Bitcoin is Crashing, But How Far Will it Fall?

bitcoin-safe-from-the-government-trapdoors

Hold onto your hats- or better your wallets—bitcoin is falling like a stone, continuing its dramatic sell-off from its heady heights almost exactly a year ago.  The decline in value in just the last few days has been dramatic and precipitous—in excess of 25%. Its year-on- year loss, when combined with the other cryptocurrencies, is approaching $ 1 trillion—according to CoinMarketCap.com– as each bitcoin worth nearly $20,000 a year ago is now teetering above $3500.


Many investors—and I use the term ,investors, advisedly— joined the feeding frenzy only a year ago as bitcoin was going through the roof. The roof metaphor is apt for another reason. Many of the same folks may be losing the roof—over their heads that is—because many mortgaged their homes as well as cleaning out their bank accounts as they clambered to board the bitcoin train feeling for sure it would keep chugging to new heights. Those with their finances in shambles are singing a different tune these days and are recognizing bitcoin and other cryptocurrencies as a possible Ponzi scheme needing government regulation.

Funny, no one heard investors calling for investigations when bitcoin was barrelling toward $20,000, did they.

Looking Back

As I mentioned (and chronicled in these pages) bitcoin had been surging throughout 2017 before peaking near $20,000 per coin this time last year. While early investors celebrated, and excited new investors often gambled their homes and life-savings, governments and their military and security apparatuses worried. Because of its anonymity, bitcoin had been used in nefarious terrorist business transactions. Indeed, it became the currency of choice in many ransom scenarios ranging from terrorists to cybercriminals who hack into websites and hold them hostage. Also, it proved to be an acceptable medium of exchange for all kinds of criminal activities on the Internet.

Forewarning

Maybe the dizzying drop of the past year will quell some of the criminal element’s ardor for using the anonymous currency—or maybe it already has which is contributing to the present sharp decline. Don’t say you weren’t forewarned—in fact, right here in this space. Writing in the Autumn of 2017, I opined:

Digressing for a moment from the criminal implications, maybe readers would like to know if this trend represents an investing opportunity. Famed international investor, James Rogers, based in China cautions would-be Bitcoin investors of boarding this runaway train right now.  Regarding it and other cryptocurrencies he is wary due to the recent surprising surge.  “It looks bubble-ish when you see the kind of price action in Bitcoin and now you’re having new ICOs (initial coin offerings) at least one a week now and exploding when they come out – that’s bubble action,” he said. 

Bitcoin Not Alone

Other cryptocurrencies didn’t hold up this week either. Not a single one in the top 28 by market capitalization was trading in the green Friday, according to CoinMarketCap.com. XRP, the second-largest by market capitalization, fell 6 percent Friday, bringing its one-week losses to 10 percent. Ether was down 7 percent in 24 hours and lost roughly 30 percent for the week. The total market capitalization for cryptocurrencies fell to $138.6 billion Friday, according to CoinMarketCap data.

Why The Steady Drop?

One need look no further than the Law Of Supply and Demand for answers. Like the popular party game–musical chairs—those who got in earlier wanted to protect their investment and get out before the music stopped. By the way, the music looks like it is stopping right about now. No investor wants to get caught holding the bag, as it were. As the price began its decline no new investors were coming on board. At the same time, sell orders flooded the market as others scrambled to get out. Therefore: plenty of supply and little or no demand-a recipe for disaster. And as the price dropped, automatic sell orders were triggered, further dropping the value per coin.

“Miners” Shooting Selves In Own Foot?

But the problem was compounded, inadvertently perhaps, by those actually making the coins. Some analysts blamed a “fork” in the cryptocurrency bitcoin cash for that initial drop below $6,000 (now below $4000 as I write). That digital currency split into two versions in mid-November and diverted what’s known as “hash power,” which some say dragged down the broader crypto markets. Both sides appeared to be selling bitcoin to “fund mining operations to win the battle,” Brian Kelly, CEO of BKAM, told CNBC.  I don’t know about you, but to me, it seems like biting off one’s nose to spite one’s face or self-cannibalization.

As mentioned, all cryptos are tumbling. But since bitcoin is the big boy on the block it gets the most scrutiny. Is it ever! Now all the naysayers and pundits are piling- on and saying nasty things about the cryptocurrency.

Some Say “Scam”!

This week, Bloomberg News reported that U.S. regulators are looking into whether bitcoin’s record-breaking rally last year was the result of market manipulation. Others, such as John Crudele, writing in the New York Post use less forgiving language.

“Bitcoin, while not officially a product of traditional Wall Street, is a pyramid scheme. A fraud. But it is best described as a “confidence game.” The fact that anyone even has to discuss the fate of this and other so-called cryptocurrencies shows just how crazy the world has become. Bitcoin — or(better) bitcon — is a confidence game. A scam. It will exist and move higher for as long as extremely wealthy people are willing to prop it up in hope that suckers remain confident that bitcoin has some value.”

Bitcoin continues to be worth something only if its proponents can convince others to jump on board with the idea and bid up the price. That’s the definition of a confidence game. You have to be confident that someone is dumb enough to keep investing in this scam, in Crudele’s opinion.

Steer Clear For Now

Not mincing words, he flatly predicted that bitcoin would fall to zero. Given the gullibility of people and that as P.T. Barnum once famously said that “a sucker is born every minute,” I doubt that it’s a likely scenario. Why? Because bitcoin is ephemeral– like writing about philosophy. Bitcoin is a thought. And thoughts have value only if other people value them and, therefore, it will always be worth something. It’s just that now is not the time of clear thinking. Not when bitcoin is in a tailspin and where the bottom lies is unknown.

And keep in mind this: cryptocurrencies represent nothing — not a piece of a company, or an ounce of precious metal or the faith in a country. How can you possibly quantify it? “Markets around the world are fragile, and panic and sentiment are playing a disproportionate role right now,” Tom Lee, co-founder of Fundstrat Global Advisors, told CNBC this week. “Does this mean bitcoin is broken? No. The use case is still there, but in the short term, panics are panics.”

Or as another saying goes: Caveat Emptor….Buyer Beware

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