BITCOIN DIARY: After the fall, holes in the holy currency
'What other asset's holders are possessed of such evangelical self-righteousness? Some actually say they "believe" in Bitcoin as if it were some digital deity'
On December 17, Bitcoin was trading north of R310,000 on local exchanges. This morning, after a minor recovery, it trades at R159,000 - a precipitous fall.
The wailing and gnashing of teeth as well as the smug Schadenfraude is out in full force. What other asset could lose 50% of its value in a month and still be trading?
What other asset's holders are possessed of such evangelical self-righteousness? Some actually say they 'believe' in Bitcoin as if it were some digital deity. They require complete obedience to its holiness and take offence when it is criticised.
What is sobering is that it is still three times as valuable as it was six months ago, when it was trading for around R40,000, although the sellers are outnumbering the buyers and it remains in a fragile state.
So, what happened? It's the old enemy - looming regulation.
This from Reuters:
Bitcoin, despite some stabilisation in late US trading, was half its record peak of almost $20,000 set on the Luxembourg-based Bitstamp exchange a month ago.
Ethereum and Ripple, the No 2 and No 3 virtual currencies, tumbled after reports South Korea and China could ban cryptocurrency trading, sparking worries of a wider regulatory crackdown.
“There is a lot of panic in the market. People are selling to try and get the hell out of there,” said Charles Hayter, founder of Cryptocompare, which owns cryptocurrencies.
“You have more regulatory uncertainty ... and because of these falls, you have these other fallouts,” he said, referring to the collapse of some cryptocurrencies in the recent slump in prices.
Analysts at Citi said on Wednesday bitcoin could halve again in value amid the current rout, adding that a possible fall to a range between $5,605 and $5,673 “looks very likely to be very speedy”.
The larger problem remains that the "use-case" for Bitcoin is thin. Originally conceived as a peer-to-peer exchange of value unmediated by a third party, it has morphed into a goldesque commodity that is valuable because of scarcity.
Unsurprisingly, the quest to explain what Bitcoin is has taken the odd bizarre turn. Trending this week was an article in which Tom Goldenberg wrote how he studied Karl Marx in an effort to get to grips with it:
Satoshi (Bitcoin's mythical founder) failed to predict bitcoin’s difficulty scaling to billions of transactions. The fees for buying and selling bitcoin, as well as the inability of the network to quickly process transactions, have changed its very nature. It is now used less as a payment method, and more as a store of digital wealth.
Bitcoin’s main use cases today are as a speculative instrument (many traders are enticed by the large price swings) and as a “digital gold.” That’s not how Satoshi originally envisioned its adoption.
Marx, as noted above, similarly failed to anticipate how his own ideology could be used to manipulate and exploit populations. The idea of a stateless economy became, in practice, totalitarianism. Populists who claimed to have the workers’ best interests at heart would succumb to the temptation of power.
Cases of actual use of Bitcoin to conduct real-world transactions are now being treated as treasured oddities. Apparently you could once buy a bucket of Kentucky in Canada with your crypto.
But South Africa appears to be steaming ahead with Bitcoin as a currency with the online listing site Gumtree reporting a growing number of transactions.
When you're used to trading with a volatile national currency, a little Bitcoin churn isn't going to faze you.
The million-dollar question is whether or not this is the big bubble burst that Katy Perry has been singing about.
Bloomberg produced this graphic to illustrate how Bitcoin's rise and fall out-bubbles previous speculative surges:
From the article:
As the chart shows, the cryptocurrency’s nearly 60-fold increase during the past three years was truly extraordinary.
It dwarfed the Nasdaq Composite Index’s gain during the headiest days of the 1990s. Going further back, it comfortably outstripped the Mississippi and South Sea bubbles of the 1700s. It even topped the Dutch tulip mania of the 1630s, though that last comparison should be taken with a grain of salt given the scarcity of recorded tulip values. (The chart includes prices for just one varietal; consistent post-peak figures were unavailable.)
Bulls say that Bitcoin’s boom is far from over, and that there’s more to analysing a market than just measuring price gains. While the recent tumble has alarmed some investors, the cryptocurrency has bounced back from several previous swoons exceeding 50%. If Bitcoin did become a widely acceptedform of digital gold, as predicted by Cameron Winklevoss of Facebook fame, it could have a lot further to surge.
Which brings us back to the true believers. Some have taken it a step further and invented a new cryptocurrency called Bitcoin God. No really, some guy called Guo actually did this on December 25.
Initially, the crypto community thought that Guo was joking. Many Twitter followers raised that question. However, Guo clarified that the fork was real, and he had tweeted by the new token before.
The doubt in people’s mind is rational, as there have been numerous Bitcoin forks in the recent past. What do these new forks stand for? How legitimate are they? If it is so easy to fork Bitcoin and form a new chain, then would it reduce the uniqueness of the cryptocurrency?
All these questions are valid and are asked by every cryptocurrency investor. Some of these new impending forks will be scams and investors should be wary about investing in new offshoots of Bitcoin.
One such creation, BitConnect, came to a horrible end this month in what appears to be a great scam.
And finally, for a sobering take on the rise and fall of Bitcoin, read this from the Economist:
This column does not constitute investment advice and if you think it does, shame on you.