A Rough Week for Bitcoin As Prices Crash Below $30k
Bitcoin's price collapsed 32% in a week: its decline mimics the collapse in tech stocks
Back Story:??Six months ago, the price of a Bitcoin hit an all-time high of $68k.
As I put this issue of Wiser! to bed, the price has more than halved in value and is down to $28k.
Time to be a?Bear and?cut and run, selling for whatever price you can get? Or be a?Bull?and?"buy the dip", the crypto phrase for buying when Bitcoin's volatility has dragged the price down.
Or is it simply a time to?Hodl, staying calm and hanging on to what you've got??("hodl" is the deliberate misspelling of hold, unique to Bitcoiners who hang on in there for the long term).
Not Just Bitcoin:??In isolation, it would seem that the bottom has (finally) fallen out of the crypto market. Bitcoin is the largest crypto by far, twice as big as the next largest digital currency in Ethereum.
But when Bitcoin sneezes the rest of crypto catches a cold. Bitcoin down 28% on the week compared to 38% for Ethereum. Meanwhile the stablecoins are doing what they are supposed to do and staying roughly flat, ignoring the volatility around them.
Except for Luna.?A brutal lesson in the volatility and risk of cryptocurrency has been learnt this week. ?The stablecoin, Luna, was worth a $121 last month. Today it is worth only a few cents.
But it's not just Bitcoin and the crypto markets that are having a rough ride. Tech stocks are down as well,?which is beautifully illustrated in this video from Bloomberg .
The Question is Why?:??A series of disparate events have come together at the same time. You’ve got rising interest rates combined with rising inflation, the war in Ukraine creates economic uncertainty. There's increased talk of regulation for digital assets and the tech sector.
Then you’ve got Covid lockdowns in China that are severly impacting supply chain, that was still in recovery from the pandemic. Plus there's some inflicted pain in the tech economy, like Apple’s anti-tracking changes in iOS.
The Bull: ???? El Salvador's President Bukele "buys the dip"
Hero or villain?:??President Nayib Bukele tweeted this week that the poorest country in Central America just bought another 500 Bitcoin for $15 million.
This takes the nation’s total to 2,301 according to Bloomberg data (around $70 million at $30k a pop).
President Bukele increased El Salvador's Bitcoin stake as the price dropped earlier in week when trading was nearer $30,000 (down from $40,000 last week). However the price has continued to fall and has bounced back to $28k at time of writing.
"El Salvador just purchased the dip! " he tweeted late Monday, disclosing a purchase of 500 Bitcoin for $30,744 on average. El Salvador has now bought over 2,300 Bitcoins since?the nation made Bitcoin legal tender last year ,
领英推荐
The Bear: ?? Warren Buffet wouldn't buy all the Bitcoin in the world for $25!
History repeated:??It's deja vue all over again from the Sage of Omaha!
Warren Buffett said at last week's Berkshire Hathaway Annual Shareholder meeting that he doesn’t see value in Bitcoin. Buffet's lack of understanding of crypto reminded me of his views on the Internet economy in the 1990s.
I went back over the pre-2000 Shareholder Meetings and found that?in 1998 Buffet said that he wouldn't invest in tech companies because he didn't "understand them ".
"I don’t know what that world (technology) will look like in 10 years. Technology is just something we don’t understand, so we don’t invest in it. Warren Buffett, 1998
It turned out to be a wise strategy for the time, ahead of the overheated?dot.com ?crash of 2000. Back then the true value of Internet stocks was not fully understood and many were being over hyped. Buffett's point is that its not that different in 2022 when it comes to Bitcoin and the broader crypto economy.
Time will tell if he was right. Meanwhile, when it comes to tech stocks, how times have changed?!?Buffet bought an extra $600 million of Apple shares last week ?and now owns over 5% of the most valuable tech company in the world!
"I don’t know what that world (technology) will look like in 10 years. Technology is just something we don’t understand, so we don’t invest in it. Warren Buffett, 1998
As an aside, I noticed that at the same 1998 Shareholder meeting, it was revealed that Buffett had bought 128 million ounces of silver, putting his money into a physical store of value. Maybe there will come a time when he'll put money into a digital store of value like Bitcoin.
$26 in 1910 was worth $1 in 2020
The Hodl: Bitcoin as a deflationary currency
Monetary inflation is a killer, reducing the value of your money over time. This is primarily caused by central banks printing more money and pumping it into the system through a system called "quantitative easing".
By contrast, there is a finite supply of Bitcoin. There will only ever be 21 million Bitcoin (currently there are around 19 million in circulation). Bitcoin is produced by a process called "mining". Every 4 years the number of Bitcoins that can be produced is halved?(known as "halvening").
By the time we get to 2040, all 21 million Bitcoins will have been created and that will be it. No more BTC will be injected into the system and Bitcoin will become a deflationary currency. Coins will be naturally lost and there will be no replacement for them.
This is why Bitcoin is called a deflationary currency: the rate at which money is printed is slower than the rate at which?currency is lost ?or hoarded by investors.
This is one reason why bull case investors see long term value in Bitcoin...as a hedge against inflation.?
The article was first published at //rickhuckstep.com on 12th May 2022.
Wiser! is a free, weekly newsletter that makes sense of the tech economy in simple and engaging language. That eve your mum could understand.