Bitcoins Drop, and its Inevitable Rebound before the Collapse

Bitcoin over the past month has experienced volatility unseen on currency markets for any major currency in decades. Though, if you consider that the entire market cap has been poured in within the last year, this only just makes it comparable to a startup or weak African state that just liberalized after a coup, the volatility makes sense.

What should be clear to any trader over the past two years is that the market has lost touch with finance. The price has no relation of fundamentals, and has had none for decades. Take Apple’s less than 1% miss of profit forecasts, and the consequent nearly 5% drop in market value. The value of the company, the potential earnings was never taken into account, only a mob mentality of trading direction. PE ratios in the 100s and interminably low interest rates show deep distortion and provide little incentive to pull out. But a correction is due, and it will come for bitcoin before the others. Here’s why:

Bitcoin is intrinsically worthless, it has no dividends, and no ability to produce. Its value is driven by hysteria, and people with more money than brains, a fairly large international investor class.

Take this example. In the last two weeks, a 500M USD hack, regulation increases in the US, South Korea, Japan (including police raids), the ban by three major US financial institutions on credit card processing for any bitcoin exchanges, and the incremental rise in US interest rates have led to a 50% crash. What is foreboding about this is not the emminent collapse, it will not occur until there is a larger crash, and a turn of investor sentiment or major regulation, since bitcoin had no instrinsic value in the first place. The alarming thing is the assuredness of its hardcore investors

These are the same ones who spend tens of millions on now banned facebook ads, attempting to lure middle aged near retirees with promises of 100% returns, the same ones who use social manipulation to pull people towards a dangerously volatile unbacked asset class, and have succeeded in making a token that was trading at 50USD within the last few years increase in value 400 fold. There is a core group of supporters who will not give up, and will use every effort at their disposal to bring the price back up, and further convince others to move in, driving the price up in another frenzy of limited supply unlimited demand hysteria.

There exist quotes like this. “It’s just early-year market blues, in 12 months, we won’t even remember it,” along with so called predictions coming to fruition from industry members who live off of this. What they fail to realize is that it is not an early market. Bitcoin has been trading for years, much longer than most of the current trades have even known of its existence. It is now in a bubble, driven up by mass hysteria, for a digital algorithmic token that’s value is only high in the eyes of its beholders. It is almost inevitable that at these prices, opportunists will again pour money in.

Bitcoin is not the future. It never has been, and never will be. It is a first generation cryptocoin, utterly insecure, utterly vulnerable, and impossible to use in any practical retail or trading sense because of the weakness in its underlying technology. Its volatility, and the fact that any major government will not allow a parallel currency to trade freely without curtailing to the point that the average (non-technically savvy) retail investor will never be able to possess it. Without half the population of NYC, Hong Kong, South Korea, and Russia freely trading it, its value will inevitable plummet to where it was when only IT professionals, drug dealers and money launderers used it, below 100USD.

To those who think it is the future, ask oneself why, when there are hundreds of other cryptocurrencies to choose from, hundreds of governments against it, and not a single retailer who accepts it. Ask yourself which other financial instrument can take hours or days to process, and can have exchange fees of between 10 and 20 USD. It’s also unsafe, because exchanges, not bound by currency rules, are entirely unregulated. By one estimate, 14% of tokens of the entire currency pool has been stolen through hacking at one point. It’s archaic, like sending cash in an envelope, and these times and fees are not improving, but getting longer and more expensive as the blockchain ledger gets longer, and longer. Financial instititions swoon, they adore risk, and especially trading commissions on rapidfire traded instruments. Other industries do not. They want stable prices, and smooth transactions, not instability.

As with all bubbles, it will only take one impact before confidence and moods are forever shaken, and will return it to its natural value, which has always only ever been, that which people are willing to pay for it.

Staff writer: Ari B