Check out Crypto Corner every week in our Week in Review!
What’s a Bitcoin?
Want to learn more about Bitcoin and cryptocurrency?
Check out Get Irked’s Bitcoin Primer – a quick history of cryptocurrency
Bitcoin’s Road to Nowhere
A meteoric rise from Bitcoin’s inception as little more than an Internet meme to an all-time high of nearly $20,000 led cryptocurrency from the Internet backwaters to the headlines of major media in 2017.
Since then, Bitcoin and its cryptocurrency siblings have become notorious as a punchline for the media and Internet pundits alike, collapsing in value even faster than they rose to stardom.
Rocket to Riches
If you invested in Bitcoin on January 1, 2017, you would have seen profits of nearly 2,000% as you rode from the year’s opening price of $973.37 to Bitcoin’s all-time high of $19,891.99 that December. A $10,000 investment would have been worth $194,362.
Sounds great, right? Definitely. Until you learn what happened next.
Bitcoin’s Crash of 2018
If you didn’t get out at the highs (or, worse, bought in at the highs), 2018 wasn’t good for you.
Bitcoin collapsed in value, dropping from $19,891.99 to a low of $3,128.89 – a collapse of 84.27% in value. In other words, if you invested $10,000 in Bitcoin at its high, you’d have $1,573 at its low.
What the hell happened?!
Just like any new investment, the possibilities of virtual currency with its promises of anonymity and no government control gained significant interest. As early investors entered the space, word quickly spread of the future of cryptocurrency and its potential.
Early investors gave way to speculators who gave way to the general public, greedily jumping into the space in hopes of snagging some of the riches.
Just like a game of musical chairs, once investors started taking their profits, everyone was left trying to find a seat in a land of limited floorspace.
“It’s deja vu all over again” – Remember dot-coms?
In the mid-1990s, the Internet was still a fledgling creation (yes, the Internet was around since the 1960s, but we’re talking the World Wide Web which only started in the early 90s). The possibilities seemed endless with companies starting up all over the place in order to capitalize on the public’s fascination with the space.
Investors and speculators poured money into every new company in hopes that it would become the next big thing. Once reality struck and the public realized that the Internet wasn’t at the stage of development everyone thought it was, investors bailed on their positions causing stock values to implode and taking a great many companies with them.
The Internet’s true rise to domination didn’t happen until the technology developed nearly a decade later in the late 200x’s, maturing into the promises made by the visionaries in the 1990s. Although there were many companies selling promises of snake oil and magic elixirs, there were also companies that offered real value.
Take Amazon.com, for example: Amazon ($AMZN) came public in May 1997 at $2.44 a share, rising more than 46 times in value to $113 in December 1999 before collapsing to a low of $5.51 in October 2001. Skeptics cried out, “See?! Why would we ever think an online bookstore would be worth anything?!”
Now, Amazon is worth between $1,500 and $2,000 a share. The reality wasn’t that Amazon would never be worth its 1999 highs (and more than 10 times more than that), the reality is that everyone was early; the company simply hadn’t grown into the value early speculators were placing on it.
Is the same thing happening for Bitcoin or does the crash spell the end of the public’s temporary fascination with cryptocurrency?
No news is bad news for Bitcoin
Unlike companies like Amazon where value can be determined based on real-world earnings (or the potential of earnings, in some cases), currency of any kind is only worth what the people who use it agree it’s worth.
In Bitcoin’s case, we haven’t agreed on its value, yet.
In the second half of 2018, Bitcoin’s value seemed to stabilize around the $6,000 mark until two warring factions arguing about whose Bitcoin-alternative was better scared those still left in the market, causing the price to crater to nearly $3,000 a coin as the final speculators bailed on their dreams of driving Lamborghinis and bathing in expensive champagne.
To make matters worse, there are no more catalysts on the horizon to lift Bitcoin’s value in a rapid pace:
- Futures trading was supposed to revitalize the space, but it didn’t. The futures market for Bitcoin has been open for more than a year, and although the volatility increased for awhile, the price continued downward and even the volatility disappeared after the crash to $3,100 in November 2018.
- Prior investors in Bitcoin got burned so badly during its 2018 collapse that they won’t likely return the space… ever… much like a generation of investors who got slammed in the 2001 dot-com bust only to get beaten again in the 2008 housing/banking crisis.
- Even more potential investors got scared off by negative news events like a petty fight between two moronic factions causing Bitcoin to lose half its value by arguing over derivative currencies.
