Business

Bitcoin noise... and the floor is zero!

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Peter McGahan

BACK in 2017, I was asked about Bitcoin and covered the benefits and risks at length.

For the record, when it was at £4,000 as a price and everyone was asking if it would go higher, I said ‘why not’. If something that is valueless in real terms can hit that price, it can go to whatever price someone wants.

I described winners and losers in crypto, like spiking a price to sell to someone unsuspecting, but crypto definitely had a place. I also explained the key difference between coins and blockchain.

I’ll endeavour to top up on all of this over the next couple of weeks, but when I saw ‘Bitcoin falls through key threshold level (or floor)’ I thought it’s time to give the glorified stories another slap with a stick of rhubarb.

Firstly, ‘floors’ or ‘thresholds’ are so poorly unfounded that when you see anyone quote them, take them off your reading list.

Nothing has a ‘floor’ – a price that its unlikely to go through, or that it’s supported at. We covered this back in 2000 when many were trying to pull investors into shares because they had fallen. I’ll repeat what I said then and what always follows through – ‘Anything that can get cheap can get a whole lot cheaper’. I would have repeated that in previous new year’s resolutions about investing – do not get anchored to any previous price. It’s a pure mug’s game.

Indeed, if I look back to a Yahoo Finance video in July 2021, the interviewer asks his ex-colleague who is now working at a crypto newspaper about the ‘floor’ of 30k. They carried through with their script and ended with excuses as to why Bitcoin had fallen below the ‘magical’ 30k price. ‘Summer doldrums’ and ‘China pulling back on mining because of the ecological impact’ were two key factors.

The ‘floor’ they refer to, is created by taking two random points that coincide with each other – a price in the past and the price now.

So, for example: ‘Oil was $80 dollars a barrel and it’s there again, and will it break through that barrier?’, is the hook to have you listen to ear bleeding nonsense and potentially buy a box of frogs.

Once it reaches $60, I can then easily create a new floor by drawing a line between a previous $60 dollar price because there will always be one. The same with $30. It’s nonsense.

They also talked about key resistance levels (there are none) and the hash rate. To summarise in simple terms, the hash rate is the price of the cost of computational power to create the bitcoin. So, you make 100 buns with cardboard at a cost of £2 each, therefore the floor cost must be £2, irrespective of usage or taste. Economics reinvented.

From that key point above, Bitcoin flew to nearly $67k sucking in many along the way, then falling by as much as 71 per cent from its high. No doubt the same logic will bounce it around for a while and create further high points, but remember, it has no price other than who wants to pay what for it.

Never underestimate the power of marketing too. Google the following words, and watch how many sites simply repeated what they were sent, or remarketed it word for word “On Saturday, Bitcoin had plunged as much as 9.7 per cent to less than $18,600 by late afternoon on the East Coast”. There are over 120 pages on the internet reproducing the same page talking once again about key floors.

Then Google ‘Bitcoin inches above psychological threshold of $20,000” and you will see multiple pages regurgitating exactly the same pages and lines word for word. $20,000 is a psychological threshold because someone makes it so.

This fall was used to call for regulators to come in and regulate coins closely, a point I made in my description of risks to the ‘currency’. That is the key risk to it.

Whilst crypto has a use and value which I will explain later, remember this: The floor is zero.

Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question, call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit wwfp.net

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