With bitcoin crashing – in fact, the entire cryptocurrency sector crashing – I thought I should quickly cover it today.
Needless to say, it’s not pretty.
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Faith in cryptocurrencies has been battered – in most cases, quite rightly
This time last year, bitcoin went on one its monster runs above $60,000. It then had one of its monster crashes.
I can’t remember if it was on these pages or on Twitter, but somewhere I suggested that a reasonable target for the correction might be $20,000.
$20,000 was the old high from the 2017 boom and bust and an obvious pivotal price point.
But the correction stopped at $30,000, or just below.
The conclusion I drew – and on current evidence wrongly drew – was that, as bitcoin matured, its volatility was declining. The 90% corrections of previous bull markets were now 50%-60% corrections.
Bitcoin had a second run above $60,000 in the autumn, followed by another of its humongous corrections, and lo and behold, $30,000 held again (actually just below, but I use round numbers as they are more readable).
As an asset, bitcoin has become highly correlated to the Nasdaq and tech stocks and, as we all know, tech stocks have been walloped. Peloton, for example, which we wrote about yesterday, is down over 90%.
So over the past fortnight, I was quite encouraged to see bitcoin holding up quite well relative to other tech stocks. $30,000 looked like it was a floor.
Then we got the collapse in the protocol Terra, and its so-called stablecoin UST, which John covered earlier in the week, and the sector has been absolutely battered.
This is big, and it’s going to take some recovering from. The bubble of 2016 was verging-on the-fraudulent ICOs. Today it’s staking and stable coins. The yields on staking – over 20% in some cases – were unsustainable and so they have not been sustained. (If you’re baffled as to what I’m talking about here, don’t worry, you haven’t missed out and at this stage it’s very much for the best).
Hundreds of thousands of people have lost money, in some cases fortunes, and the reputational damage to crypto is considerable. All those who declared that “crypto is a fraud” are now looking wise, while those, myself to an extent included, who made the argument that bitcoin is a hedge against currency debasement are looking stupid, given that it is off some 65% from its highs.
Bitcoin will survive (again) but it’s likely to hit $20,000 and could go even lower
Of course, bitcoin and cryptocurrencies are not one and the same. Bitcoin remains a product of technical and open-source genius, but forever in its wake, and surrounding it, are disasters, gaffes, frauds and scams.
And there lies the keyword – again. This is not the first time this has happened, and it will not be the last. And, for all the junk that surrounds it, bitcoin keeps plodding on.
As I write it sits at $27,500. I can’t see how it doesn’t retest $20,000 in the coming days.
We hope $20,000 holds, but these are horrible, horrible, horrible markets – and I’m not just talking about crypto. It was oil going bananas in 2008, rising to $150 a barrel, which triggered that collapse. It seems like something not too dissimilar is happening now, following oil’s spike to $130 last month.
There will be a lot of forced sellers out there – leveraged players (those using borrowed money) and so on. So we are going to see a lot of liquidation. My advice, if you own quality assets, and you don’t have to sell, is not to.
Gold, bitcoin, good companies – whatever. Their price may go lower, but if you are not confident you can beat the market, then don’t sell. Because just as bubbles always burst, so does quality always come good. And bitcoin itself – I’m not talking about other cryptocurrencies – bitcoin itself is a quality asset.
There’s even a chance it could go back to its corona-panic lows of March 2020. Heck, everything else seems to be going that way. That would take us to $3,000. I would have thought that unlikely, but never say never, especially in these markets.
If you think you can beat the market, as I say, go for it.
If not, HODL quality. Don’t trade it.
Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence of the father of economics on the greatest arts festival in the world is now available to watch on YouTube.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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