Isaac Newton, South Sea Company and Bitcoin

Here it is an interesting story from 1720 and surprisingly it reminds today Bitcoin traders, investors or let me say “dreamers”.

Mr. Isaac Newton decided to invest South Sea Company end of April 1720. According to Richard S. Dale (The first Crash) Newton’s entering price is 350 (Pounds), he made all the way up money since 700 (pounds) and exit in June with doubling his money, around 7.000 pounds. With today’s value he made more than a million dollars in three months. Not so far from tulip mania, just 83 years later, he made a fortune as many others made it in 1637.

The price of Bitcoin has risen to about ten times in seven months. Bitcoin also began to decline on the day it started trading on futures markets. Let’s compare both of price action; South Sea Co. is on left side and Bitcoin is on the Right side.

After this point it starts to be interesting. Mr. Newton spends a month outside with his fortune, but he couldn’t stand so much as price move 950 pounds. He entered his favorite stock again end of August with 800 pounds. Price has never touched 1.000 pounds; it turned down from 950 as you can see on South Sea company price chart (chart from Peter Garber’s book). We do know that were Mr. Newton enter second time, but we don’t know his second exit point. All we know is he lost around 20.000 pounds (Around 3 million dollars today’s value) and he commented that with the words;

“I could calculate the motions of the heavenly bodies, but not the madness of the people.”

This has happened 300 years ago. Moreover, investor is one of the most brilliant minds for all our history. He is Newton, still we are living with his rules that he founded. How it is possible that it happened to such a clever scientist?

Have you ever trade with Bitcoin? Can you explain what was happened to you? Of course 99% of Bitcoin trader bought Bitcoin as it is 100 usd and exit their position around 19.000 usd even I am sure most of Bitcoin investor was available to enter short position at futures market with 20.000 usd and they are still printing money (as Bitcoin futures push under 9.000) but I want to talk about rest of %1 whom enter the position top and still keeping and losing their money.

I am sure there are a few Bitcoin players who did exactly same way with Mr. Newton. Don’t worry also I know this is not you or me, some other traders. Why even one of the most clever one can acting like that?

Because we are human, that’s why it happens all the time again and again. Here it is answer! From another book which was written 100 years ago, reminiscences of a stock operator;

“The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you. You hope that every day will be the last day—and you lose more than you should had you not listened to hope—to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.

I have been in the speculative game ever since I was fourteen. It is all I have ever done. I think I know what I am talking about. And the conclusion that I have reached after nearly thirty years of constant trading, both on a shoestring and with millions of dollars back of me, is this: A man may beat a stock or a group at a certain time, but no man living can beat the stock market! A man may make money out of individual deals in cotton or grain, but no man can beat the cotton market or the grain market. It’s like the track. A man may beat a horse race, but he cannot beat horse racing.”

- Jesse Lauriston Livermore

Every one of day I open my LinkedIn account and I saw one or two post about Bitcoin. How price will start to rocketing again or movement will jump to another crypto currency. I will not try to guess future or any other things such as price but let me say a few things on reality;

• No one knows what will happen in future.
• If someone needs to sell, they need buyer. If they don’t want the price will fall further with their selling orders, they have to say others "it is big deal to buy today".
• Based on COT (Commitments of traders) report on U.S. Commodity Futures Trading Commission website, we can say leveraged funds have short and nonreportables have long position. There are no dealer, no asset managers which has bitcoin contract.
• Price is currently going down. If you are in long position you afraid and your human nature keep you hope!

Rest of it will be just “a comment”

Serkan Tar?k Erkan

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EDIT (1 Jan. 2019) No-one knows where it will be end a price action. If there is a trend you can rely on just on this trend.

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Richard S. Dale - The first Crash

Peter Garber - Famous First Bubbles

Edwin Lefèvre - reminiscences of a stock operator