Bitcoin Plummets, Fanboys Freak
Bitcoin fanboys are freaking out...
Last Friday, China announced it will begin cracking down on new public offerings of cryptocurrencies.
ICOs — initial coin offerings — have become insanely popular since the beginning of the year. In fact, the number of new ICOs more than doubled last month compared to May.
And there's really no wondering why they've become so popular: If you offer the public an opportunity for anything they perceive as easy money, they'll take it every time. Need evidence of that? Just consider the size of the gambling industry.
But China's ICO crackdown is concerning to Bitcoin bulls. It is widely expected to be only the first in a very long line of new and restrictive regulations for cryptocurrencies around the world. These regulations would eliminate the most important aspect of Bitcoin and cryptocurrencies: their decentralized status.
As a result, BTC prices shed more than 15% and left fanboys shaking in their boots. Prices have since recovered a bit though on dip buying.
For the past several weeks, I've been comparing the Bitcoin market to the 17th century Dutch tulip bubble. And I noticed that every time BTC would break through a new high, I would receive dozens of emails, tweets, and other messages telling me what an idiot I am for making such a comparison.
Then Bitcoin prices would die down. And so would the messages.
But this week, after seeing the +15% drop in prices, the Bitcoin fanboys came back out in full force. And, again, I'm an idiot for even suggesting BTC could possibly be in a bubble. Little do they know, however, it's exactly this kind of behavior that sort of proves my point:
Every brand new type of asset (or one that's going through a major revaluation) will go through a bubble and bust phase. In short, market bubbles are a natural part of pricing behavior.
The reason for the bitcoin bubble is simply this: The free market is trying to find the very tip-top. In fact, I even believe that without a price bubble, the market couldn't properly value a new asset.
Sophisticated investors know price bubbles occur in new assets types. Amateurs don't. And it's amateur BTC investors who are driving the price bubble today.
How do we know BTC speculators are amateurs? Just look at the numbers: Approximately 40% of Bitcoin owners are aged 24 to 35. That means almost half of the entire market simply can't have more than 15 years or so of investing experience. And for many, Bitcoin is their very first and only investment.
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Or, if you need more evidence that BTC owners are amateurs, just talk to one. Most of the messages I receive offer little to no evidence against my argument or even any kind of logical reasoning. You might call these people “trolls.”
Here's one of my recent favorites.
We should run this “LOLWAT?!?” argument straight to the top.
Now, I will admit to a bit of provocation here to flame debate. I wanted to see if this guy would ever offer anything of value.
He didn't. After “LOLWAT?!?” his responses were a series of poor deflections and ad hominem. Even his insults weren't original.
Now, I'm not trying to pick on this guy. That's why I blacked out his Twitter name. But his responses were indicative of those I get regularly from Bitcoin owners.
I even tell people where they can find the answers to debate me. Yet they don't take the time to do the research.
From what I gather, the general consensus among BTC owners is this: You don't have to understand Bitcoin, just buy it.
The fact is I want Bitcoin to win. I really do. But just consider the competition: the global banking cartel. Do you really think the world's banking industry is going to give up its monopoly on money so easily?
Bitcoin vs. central banks is a real-life David vs. Goliath. I want the underdog to win. A lot of people do. But in a real life David vs. Goliath, you'd be insane not to bet on the giant.
Still, there is no doubt that Bitcoin does offer some competition. And the distributed ledger technology that underlies BTC and other cryptocurrencies is very valuable. That's why I'm betting on both David and Goliath.
See, I believe the world's banking cartel will simply incorporate distributed ledger technology into their own systems, then convince the voting public that their centralized currencies have become not just equal to, but better than, the decentralized money.
And they've already begun. Every major financial institution and central bank in the world is already looking into distributed ledger technologies.
The short of it here is this: I'm betting on Goliath (central banks) stealing David's slingshot (distributed ledger technology). So, to me, it doesn't matter if the price of Bitcoin goes up or down. I'm not betting on the popularity of the product as much as the popularity of the technology underlying the product.
You see, despite Bitcoin's market value, the network needs to be maintained. I've found one company that provides the majority of the "picks and shovels" of this network. I call it Bitcoin's "printing press" manufacturer.
I've recently produced an entire video about this manufacturer, which you can check out here.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reaches hundreds of thousands of investors every day. Luke is also the investment director of Angel Publishing’s new Secret Stock Files newsletter, which helps investors leverage the future supply/demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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