The Cryptocurrency Plunge Continues, What’s Ahead?

KyleW

5 years ago

I still don’t own any BitCoin. I stuck with boring old gold, but I definitely wish I would have participated in the mania and got out at the top.

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Tanner D

5 years ago

I tend to view this as a mania. Weather it be the south sea bubble, tulip mania, roaring twenties, etc. they all had easy money as their base. Money chasing yield.

When a mania ends its not just the most popular investments that go down. Hopefully history repeats itself and this is the canary in the coal mine moment. I am short XLK and long TLT. I was early.

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Eddie_T

5 years ago

“For those inclined to buy for technical reasons, Bitcoin has support at the $30,000 level. There is also support at the $17,000 level and very strong support at the $11,000 level. In addition, Bitcoin has minor support levels between $17,000 and $30,000.”

I found it impossible to trade cryptos using my technical toolbox, because bitcoin is dominated by bots, that remember every move, every resistance and support level ever found, and are designed to be highly effective in running stops.

Plus, bitcoin miners represent a cartel of unregulated deep pocket traders that can, by minting their own stablecoin (Tether), make huge buys at no cost and no risk to themselves and drive the price up, any damn time they feel like it.

Think Jesse Livermore and his bucket shops of the 1920’s.

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Doug78

5 years ago

Value like love is in the eyes of the beholder. The cryptos don’t have present value. I think most people agree on that. However they might have future value if they can become a medium of exchange either out of the traditional currency system or complementary to it. With the proper infrastructure in that case they can become very valuable. Governments may not like them but governments are made up of people and if enough of them start to own cryptos then you will see less interest in banning them.

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Steve_R

5 years ago

I believe we have to return to the start of bitcoin trading on the futures market to understand what is going on. Bitcoin was trading at $20,000 when it was allowed to be traded on the futures market. At that time I knew it would go down. The large clients wanted to have it, but at a reduced cost. It went down to $4000. The correction now is no different, it was overbought and well some large clients want in. Crypto currencies trade like the commodity market. The news afterward is irrelevant, if the big boys want in then it is going down. I guess they could make it illegal, then why is it trading on the futures market? Bitcoin has 22,000,000 coins tops, sure is different then fiat currency. Look at the moves in corn, oats, rice, soybeans, wheat and lumber this last month to understand the moves in crypto.

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Eddie_T

5 years ago

Reply to Steve_R

There is certainly some truth in the part about the big players getting in cheap. I’m willing to accept that.

But remember, the vast majority of bitcoin being sold in the world today is produced by an unregulated cartel of Chinese miners, who can control the price of bitcoin because they can print Tether to buy it.

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Scooot

5 years ago

Where from here?

Crypto currencies are an interesting concept. Those that dismiss them for having no intrinsic value are ignoring the fact that fiat currencies don’t either anymore, other than the cost of the paper or coin they’re made from.

Fiat currencies have two functions: a medium of exchange and a store of value. The latter not being particularly good over the long term. Their values are stable enough over shorter time periods to facilitate their main purpose as a medium of exchange in which they’re excellent. They’ve become much more efficient since the advent of smart phone apps etc.

The main reason they’re not a very good store of value is because governments have control over their supply and can’t resist the temptation to manipulate it to their short term advantage.

Enter Crypto currencies, their main selling point is that they’re beyond government manipulation and can be used as a medium of exchange in secret. To date they’re useless as a medium of exchange, they’re too inefficient and costly and a bit exotic, so very few people use them as such. They’re also useless as a store of value because their value is too volatile. The idea that their supply is automated and beyond government interference is a good one, but because they’ve been hijacked by the trading community, causing they’re values to fluctuate so much, they won’t succeed as a medium of exchange or store of value in they’re current form.

Could a crypto be invented that would overcome these problems, probably? Will Governments allow it to happen? I doubt it.

