Hey everyone, it’s Whatever Wednesdays again. Today will just be a short post about the “Crypto Bear Market“.
Crypto Bear Market?
Since hitting it’s all-time high in January 2018 of ~$20, Bitcoin (BTC) has continued to tumble down to a low of ~$5800, now trading around $6100 or so today. There was a pretty significant “crash” which dropped it by half to about $10k or so, but we’ve just seen a slow bleed since then to where we are today.
Well, there are lot of reasons, probably. Obviously this is just my opinion and hindsight is 20/20, but here are my thoughts:
One is that Bitcoin was/is highly speculative, and its market is very thin, meaning that variations in trade volume can result in significant price volatility. During the run up at the end of December 2017 and January 2018, it was kind of everywhere, even in the main stream media. Everyone was talking about Bitcoin or knew someone that knew someone that made a fortune on it. Everyone wanted a piece of it, just in case. It was like a lottery. “Smart” people were being quoted as it going up to $25k, $50k, $100k, or even $1 million. This may still be possible, but it is unlikely that it will happen in just a few months time. So what happened?
You ran out of people willing to pay that much.
There were probably subsets of people who believed in $25k, $50k, $100k, and even a $1 million Bitcoin. However, as that number goes up, the number of believers go down. At some point the risk/reward ratio of “getting in” isn’t worth it anymore.
For example, if you bought in at $10k, you were thinking $15k or $20k is a possibility, maybe even $25k. However, if you buy in at $15k you’re hoping for $25k, or $50k. Greed is limitless. Now then, we can’t forget about the people who bought in at less than $1k or so. Some of them will HODL forever, but others were waiting for a time to get out. They were waiting for a signal that “this was the top”, at least for now. So it kind of happened.
$20k was the tipping point of risk/reward. Market sentiment was probably that Bitcoin was unlikely to go to $50k, or even $25k, and people wanted to lock in profits, I assume. This led to sellers outnumbering buyers, which of course decreased the price. There was a scramble for the exits for people to lock in their profits. In a market this thin, the price took a huge hit in a short period of time. This sense of urgency for a life raft intensified. When the dust settled, Bitcoin was hobbling along at ~$7000 at the bottom, recovering to $10k or $11k in both March and May, and now going back down to $6100 or so today, in June.
Wait… so was this the crash?
I don’t think so. I’ve said before that I think a real crash will come, and so far we’ve been buffered by a real crash by these mini crashes. This most recent price crash was probably not the real one. It will require a number of different catalysts for a real crash to occur. If you look back at my other Crypto Posts, then you’ll see that I mention sub $5k is the number to watch for.
There are a few reasons for that. One is that I believe $5k is a strong psychological number as well as a strong support. In addition to that, mining for Bitcoin becomes unprofitable for just about everyone, except for those with subsidized power. Here’s a good chart from marketwatch to tell you how much it costs to mine a Bitcoin depending on where you live. Now, that information is a little old since it comes from May 11th, but you get the point.
A sub $5k Bitcoin would definitely cause a shake-up in the mining pools. Cloudmining contracts, such as with Genesis and Hashflare would probably also be terminated at that point. Of course, Bitcoin is set to handle these changes in hashrate with the decrease in miners, but it takes awhile for that to occur. Even the subsidized mining pools might be operating at a significant loss during this time period. Weird stuff will happen during this time period I think.
What catalysts (or combination) are necessary for a “real crash”?
I’m not sure. However, I think we won’t see a real crash until a market cap of > $1 trillion, or even multi trillions. Why? Well… I think Crypto overall is still too small potatoes to “crash”. Just to give you an idea, the dot com bubble, at its height, was worth about $3 trillion back in 2000. If we account for inflation, $3 trillion in 2000 is ~ $4.5 trillion today.
This kind of a market cap would only occur after regulation and after real institutional money enters the space. I really don’t think retail investors themselves could create enough of a bubble. Make no mistake, I am almost certain institutional money is already in crypto, they just aren’t telling anyone. They are just accumulating and building their coffers to try to stay ahead of one another. As to how they’re doing it, I’m not sure. However, what I am sure of is that whenever we do hear about it, it will already have happened months prior.
What if we don’t crash?
If we don’t crash, then that means the crypto market sees real organic growth and develops its use cases at around the same rate as it generates real world value. While possible, I think this is unlikely. I think speculation in cryptocurrency will be around for the foreseeable future, and possibly forever, in my humble opinion.
However, a crash doesn’t mean that their isn’t real value somewhere. Just to put things into perspective, watch this video on “The Internet” from 90s:
These comments did not age well.
Also, just for fun, here’s “The Internet Show” from 1995:
As funny as it may seem, this is pretty much where I think we are with cryptocurrency.
- Not many know about it (or what to).
- Even fewer understand it (or what to).
- And even fewer believe in it (or want to.)
However, 10-20 years from now, I think it’ll be so ubiquitous that people won’t call it blockchain or cryptocurrency anymore. It’ll just work that way because that’s what we do and use. People don’t think about how email works, they just say “I’ll email you.” …and that’s fine. There is no reason for them to understand because it just works. It will be the same for blockchain and cryptocurrency, it will be everywhere, but will just work — no reason to understand elliptical curve signatures or trusted hardware or immutability or whatever.
It’ll just work.
This wasn’t a crash.
A real crash could still happen, but it will require multiple catalysts to occur.
These videos about the internet didn’t age well.
People don’t understand the internet, but use it everyday.
Someday, blockchain and crypto will be the same — It’ll just work.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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