The Ridiculous Bitcoin Bubble & Why I’m Eating The Egg on My Face!
Back in 2015 when Bitcoin was starting to get a tiny bit of traction from some early adopters, every now and then I was asked a question or two about Bitcoin. Even by 2015 it had experienced some meteoric growth and crashes and was hovering around the $250 level. However it had recently crashed all the way from $1000, so you can understand why I wasn’t all that keen on it.
Like a lot of other investors out there, I wasn’t attracted to it one bit. When asked why, my response usually included a few of these thoughts:
- Despite people referring it to Digital Gold, it’s still a Fiat currency backed by nothing other than an algorithm and premeditated scarcity.
- It is far too volatile for my liking. Anything that goes from $0.05 in 2010 to $250 in 5 years is a bubble.
- It’s far too risky as many huge exchanges and wallets have been hacked.
- The banks don’t like it. As such, they will use their immense power to either stop it or manipulate it. The last time something affected their control was Gaddaffi’s Gold Dinar he was oh so close to launching and we all saw what happened to him.
- It’s a very complicated thing. For a techno dunce like me, all those terms like Blockchain, Hashrates, Segwits, Wallets, Addresses and Cold Storage just confused me! As such, one of the biggest rules of investing is to NEVER invest in something you don’t understand. Even better, don’t invest in anything you can’t explain in 10 seconds.
- Also what I couldn’t get my head around is that it could never become a true global currency because of the time it takes to transact. It takes up to an hour to do a transaction, so it could never compete with Credit/Debit cards. Which is why I think the new up and coming cryptos like Digibyte, Dash and Ether have far more potential as they can transact in seconds.
- One of the biggest issues Bitcoin faces which no one talks about is the fact that 4 wallets control the majority of Bitcoin’s worldwide mining which accounts for 25% of Bitcoin’s computing power. It’s based in Shenzhen in China and if there were to be a power outage or something bad happen to it, bad news for Bitcoin. All of a sudden Bitcoin’s blockchain may become frozen or unusable and it would take weeks to get it back up and running. And maybe even no transactions for months! So if this happens, it could kill Bitcoin or at least drop the price by 50-90%!
So as you can see, I had many very good reasons of why I wasn’t keen on Bitcoin. And like any good old investor out there, I was aware of research bias and researched both sides of the coin thoroughly.
The result? I stepped aside, didn’t touch it and Bitcoin subsequently went from $250 to $2700 recently! Crazy. What’s more crazy is that in 2010, it was $0.05! So if you put $500 in Bitcoin then, right now, as it sits at $2400, your $500 would be worth $24m! That’s an M for MILLION! Bonkers!
Bitcoin has pretty much followed this picture and is likely to continue so…
Now after mentally puking and kicking yourself after hearing bubble type growths like that you have to be extremely cautious of FOMO. FOMO will screw you over if you let it. And it’s one of the main reasons why I regularly profit from the markets with my currency trading because I exploit the typical punter’s Fear Of Missing Out when certain things happen in the markets.
I myself had a huge pang of FOMO the other week in fact. Basically in January 2017 I was planning on having a £20k punt in cryptos to buy, hold and forget. And I succeeded…at one part at least. I totally forgot to pull the trigger. I tried to set up a corporate Crypto account and after 3 weeks of the exchange fannying about with verification etc I lost the will. Life got in the way and I never got my well researched positions in. Guess what…through being a weak-willed-wuss I’ve lost out on £2m profit!!!!!!!!!!! That’s another M for Million! Well as expected, the day of finding that out, I had huge FOMO.
So how do I feel about Cryptos now?
Well, I’ve spent a good 1-3 hours a day (for months!) researching the hell out of this new market. Because if I’m going to invest in it, I want to know it at a deeper level.
As a result, I’m now extremely bullish on Altcoins (another term for cryptocurrencies) and I have finally got my positions in. Better late than never hey? 🙁
So here are some points to ponder on so you can make your own mind up on whether this is for you or not:
1.) This is the first time a new major asset class has been created since 1694 when the UK government first created a Gilt (UK Government Bond). Investing 101, when capital flows into a sector, prices go up.
2.) Currently, 3.2 BILLION people do not have access to the internet! And roughly the same amount of people don’t have a bank account. It’s also estimated that over the next 10 years these 3.2 Billion people will gain access to the internet and it’s probably a fair shout that a big percentage of them will also get an online Crypto account instead of a bank account.
3.) Adding to that previous point, right now there are only 14.5m Bitcoin accounts open. That’s just 1 in 500 people, and that has made the price shoot up 50 000+% in a matter of years! Imagine what happens when the public come rushing in en masse. It’s going to balloon everything, including my crypto portfolio. Can’t wait 🙂
4.) The future of pretty much everything has Blockchain technology written all over it. You won’t be able to go anywhere, see or touch anything that won’t have some sort of Blockchain behind it. Even if Bitcoin or Ethereum die, Blockchain will 100% continue. Just like with the Tech Bubble crash, most stocks got obliterated but the good companies remain and so too did the internet!
5.) There’s an ever growing community out there who are very ‘anti banks’. I’m sort of one of those people to an extent and Cryptos bypass banks because you can send money directly to someone else with no middle man. This appeals to a lot of people.
