency stable, so its users will at least have some faith in what that money will be able to buy tomorrow, and the next day and the day after that.

Bottom Line for Bitcoin

So why is bitcoin still around and holding onto a price of more than $6,000 rather than having completely crashed?

Go back to Mackey’s observation. Men “only recover their senses slowly, and one by one.” This is a process. Not an event. The retreat from a value near $20,000 as of the end of last year is a strong indication that the weakness is more than just a little volatility, but the process is far from complete.

The fact that the process isn’t over yet is also why so many fans and followers continue to bang the bitcoin drum. They have a vested interest (psychologically and financially) in bitcoin’s success, and many of them can’t allow themselves to see the truth of the matter.

None of this is to suggest blockchain, which is the underlying technology that makes bitcoin possible, doesn’t have its place. Blockchain is likely to be a huge part of our future. As far as bitcoin goes though, it’s setting itself up to join the pile of other meltdowns that “could never happen”… like the dot-com bust of 2000, the sub-prime meltdown in 2008, crude oil’s implosion in 2014, gold’s steep selloff of 2013, the 3D printing revolution that never actually happened, the glut-driven collapse of the solar panel market and so on. A lot of things will “never happen” … right up until the point they do.

To that end, investors may want to ask themselves if bitcoin is truly built to last, or if it was just built on an idealistic premise that ignores obvious pitfalls.

Just in case it’s not clear, it’s the latter of those two possibilities.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.