The late November 2017 spike in “Bitcoin” price was grounded with a “slump” in prices – falling back down to $9,900 from highs of $10,000 and $11,000.
Trading sentiment, as well as technical difficulties from all the major “digital asset exchanges”, were blamed for the problem. The reality is that this “slump” has many people questioning whether the “Bitcoin bubble” is about to burst or not.
Whilst we can’t give financial advice, we can explain the overall environment of the “crypto” market and how it’s perceived in the general investment community…
There is very little doubt that “Bitcoin” (in its present form) is a “bubble”. News in the UK had this to say.
Whilst the “bubble” might not appear obvious (although it pretty much is when you consider the facts) – the simple misconception with a “bubble” is that it will pop quickly.
The reality is that “bubbles”, and other financial misdemeanours, can go unnoticed & unchecked for years – even decades – if there is enough supply of “greater fools” to constantly put new capital into them.
Tulip bulbs didn’t burst until their prices had hit the equivalent of around $75,000.
When you consider people claiming that “Bitcoin” will “reach $20,000” etc – you need to appreciate that whilst this may appear to legitimize the “investment”, in actual reality it’s almost entirely a facade.
The underlying problem with the current “crypto” landscape is that the “coins” themselves have absolutely NO core value. They don’t contribute to any assets and don’t have any means of creating an income for the buyer. They simply sit around waiting to be “traded” with someone else.
The ire of many in the investment community has been directed (and some may say rightly so) towards the idea that these “assets” look very similar to a “Pyramid Scheme” or worse. The only returns being generated are from the life savings of a new “truck driver” who decided to “invest” into the “coins” (with the sole intent of selling them later on). Find out more about cryptocurrency wallets here.
Therefore, there are two things to consider when looking at the recent “rally” and later “plunge”…
- “Crypto” is only traded on a “secondary” market, where almost no “institutional” investor will be seen dead. This means that the various prices are going to be extremely volatile because it’s housewives and retail traders playing the charts.
- Even if the price picks up again (which it likely will do), the underlying problem of the “coins” holding no value of their own still stands. This means that if you are looking to get involved with the “trade” of these “coins”, you must appreciate it’s almost entirely a speculative gamble.
To conclude, the ONLY thing we can say with confidence from the recent run was that whilst “interest” in the world of “crypto” currency has not abated, it’s indicative of a bubble.
Bubbles don’t pop overnight.
Bernie Madoff was able to convince some of the world’s largest & most revered financial institutions that his investment operation was legitimate, despite a number of individuals citing otherwise. It only unravelled (spectacularly) when he ran out of new money to pay off his old clients with.
As such, the projected progress of the “Bitcoin” bubble will typically protract as long as there is new money to fuel the constant price hikes. As more of the middle class keep buying, the “price” of each coin will slowly (or perhaps rapidly) start to rise again. Find out more on the Boston Globe. This rise will be in line with how much people can expect to “make” from selling the coins on.
There will come a point in the not-so-distant future where each coin will cease to retain its profit-making ability. When this happens, the market will begin to level out. In the “stock” market (or any other regulated marketplace), this would indicate that a security has achieved “critical mass” – meaning that its growth will entirely be on its own merit (no longer high growth).
In the case of the many unregulated “crypto” coins, rather than this being an indicator of continued dividend payments… it will signify the drying up of funds from the marketplace… leading to an eventual sell-off (as everybody will realize that the artificially high price will not remain). When this occurs, the “bubble” will have popped. The most important thing to consider is that it may not happen until the “price” of each “coin” hits $100,000 or more.