6.) The banks are therefore ploughing billions into Blockchain tech so that they can remain relevant. Also Blockchain is helping them save billions of $ in costs by using the altcoin called Ripple for interbank transfers etc.
7.) When we finally have this next large economic crash which may be triggered by anything from an Auto Loan bubble pop, Student Debt bubble pop, Sovereign debt bubble pop or Black Swan, as equities tumble it’s a fair shout that people will flock to Cryptos.
Hopefully those 7 points will give you something to ponder on, but one thing I’d like to address is that a lot of people are calling this a Bubble. And yes they would be bang on correct in saying that. Hell, it will make the Tulip mania look tame I think. However, I study bubbles and from studying the mechanics and human nature around bubbles, it is not a question of whether this is a Crypto Bubble or not, the question is WHAT STAGE OF THE STANDARD BUBBLE WAVE IS IT IN?
For those uninitiated with the Standard Bubble wave, you basically have 4 stages.
a.) The Stealth Phase where the Smart Money identifies a new sector/invention/niche/product and then quietly accumulates a position.
b.) You then have the Awareness Phase where sophisticated investors cotton on to this new thing from following the breadcrumbs and clues the Smart Money are leaving behind. This is where you begin to see a nice uptick in price.
c.) The Mania Phase or what I call the Media Phase is where the Dumb Money comes rushing in. This is the public and you need to remember that the public 100% of the time, when it comes to Investing, do the wrong thing at the worst time! And this is mainly the result of the Media jumping onto the bandwagon which instils FOMO. A really intense FOMO. This is where you see the hockey stick type growth curve and it’s also the Phase where the Smart Money exits! Because if you have Billions to sell, you need someone on the other side of that trade and guess what? The public always fulfils that role and provides liquidity for the Sell Side.
d.) The Dissipation Phase. In basic terms, the shit rollercoaster down caked in every negative emotion and feeling you can think of for the average public punter that got in at the top and ultimately exits at the bottom at the extreme low of the capitulation part of a crash. Which coincidentally, is actually the best time EVER to buy an asset. When there’s metaphorical blood on the streets! Well, actually come to think about it, if there’s real bloody on the streets that’s also a good time to buy. Sounds horrible, but it’s true. In fact during the height of the Weimar Hyperinflation, the Rothschilds bought a whole street in central Berlin for just a handful of Gold!
So, Standard Bubble Wave lesson over, here’s what one of my trading students posted a month ago. He superimposed the Bitcoin chart with the Standard Bubble Wave and asked if we are set for a big almighty crash.
Now it’s a fair assumption but the answer is nope. Believe it or not, and I guess only time will tell, but I bet my bottom Dollar that we are simply in the transition Stealth Phase to Awareness Phase. Don’t forget, only 1 in 500 people are playing with Bitcoin at the moment so the public are still in ‘thumb in bum, mind in neutral mode’.
Also, another chart one needs to be familiar with is the Technological Adoption Curve and Hype Cycle. It looks like this and is relatively self explanatory. If you have a spare 20 minutes, I’d highly recommend a cracking TED Talk by a guy called Simon Sinek, the author of ‘Start With Why’ and he explains the Adoption Curve beautifully.
But for the purpose of keeping this article as an article and not an essay, I would put it to you that with Blockchain technology and Cryptocurrencies, we are currently in the Early Adopter Phase and that even if you’re like me who thinks this is going to be one horrendous bubble in the future which may ruin a lot of lives when it pops, there is still an immense amount of upside to profit from if you get your positions in now.
And when you have a look at the Gartner Tech Hype Cycle, granted this chart was valid as of 2016 and doesn’t include Cryptos on there, but I reckon it’s still nowhere near the Slope of Enlightenment.
So there you go. Love it or hate it, in summary:
- I’m rather confident that Blockchain and Altcoins are here to stay.
- There’s a lot of potential profits to snatch up.
- Be very careful if you do venture into this field as it’s the Wild Wild West with no regulations, hacks and scams galore!
- ONLY USE RISK CAPITAL! You need to buy, hold and forget with this market. Come back in 3 years and be wowed with your portfolio. It’ll either be empty or you’re a millionaire!
- DO NOT TRADE Cryptos. It’s such an illiquid market that your Stop losses will get spiked out.
- Spread your investments. Trying to pick the next Bitcoin is too tricky, so it’s worth just buying the top 30 or 50 on the ranked list at coingecko.com
- Also it’s worth putting a tiny bit extra into the dirt cheap coins on that list. Like those less than $1. You’ll see that some are still less than $0.01! So $50 in them will get you truck loads. The Risk to Reward is huge on those and guess what kind of coins the public will plough into when they enter the market? The $3000+ Bitcoin or the $0.01 altcoin with good prospects? Yup, the cheap one. Remember, this is a Greater Fools game!
- Once you get your coins, make sure to take them off the exchange and put them into cold storage. Either on a USB stick or print them out on paper.
- EDUCATE YOURSELF. Seriously, just spend an hour a day in learning this stuff so you know how to move coins around, put them into wallets etc and also so that you can fine tune your bullshit detector. It will save your bacon!
Anywho, hope this all helps somewhat and best of luck! 🙂
P.S. I’ve created a Crypto Currency Investing course which covers everything which covers everything from how to Cold Store your Cryptos to buying the right ones!