There are a lot of things that I could say about Bitcoin and crypto currencies in general, but I will try not to go into details. By details, I am not referring to the technical side of it, or its technology, but rather the trading aspects, and how markets work in general. To any serious individual that is involved in the market, this is a clear bubble. The big problem is, everyone called it a bubble when it reached the first time 100$, then at 250$, then at 1000$, well you get the point; I was one of those people. Now, 5 years since I first heard about bitcoin, I obviously feel like a fool, and many of you feel victorious, mainly because of the huge profits this amazing story brought to you. However, I strongly believe that now is the time to get back on planet Earth and reassess the situation.
This year has been absolutely crazy regarding crypto currencies, many times seeing the big names rally by 30 40% in a day. Obviously, that is pure speculation or market manipulation (although I am not sure if this could be the case with crypto currencies, because I still could not understand the technology 100%). The problem with bubbles is that you never know when they are going to end, if you catch them young you are in for a wild ride and a lot of money, if you don't, well, you helped someone else get rich. You see, a crypto currency does not yield anything, it is not an asset, so whatever you lose is simply money transferred to other individuals, because with a non productive asset you can't afford to go in at the wrong time.
The problem with bitcoin and cryptos is not that the technology isn't great, it is indeed a game changer, but so was the internet back in the 90's, and look what happened to those companies. The mania in crypto resembles the dot com bubble in many ways, but of course people don't learn much from the past; another way of looking at it is that the people involved in crypto are not the same ones, this is a completely new generation. I strongly believe that most of the people that have been riding this rally have not been the professionals, and merely amateurs that wanted a piece of the action. If you are serious about investing, no matter how strongly you feel about something, and you have been involved in bitcoin from the beginning, you are mostly certain out of the game by now, because you have seen this picture before. Another strong resemblance with the 90's, besides the amateurs that think they know something others don't, is the vast number of new ICOs going on. I am not going to analyse the legality or shall I say the quality of the new coins getting created because frankly I have no idea, but ICOs create supply in the crypto market, and as we know, when supply increases faster than demand... Obviously this doesn't matter to the people involved right now, but remember that if people don't understand a simple function of the market, supply and demand, then they certainly do not have a lot of cash on their hands, and when the cash runs out, then we'll see the crash of crashes. Remember, bitcoin's market value is the same as a very large cap corporation! Only one! So for example on the 7th of December, the buying climax day, the value of bitcoins exchanged on the Coinbase exchange was only around 1.3 billion. Now you could argue that when the institutional players start getting in, the value will rise dramatically. NOPE! The real players are not going to get in at this extreme price, after a hyperbolic rise. It all depends on the pockets of amateurs, and although amateurs are great at the beginning, they have shallow pockets and they get scared quickly (in less than a week bitcoin lost almost 50% of value).
All the explanation was done on the chart because I was running out of space. Please feel free to comment and to tell me why I might be wrong.
I believe that the picture for bitcoin is surely going to get ugly. I've been wrong before on this one. I hope I am not this time. Happy new year!
This year has been absolutely crazy regarding crypto currencies, many times seeing the big names rally by 30 40% in a day. Obviously, that is pure speculation or market manipulation (although I am not sure if this could be the case with crypto currencies, because I still could not understand the technology 100%). The problem with bubbles is that you never know when they are going to end, if you catch them young you are in for a wild ride and a lot of money, if you don't, well, you helped someone else get rich. You see, a crypto currency does not yield anything, it is not an asset, so whatever you lose is simply money transferred to other individuals, because with a non productive asset you can't afford to go in at the wrong time.
The problem with bitcoin and cryptos is not that the technology isn't great, it is indeed a game changer, but so was the internet back in the 90's, and look what happened to those companies. The mania in crypto resembles the dot com bubble in many ways, but of course people don't learn much from the past; another way of looking at it is that the people involved in crypto are not the same ones, this is a completely new generation. I strongly believe that most of the people that have been riding this rally have not been the professionals, and merely amateurs that wanted a piece of the action. If you are serious about investing, no matter how strongly you feel about something, and you have been involved in bitcoin from the beginning, you are mostly certain out of the game by now, because you have seen this picture before. Another strong resemblance with the 90's, besides the amateurs that think they know something others don't, is the vast number of new ICOs going on. I am not going to analyse the legality or shall I say the quality of the new coins getting created because frankly I have no idea, but ICOs create supply in the crypto market, and as we know, when supply increases faster than demand... Obviously this doesn't matter to the people involved right now, but remember that if people don't understand a simple function of the market, supply and demand, then they certainly do not have a lot of cash on their hands, and when the cash runs out, then we'll see the crash of crashes. Remember, bitcoin's market value is the same as a very large cap corporation! Only one! So for example on the 7th of December, the buying climax day, the value of bitcoins exchanged on the Coinbase exchange was only around 1.3 billion. Now you could argue that when the institutional players start getting in, the value will rise dramatically. NOPE! The real players are not going to get in at this extreme price, after a hyperbolic rise. It all depends on the pockets of amateurs, and although amateurs are great at the beginning, they have shallow pockets and they get scared quickly (in less than a week bitcoin lost almost 50% of value).
All the explanation was done on the chart because I was running out of space. Please feel free to comment and to tell me why I might be wrong.
I believe that the picture for bitcoin is surely going to get ugly. I've been wrong before on this one. I hope I am not this time. Happy new year!
Lets see if the bubble is really going to burst and take Bitcoin to 1000