The dip that keeps on dipping….

Tuesday, 6th February 2018

The dip that keeps on dipping….

‘Buy the dip!’

Last year every cryptocurrency quarterback on the field of play repeatedly hollered out that specific maneuver lifted straight from the regulation playbook….

‘Buy the dip!’

When the price of Bitcoin fell, you bought….

‘Buy the dip!’

That was the standard play….

‘Buy the dip!’

It was the winning move that couldn’t lose….

Drops in the value of the cryptocurrency were temporary blips – opportunities to buy at a discount and lock in profits when (not if) the price bounced back and rallied to new highs….

The formula worked repeatedly. You couldn’t print money as fast as you could profit from buying the Bitcoin dip….

  • Anybody could get rich….

There were moments in November and December when getting fabulously rich appeared to be within the grasp of any man with a few quid to throw at Coinbase….

You could swiftly leave your old life behind by buying as much Bitcoin as you could comfortably afford….

Then sit back and let the greater fools in the market do the rest….

The price rose so swiftly, the line on the chart looked like it might topple over backwards at one point….

This thing can go to $250,000 in 3-years, John McAfee told us. It can go higher still, said James Altucher – to $1 million by 2020….

I don’t know if either man ever believed his own prognostications. One has skin in the game. The other makes his living as a self-help ‘guru’….

Big bold claims influence and move markets. They also generate headlines and free publicity….

Sometimes motives are open to question and interpretation….

  • The plan that couldn’t fail….

But the bold claims of both men stood out on the landscape like appalling examples of concrete-slab architecture from the 1960s and 1970s – monstrous and compelling in equal measure….

You can’t help but notice these things. The tallest structures dominate the skyline and they cast the longest shadows….

McAfee and Altucher helped spin an environment where any drop in the value of Bitcoin was something to embrace with enthusiasm rather than something that encouraged caution.

‘Buy the dip! Buy the dip!’ That was the standard call – the big go-to match-winning play. It was the strategy that never failed to deliver easy profits….

It had worked on every occasion in a living memory that stretched all the way back to the dim and ancient reaches of October 2017. Bitcoin bulls believed they could depend on it to work time and time again….

2018 looked like a year that might mint more new millionaires than any year before it. Optimism levels were sky-high. It had never been easier to get rich quick. Cryptocurrency markets were new lands of milk and honey….

  • Then came the bleak Christmas and Black January….

But then came the Bleak Christmas of 2017 when Bitcoin fell off a cliff in spectacular fashion – dropping from a high of almost $20,000 to $14,000 in under a week….

Previous dips, in the last quarter of 2017, were swiftly followed by new highs. But not this time. The dip has kept on dipping….

The price has fluctuated but across last month – one I refer to as Black January – Bitcoin continued to fall….

So too other cryptocurrencies. The largest-cap coins lost over a trillion dollars in value between them….

Last week Bitcoin lost more in a single week than at any time since December 2013 – dipping to under $8,000 on Friday.

As I write, Bitcoin trades at just over $9000 – having lost almost 50% of its value since mid-December….

How best to describe this rapid drop-off?

A bad case of the jitters? Unadulterated carnage? Overdue correction? Deflation of a speculative bubble? An inevitable side-effect of proper price discovery? The market coming to its senses?

Probably a mix containing quantities of each. Along with a healthy dose of climate change….

  • Climate change….

The environment surrounding Bitcoin is developing – and some developments are linked to the downward spiral in the price of Bitcoin and other cryptos….

South Korean authorities intend to crackdown on crypto-assets. So too the Russians, the Indians and the Chinese….

US regulatory authorities are scrutinizing Bitfinex, one of the world’s largest digital currency exchanges, and sister-company Tether.

The Commodity Futures Trading Commission is investigating claims that each unit of the Tether cryptocurrency is backed by actual bank reserves.

Regulatory authorities worldwide are questioning the future of cryptocurrencies, their relationship with mainstream money and their role in the furtherance of organized crime….

Cryptocurrencies are not immune to criminals either. And large-scale hacks (the one recently perpetrated on Japanese exchange Coincheck netted thieves $530 million in stolen Nem XEM tokens) undermine faith in crypto-technology that most investors don’t understand….

Just yesterday in Britain, Lloyds Banking Group and Virgin Money banned customers from buying bitcoin and other cryptocurrencies using credit cards. They’re concerned about being left holding big losses if the cryptocurrency sell-off continues….

Even Facebook – where anything goes – is playing its part and has announced a ban on advertisements promoting digital currencies and initial coin offerings because they are ‘frequently associated with misleading or deceptive promotional practices.’

  • Conspiracy theory….

Conspiracy theorists say government, big financial institutions, big business and the mass media are setting-out to destroy confidence in Bitcoin and to drive the price down….

Once amateurs have been shaken out of the market, insiders and institutional money will pick up the pieces and take effective ownership of the cryptocurrency that was supposed to revolutionize the world – and still might….

I enjoy conspiracy theories. But I think of them as entertaining ideas – possibly containing a grain of truth. I wouldn’t invest on the back of them….

That said, the lower the Bitcoin price tumbles, the more interested I’ll be….

I still believe 2010 is the right time to buy Bitcoin. I’m not sure prices will get back to that level. But if they did, that would be a sure sign confidence in Bitcoin has evaporated.

At that point, I’d be a buyer to small stakes….

  • When this happens – it’s over….

Right now, be careful who you listen to. There’s a lot of nonsense in-play out there….

A week or two ago I read something where the writer made the case that because Bitcoin has been up so high, the current price represents a ‘bargain’ opportunity to buy.

Not so much a case of ‘buy the dip’ as buy the steep-sided descent. It didn’t make much sense to me. What comes down doesn’t always go back up. Just ask the parachutist whose canopy fails to open….

Bitcoin might be fatally wounded. Or slowly counting down the clock on Death Row. Or the market might have discovered something close to the correct price.

Just because something has fallen from a height doesn’t mean it will scale those same heights again. There are no entitlements in the markets….

Of course, everybody is entitled to his view and to offer his own brand of advice. But it is what drives that advice that is important. It isn’t always altruism….

The writer of the piece I’m referring to had goods to sell – a high-priced training programme that offers a gateway to riches in the crypto-markets. I wonder how much of what the writer believes is based on what he is commercially impelled to sell?

It’s probably worth keeping an eye on the cryptocurrency trading products that have been rapidly – and in some cases cynically – produced to cash-in on the euphoria generated by Bitcoin throughout 2017….

When the publishers finally stop peddling such products with such big promises about what they can achieve, that’s probably as good a sign as any that the crypto feeding- frenzy has bottomed-out and that the market has accepted that Bitcoin is not the one-way route to profit so many people believed it to be….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths