Bitcoin bubble burst? Read between the lines
IT was F Scott Fitzgerald who said: “The test of first rate intelligence is the ability to hold two opposing ideas in the mind at the same time and still retain the ability to function.”
In a world where the extraordinary choice of data on any subject can perfectly agree with any polarised view, its easy to see how Fitzgerald's words might be just too much, as Facebook memes, stooged journalists, fake news or internet trolls seek to make money from you.
Indeed it's been very hard to find anyone with anything other than a polarised view – they are ‘the future' or ‘a con', it seems.
It may be luck that this column said bitcoin might hit $20,000 and start bouncing back down and around again. Or, it just may be that I thought for one second what an arbitrary figure a trader, trying to con you, might have you think of as a floor, or ceiling price, to work away from.
Do crypto currencies work? Yes, of course they do. Does blockchain, or better technologies than blockchain work? Yes, but not in the hyped way they state, and in reality, coins do not need blockchain, and what blockchain does, has been around for a long, long time. They just haven't bothered making a business out of it as such.
Do we trust fractional reserve lending by banks? Most don't. So now we pave the way for the unscrupulous to make money from you.
A common ploy now, of course is the old Wall Street bank dirty trick of, ‘building up' something they've already pre-purchased, and when they really think the readers have ‘got it', make sure they have little or no counter party risk, get the big bets on in the futures market, find themselves a journalist keen to make a name for themselves with the scoop of the year. Easy money.
Let's remember bitcoin is one of many coins. Can they all survive? Well no-one knows that for sure, but it's hard to see how any more than 10-20 out of the near 1,400-and-counting will survive.
Right now their use is of no relevance to their value as they have no intrinsic value yet, other than supply and demand, hence the wild swings in price that traders can create. Pure manipulation.
I was looking at some economists' views in the paper re the fall in price. They state the bubble has burst but blockchain will be good. I wholly disagree and would like to know who is feeding them. I personally think crypto currency hasn't displayed the middle stages of a bubble yet, let alone the final stages.
Furthermore, many of the large aforementioned banks have already set up trading arms into crypto currency which don't commence until mid this year.
Volatility is Christmas dinner for these guys. They make money on the swings by betting on the up and down so it's no surprise to see their staff contradicting themselves in the press. Stock markets have been very calm, so this area is a dream.
Two economists state that the coin has a long way to fall because it is still ten times higher than a year ago.
Their naivety knows no boundaries. As we showed in a previous column, the futures market was coming, so the large traders simply pre-purchased the physical bitcoin asset to ensure they could play with the futures market afterwards. Hence the rise.
No matter where you stand on this, please separate the current value of coins and their use. Yes they have future use but right now why would you use a bitcoin? At the beginning of the year, you might buy a meal with it but at the end of the year you realize you could have bought a car with that meal money.
It's just too volatile as a currency yet. There are new coins arriving that have the ability to be used in a more mainstream fashion – watch out for Amazon deciding to use a coin, for example. There is lots of space for such currencies to do well, later as a usage, but now as a highly speculative bet.
:: Peter McGahan is owner of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. Have a question on investments? Call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net