Wednesday 18th April 2018
Good morning, Oliver,
The beginning of the big rebound?
Bitcoin has been one of the biggest – if not the biggest – story in the world of money over the last 12 months….
This column has done its bit to chart the various ups and downs. You can revisit our output in the archive on the Money Truths website….
Without ever setting out to do so, I’ve written extensively on the subject – learning as I go….
Perhaps the most interesting feature of the whole exercise for me was to observe how my own mind operated during the peak of the Bitcoin mania….
Even though I knew that Bitcoin was in the grip of a mania and that the huge increases in the price of Bitcoin were the direct result of a speculation bubble – I stillfound myself grappling from time to time with the fear that I was missing out….
- The fear of missing out….
Towards the end of 2017 a lot of people believed that getting rich was as easy as buying Bitcoin and holding on to it for a week or two before selling it on at a massive profit….
People were buying the cryptocurrency on their credit cards….
Celebrity investors – none known for their financial acumen – were busy pushing Bitcoin and other cryptos on Twitter or Instagram….
You couldn’t open a newspaper or visit a website without being beaten black and blue with a volume of Bitcoin-focused stories or advertisements….
It all pointed to a mania. It all signaled an over-reaction that would fall subject to correction….
But even so, standing on the sidelines watching on, I sometimes found myself wondering if I was wrong and missing out on a cast-iron opportunity to get as rich as Croesus in double-quick time….
Perhaps I am feeble-minded and susceptible to such bouts of self-doubt….
Or perhaps that’s how manias suck people in. Such is the collective buzz around an asset or a market, even skeptical individuals are in danger of finding themselves in thrall to it….
- Infected by euphoria….
There’s something in the idea….
Analysts at Barclays reckon Bitcoin’s soaring value towards the end of 2017 was a direct result of a wave of new buyers who were ‘infected’ with euphoria that had spread in much the same way as a disease does….
The economists studied models from the world of epidemiology – a branch of medicine focused on the occurrence, distribution and control of epidemic diseases….
And they applied similar models to the price of Bitcoin, noting that ‘infections’ spread from one buyer to another (often by word of mouth) – creating legions of new Bitcoin buyers and pushing the price ever-higher….
People feeling the fear of missing out were particularly susceptible to infection. By December 2017 the disease was raging like a cornfield fire in high summer.
Then over the Christmas holiday, the fever finally broke….
With infectious disease, there comes a point where an immunity threshold is reached – where a sufficient proportion of the population becomes immune and the disease loses its potency….
Barclays analysts believe that’s where we are now. The epidemic has passed….
They believe susceptibility to the Bitcoin ‘bug’ has fallen and that people have become ‘immune’ (a direct result of people losing money on the asset) to such a degree that Bitcoin will never recover to the peak price it achieved just before Christmas….
In fact, Barclays reckon the overall value for all crypto-assets may never surpass $780 billion – the rough value of all cryptocurrencies in early January this year….
In other words, Bitcoin and the rest have already had their best day in the sunshine….
- Green shoots of recovery?
Who knows if these pointy-heads are right or wrong? Not me. Time will tell….
All I can tell you is that after losing more than 50% of its value in the first quarter (its worst-ever start to a new year) Bitcoin has shown renewed signs of life over the last 7-days – not only breaking back through the $7000 barrier but re-testing the $8000 threshold….
The other big cryptocurrencies – Etherium, Ripple, Bitcoin Cash & Litecoin – have also been recording gains….
Analysts say that US investors have been selling off crypto-holdings to fund upcoming tax liabilities incurred on last season’s crypto investments – contributing to the crypto-slump. And that the recent gains suggest such activity is now over….
Pantera Capital Management – a hedge fund focused exclusively on investments in blockchain technologies, digital currencies and crypto assets – wrote a note to investors last week which effectively called the bottom of the crypto bear market and advised investors to start buying Bitcoin….
This, on top of recent news that big and influential players like Goldman Sachs, George Soros and the Rockefellers are loosening-up on their previous attitudes to the crypto-sector, is another sign that green shoots are re-emerging after a bleak winter for Bitcoin specifically and cryptocurrencies generally….
- Return of the bulls….
If the changing attitudes of the big boys is subtle and too under-stated for some tastes, there are always bolder and brasher voices to tune into….
Billionaire Tim Draper, for instance. The venture capitalist wasn’t holding back last week when he said this….
‘I’m thinking $250,000 a Bitcoin by 2022. Believe it. They’re going to think you’re crazy but believe it. It’s happening and it’s going to be awesome….’
Maybe Draper is crazy. I don’t know. I have never met the man….
Maybe he’d been on the sauce – having soaked up a little too much of the ‘party’ spirit. He was speaking after all at the 2018 Block (Chain) Party held at his self-named Draper University in California….
But it is worth bearing in mind that Draper has form in the book….
Back in 2014 he bought 30,000 Bitcoins for $600 apiece at a Department of Justice auction – where they were selling the confiscated trappings of criminality….
That investment proved to be wise – to say the least. Just 4-years later, based on an assumed Bitcoin price of $8000, that investment is worth a cool $240 million….
And in 2015, Draper went public and predicted that Bitcoin would be worth $10,000 per unit by the end of 2017. He was right on that score too….
This time around, he’s more bullish still – albeit over a longer time-frame. But it would take a man with plenty of self-belief to bet against him….
If Draper is right – and with Bitcoin showing renewed signs of life – now might be a very good time to get back on the Bitcoin gravy train….
That’s how it looks from here….
All the best,