Sent from my iPad

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CristiC

5 years ago

Reply to Scooot

I share most of your viewpoints except the “beyond government manipulation”. Let’s not forget that a power blackout occurred in China caused supply and price manipulation. This time, it was caused by accidents. But the next manipulation could be the government saying “too much pollution, let’s restrict the power to certain economic sectors”… It was done before in US, just look at the water use restrictions in Texas.

https://www.nasdaq.com/articles/bitcoin-mining-hash-rate-drops-as-blackouts-instituted-in-china-2021-04-16

I will put one more argument to the table, one that I thought about it by myself but later I found another independent thinking publishing around the same month. I will spell it: “CRYPTO IS (is it still?) TOO BIG TO FAIL”. With the crypto market exceeding $2.5 T and no end in sight, I reached that conclusion seeing that Powell at that time saw no problem in the raise of crypto, not threat to their central banking business. I’m very well aware that there are hawks in that domain (see BIS reports, warnings, ECB warnings about stablecoins, etc) but it seemed that they, the hawks lost the battle with the other central banker bureaucrats, as the latter seemed to be prone to being corrupted by the lobbying groups. And also afraid to be confronted by the younger generation that adopts easily all sorts of fintech. So my interpretation was that the dove/politicians in the central banks were too afraid to be perceived as “old-school” fin-tech haters for the benefit of their own class. As a result, they seem to not listen to the arguments made by crypto-hawks and instead projected a perception of welcoming innovation, cautiously warning about adopting themselves those technologies before being mature enough. No hawk to see there.

However, behind that image, the DOJ actions continued against important actors of the crypto world. And China, which now has already made available to its people a crypto-currency backed by the central bank, is now simply limiting most of the avenues where cryptos can be traded. It does not ban the holding of it, but as I said in a different comment, it is banning the movement and conversion to fiat.

Reuters: “China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading. China has banned crypto exchanges and initial coin offerings but has not barred individuals from holding cryptocurrencies.”

People will say… “the Western world will not do that, China is bad”. It has nothing to do with it and the pandemic showed this kind of statement is just politics, the Western world did exactly what China did, and even more.

The big issue is: the central banks will not allow the crypto world to become Too Big To Fail as this will actually pose financial stability risks. Just imagine that an overheated housing market resulted in the central banks buying mortgages to keep it from failing. The central banks ended up buying all sort of assets, bonds, ETFs, to keep a certain market from failing and causing financial depression.

Just imagine how would it be for the central banks of the world to buy cryptos to keep them from falling as the alternative of letting them crashing would be too costly for the global economy. Can any of us imagine Powell announcing buying Coinbase bonds and GBTC ETF? That could well happen if the crypto market would exceed $10 T. I think the central bankers are quietly acting to prevent that from happening. And China is providing the lessons learned.

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CristiC

5 years ago

Reply to Scooot

I share most of your viewpoints except the “beyond government manipulation”. Let’s not forget that a power blackout occurred in China caused supply and price manipulation. This time, it was caused by accidents. But the next manipulation could be the government saying “too much pollution, let’s restrict the power to certain economic sectors”… It was done before in US, just look at the water use restrictions in Texas.

https://www.nasdaq.com/articles/bitcoin-mining-hash-rate-drops-as-blackouts-instituted-in-china-2021-04-16

I will put one more argument to the table, one that I thought about it by myself but later I found another independent thinking publishing around the same month. I will spell it: “CRYPTO IS (is it still?) TOO BIG TO FAIL”. With the crypto market exceeding $2.5 T and no end in sight, I reached that conclusion seeing that Powell at that time saw no problem in the raise of crypto, not threat to their central banking business. I’m very well aware that there are hawks in that domain (see BIS reports, warnings, ECB warnings about stablecoins, etc) but it seemed that they, the hawks lost the battle with the other central banker bureaucrats, as the latter seemed to be prone to being corrupted by the lobbying groups. And also afraid to be confronted by the younger generation that adopts easily all sorts of fintech. So my interpretation was that the dove/politicians in the central banks were too afraid to be perceived as “old-school” fin-tech haters for the benefit of their own class. As a result, they seem to not listen to the arguments made by crypto-hawks and instead projected a perception of welcoming innovation, cautiously warning about adopting themselves those technologies before being mature enough. No hawk to see there.

