Bitcoin carnage continues

Bitcoin continues to fall, plunging below $8000 (and as of publishing this article is below $8000 on GDAX) as I predicted a month ago would happen.

There is too much ‘hot money’ flowing around. Too much FUD, social media, and so on. Bitcoin needs to fall low enough to drive out the speculators, who are looking for a quick buck. As I said a few days ago, despite the media hype and a huge rally last year, hardly anyone is making money with Bitcoin. There are a only handful of ppl who bought before 2017, but a ton of folks who bought near the top (around Nov-Jan), as well as those who got burned buying the dip. For every person who bought before 2015 or so and held, there are far more who bought near the top in 2017 and will sell at or close to the bottom.

What makes this worse than earlier selloffs is the addition of alt-coins, that attract money that would have otherwise gone into Bitcoin. Instead of Bitcoin having 80%+ market share like it did in 2016, it’s now just 35%. Given that the total coin market cap is around $380 billion as of 2/2/2018, for Bitcoin to return to $20,000 implies a market cap of around $1.2 trillion. This means $100k is pretty much out of the question. Alt-coins erode Bitcoin’s value, much in the same way hyperinflation erodes the real value of extant bonds and currency. This means one must buy alt-coins in order to capture the full market.

Also, the selloff is steeper and more relentless than earlier ones, including even the late 2013-2014 selloff. Furthermore, there have been no meaningful bounces…just strait down, $1,000-$2,000 points/week. Maybe in a month’s time this kid’s parents will win their bet, at the rate things are going. Even I’m kinda taken aback by the severity of this selling. Part of the problem is that people are using leveraged accounts and are being forced out of Bitcoin as the price falls, compounding the problem.

I have contemplated shorting Bitcoin futures but the risk is too high due to possible unlimited upside. The fact I sold some in $19k and against at $15k is good enough and is effectively the same as being long Bitcoin and short futures. I still have some Bitcoin and alt coins but this reflects my epistemic uncertainty, not optimism. Still like Rai Blocks, which a few days re-branded itself as Nano. There is maybe a 5-10% chance Bitcoin will go above $20,000 again this year. I’m especially angry at the media, in particular, for hyping Bitcoin and possibly leading naive investors to lose money, especially those who dipped into retirement, home equity, and savings accounts.

In the short term, it’s going to get worse. All these people who bought in late 2017 have to throw in the towel. There are folks who amassed small fortunes, and by late 2017 thought they had achieved the dream financial freedom only to watch it evaporate in span of just five weeks. In the end, it’s just money anyway, and you cannot take it with you after you die. Given that Bitcoin is already down 60% from its December highs and Bitcoin’s 9-year history of recovering from selloffs, at this point it probably makes sense to hold. Just mentally prepare yourself for the possibility that is will lose another 50%.