However, behind that image, the DOJ actions continued against important actors of the crypto world. And China, which now has already made available to its people a crypto-currency backed by the central bank, is now simply limiting most of the avenues where cryptos can be traded. It does not ban the holding of it, but as I said in a different comment, it is banning the movement and conversion to fiat.

Reuters: “China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading. China has banned crypto exchanges and initial coin offerings but has not barred individuals from holding cryptocurrencies.”

People will say… “the Western world will not do that, China is bad”. It has nothing to do with it and the pandemic showed this kind of statement is just politics, the Western world did exactly what China did, and even more.

The big issue is: the central banks will not allow the crypto world to become Too Big To Fail as this will actually pose financial stability risks. Just imagine that an overheated housing market resulted in the central banks buying mortgages to keep it from failing. The central banks ended up buying all sort of assets, bonds, ETFs, to keep a certain market from failing and causing financial depression.

Just imagine how would it be for the central banks of the world to buy cryptos to keep them from falling as the alternative of letting them crashing would be too costly for the global economy. Can any of us imagine Powell announcing buying Coinbase bonds and GBTC ETF? That could well happen if the crypto market would exceed $10 T. I think the central bankers are quietly acting to prevent that from happening. China is now providing the lessons learned.

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Scooot

5 years ago

Reply to CristiC

I meant that one of selling points is “they’re beyond government manipulation”, by which I meant governments don’t control the supply in the way they do with fiat, it’s automated.

I don’t agree that Crypto is too big to fail, I think it will, but I’ve been wrong so far. 🙂

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Dominic69

5 years ago

Reply to Scooot

“Those that dismiss them for having no intrinsic value are ignoring the fact that fiat currencies don’t either anymore”

You can only pay your taxes in fiat currencies. That is intrinsic value.

Bitcoin has no government behind and pays no dividend, transactions are slow and energy intensive. It’s pure speculation.

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Scooot

5 years ago

Reply to Dominic69

“You can only pay your taxes in fiat currencies. That is intrinsic value.”

Yes you can, because they are a very efficient means of exchange backed by the confidence of the people that use them. My use of the term “intrinsic value” is the value of the money itself, ie the notes and coin. Originally coins were made of precious metals and people would accept them in exchange for goods and services because the coin itself was valuable. Later, paper promissory notes, dollars etc, were backed by Gold, each note could be redeemed for Gold on demand, and was therefore also valuable. Today that’s not the case, they’re just pieces of paper backed by the confidence of the user public.

I agree about Bitcoin speculation, I thought I’d said that, but maybe I wasn’t clear.

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Casual_Observer

5 years ago

The very thing that makes these crypto exchanges so secure is what hides the real transactions as well. Let the crackdown begin.

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thimk

5 years ago

“The combined value of all crypto coins soared by 220% in the last year, reaching $2.43trn in the first week of May.” peeled that of a website , can’t vouch for the accuracy. BUT whole lot of money no place to go . fill in the blanks

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Casual_Observer

5 years ago

Reply to thimk

I’m sure ZIRP has nothing to do with it.

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Eddie_T

5 years ago

Bitcoin might survive but it essentially is useless. This is not the case with many other cryptos, which have many potential use cases. The case FOR bitcoin is just scarcity…and since it forks on a regular basis, dilution will be a problem in the long run. Mining is a problem, because the rewards will keep going down.

Mining wastes also huge amounts of energy. Since the vast majority of bitcoin is already very concentrated a few hands, that also negates the idea of decentralization…meaning that bitcoin could easily be hacked if a few big players collude to carry out a 51% attack. It has happened to some of the Bitcoin spin-off from previous forks. Bitcoin Gold has been hacked multiple times.

Bitcoin is far too slow to ever be used to buy a Starbucks, or anything else……and it gets VERY slow when the network heats up on weeks like this one. It can take hours or even days to get your transactions posted to the ledger.

Bitcoin is THE major problem in the entire crypto space. Its giant market cap means it completely controls the way the entire crypto market moves….imagine what it would be like if a crash of one stock could take down the entire S&P. That’s what bitcoin does, over and over.

There are other issues, like the Tether scam. So much is wrong with Bitcoin, it is beyond the scope of a blog comment to list it all.

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Louis Winthorpe III

5 years ago

Reply to Eddie_T

“Bitcoin might survive but it essentially is useless. This is not the case with many other cryptos, which have many potential use cases.”

Not really, they’re all useless and a solution looking for a problem not solved better by existing technology. When you really drill down and read about the nuts and bolts, you’ll start to see the hand waving and magical thinking.

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Eddie_T

5 years ago

Reply to Louis Winthorpe III

There is no reason other than regulation that XRP or Cardano or any one of several non-mined cryptos could not start working for all kinds of payments tomorrow. The biggest issue is that (a) since the coins are all minted at inception, somebody owns them and when they sell it looks like they’re selling a security and (b) the International banking cartel is not about to let it happen, because they have a monopoly on money creation and they aren’t going give it up.

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Steve_R

5 years ago

Reply to Eddie_T

Not sure I understand this Eddie, ok here is my one stock to take down 3 major exchanges, (Apple). If Apple is down 40% where do you think the S&P 500, the Dow and the Nasdaq are trading? Am I getting this wrong, Bitcoin is a hedge instead of gold. 22,000,000 coins tops?

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Eddie_T

5 years ago

Reply to Steve_R

Let’s look at a historical example. Enron was high flyer, but when it went to zero, it didn’t crash the S&P. It did happen in a bear market, but then big shorts are always much more likely occur when the broad markets are weak.

Apple is not a good example, because they have huge revenue and huge profits and tons of cash. They might correct on some kind of bad news, and the expectation is that a bear market would bring down ALL the high flyers…..but Apple has value and would get bought at some level.

Tesla would be a better candidate for a stock that could take down the market right now. One barely profitable year in 18 years of operation, and a P/E of over 1370 when it topped in January. They have revenue, but they’re putting a huge bet on the Cybertruck factory here, and I really doubt they’re going to dominate that market…if they have a big fail the shorts will eat Tesla alive.

But even a Tesla crash won’t take down the S&P, because real companies with real earnings and rain-or-shine profits will still make up the majority of the index. That’s the difference between the crypto market and the stock market.

When bitcoin is rising, alt coins start out lagging and then start to do better as more and more people start coming into the space. They tend to start popping one at a time……but then when bitcoin tops and reverses, it takes them ALL down with it….every single time. I’ve seen it happen over and over for years.

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Steve_R

5 years ago

Reply to Eddie_T

I was giving this as example because of the weighting of Apple on the indexes. Anything can happen, Apple could get hacked or tossed out of China, not saying any of this will happen. Forty years ago AT&T was the most widely held stock in the world and now Apple is. About 14 month ago when the whole market was going down was this not the same thing as the correction in the crypto market, other than the indexes pull the stocks up. Anyway thank you for your reply. I am no expect on the crypto market, just seems to me that what I have read, bitcoin and ethereum have value, not so sure of the others

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mikejw

5 years ago

Reply to Eddie_T

Layer 2 solutions like lightning can solve the speed problem – millions of transactions can be posted on a single block.

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Elevatorman

5 years ago

Bitcoin is compared to gold or silver because of it’s alleged scarcity and the energy needed to produce more, however, unlike gold, you can keep creating an infinite number of new crypto currencies that directly compete with bitcoin. The more new cryptocurrency choices available on the market, the more diluted the market will become.

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Webej

5 years ago

Customer: I can pay you in Dogecoin or Polkadot?

Proprietor: I’m afraid you will have to put in 4 hours of dishwashing to pay your bill.

It reminds me of Italy in the 70’s/80’s, when a grocery store or the post office would give you change redeemable only at their stored or the post office. Tourists used to complain.

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Scooot

5 years ago

Out of curiosity why do crypto currency’s trade at different prices? Are some in some way better than others? Is it just that one was launched before another and has more speculators trading it?

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TexasTim65

5 years ago

Reply to Scooot

Basic supply and demand.

Some crypto’s are more in demand than others.

Also there is a different amount of each one (the final total is set when they are initially created).

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Scooot

5 years ago

Reply to TexasTim65

Thanks, it was a daft question. I was thinking that they’re all more or less the same.

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Tanner D

5 years ago

Reply to Scooot

Variety of reasons. Creation date is one. Of 4000 different cryptos most are not adopted by the public and have failed.

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Eddie_T

5 years ago

Reply to Scooot

Bitcoin dominates crypto. It dwarfs all others. It was first, It is the crypto everybody knows about,….and importantly, it is the crypto that Wall Street thinks might be a new way to make lots and lots of money off futures and derivatives. It’s market cap is so big compared to any other crypto that the entire crypto market falls every time it falls…and it ALWAYS leads the other cryptos higher when it has a run.

There are a ton of cryptos…and some of them are good. Some of them are fast, sustainable in terms of energy and could be used easily for ordinary payment transactions. But Bitcoin stands in the way. Until the bitcoin era ends, all crypto is captured by its outsize influence. Which is a shame, because it is fatally flawed, and probably will eventually become worthless.

The argument FOR bitcoin is that it is in very short supply compared to the potential demand…if one thought it could be a long term store of wealth. There is not a lot of bitcoin. However, bitcoin does get diluted….by the process of forking…..something that bitcoin aficionados downplay, But it happens to be the case.

There is NO viable argument for bitcoin as a payment vehicle. It’s too slow. It’s also hackable, because the decentralization that is supposed to make that impossible does not exist in the real world today…because so much bitcoin is concentrated in so few hands….mainly the bitcoin miners, most of whom are Chinese.

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Felix_Mish

5 years ago

OT: Comments and ability to comment don’t appear on Firefox, as of a week or two ago – presumably when the site changeover happened.

Posted from Chromium Browser. with comments visible.

RSS is working again. Score!

It’s interesting how different the blog feels with no comments.

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Doug78

5 years ago

Reply to Felix_Mish

I had the same problem for a week or so.

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Felix_Mish

5 years ago

Reply to Felix_Mish

AdBlockPlus, apparently. I disabled it for this page and now can see comments and add this comment.

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Dr. Manhattan23

5 years ago

“Bitcoin is far more likely to survive than any of the rest of them. ” If it doesn’t have utility in use like $$$, and/or the government outlaws them once they create their own digital currency, why would it survive? China is leaning in that direction, as is the US. I have a friend who said you can trade it, but most tradable assets have underlying value, either perceived or actual. If it’s outlawed, it would have no value. Im no expert in crypto, but outside of speculating, no use, in my opinion. Even CDS contracts have underlying value, as collateral is needed

I will admit, I don’t know what will happen, nor am I a crypto expert, but my crypto friends still cant answer these questions. Just my opinion

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anoop

5 years ago

what about ethereum?

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Doug78

5 years ago

It looks like Elon Musk gave us a heads up on Bitcoin a few days ago just before the Fed and other central banks announced they were getting stricter on the cryptos. Considering the timing and the drop it looks that more than a few people already had that information and were in the loop. I don’t have any of them so I am only tangentially interested but maybe I should start to look into them soon.

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The Cryptocurrency Plunge Continues, What’s Ahead?

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