- Institutional investors either won’t enter the space because of security concerns over hacked networks or are already involved in the space either through direct investment or investing in companies developing their own blockchains.
A Note On Blockchain Technology
Blockchain technology – the concept on which Bitcoin is based – is very much a real success, however the success of blockchain doesn’t necessarily mean the success of cryptocurrency; the two outcomes are independent – Bitcoin can go to zero while blockchain technology thrives.
There’s No One Left to Buy…
Everyone has heard of Bitcoin and those who were interested are either out for good or they’re still in – there’s no new money for the space.
Bitcoin and its crypto friends won’t see their value skyrocket due to an influx of speculative funds because there’s no one left to speculate who hasn’t already. Any upside relies on new technology and/or catalysts, and there’s nothing out there at the moment.
The Line That Shall Not Be Crossed
With all the news already in the space and no real catalysts on the horizon, Bitcoin and friends have been in an incredibly powerful downtrend since January 2018.
This “Line That Shall Not Be Crossed” – as nicknamed by Get Irked – is shown in the chart below. Bitcoin’s last attempt to cross the line in November 2018 resulted in a loss of 50% of its value in less than a month.
Despite periodic bouts of volatility from time-to-time, Bitcoin’s still trending downward, unable to break a significant bearish trendline with no positivity in the space.
The Bull Case for Bitcoin
At its core, Bitcoin does have lasting value because some people actually use it for its intended purpose – as an actual currency.
Individuals around the world use cryptocurrency for its anonymity and for its independence from any one government. For example, if someone lives in a country whose currency is unstable, Bitcoin provides an alternative that remains independent from the government’s potential collapse or a loss in that country’s currency.
The true potential for Bitcoin and any other cryptocurrency lies in developing a solidified use case. People need to use it. A lot.
More importantly, people will need to use cryptocurrency for more than just speculation or a store of value, they will actually need to use it as an alternative or even a replacement to physical currency, using cryptocurrency to buy goods and services as well as being willing to be paid in cryptocurrency.
Will that happen? Maybe. Maybe not. The space really is in a no man’s land right now.
How to Speculate
We haven’t scared you off, yet? You’re actually interested in lighting your money on fire?
- Do you remember Pets.com – the online retailer who thought shipping 40-pound bags of dog food and cat litter was a way to make money before they collapsed from the weight of shipping costs? Their mascot, a dog hand-puppet, became an Internet meme for the death of all dot-coms.
- How about eToys.com – an online retailer who thought they were a toy store – not the shipping company they actually were – who screwed up their first (and last) Christmas season by missing deliveries and never recovered only to go out of business a few months later? It doesn’t matter what you sell, it matters whether or not you deliver on time.
Scared, yet? No? Okay, fine.
Here’s our view:
There will be many – MANY – cryptocurrencies that are going to go to zero in value.
However, much like Amazon.com, there may also be a few cryptocurrencies that will stick around.
Heck, a few may even increase substantially in value.
However, picking the winners is going to be incredibly tricky, and there’s still the possibility the entire cryptocurrency space will disappear from the face of the Earth.
This is gambling.
Call it “speculation,” if you prefer, but there are no earnings reports and no news events on the horizon at the moment which offer any possibility of saving the cryptocurrency space.
If you have money that you’re willing to throw away – you must fully understand that this is money you need to afford to be able to lose – we would buy Bitcoin (BTC) and only Bitcoin.
Other major cryptocurrencies have possibilities, but Bitcoin is the only “brand name” at this point. As the crypto sector goes, Bitcoin is the “best in breed.”
Accordingly, we would definitely NOT buy in all at once, opting to Buy in Stages.
As much as the HODLers don’t want you to believe, the likelihood Bitcoin is going to crack through $3,000 and drop to lower lows before we see any reversal is very real.
All that being said, Bitcoin’s collapsed before – never this badly, to be sure – but there have been more than a half dozen times in its history where analysts have declared the cryptocurrency dead only to see it rise from the ashes even stronger than it was before.
Get Irked only recommends Coinbase Pro.
Coinbase Pro allows you to place limit orders with no trading fees.
Coinbase Pro’s Fee Structure
As of March 22, 2019, Coinbase started charging trading fees for accounts with less than $50M USD in trading volume every 30 days.
On October 7, 2019, Coinbase doubled the maker fee for the $0k-10k tier, the tier many small speculators would be trading in.
Get Irked prefers Coinbase Pro because they’re insured. This means up to $250,000 of your USD funds are protected in the event of a hack of Coinbase’s servers or should they go out of business. First, sign up at Coinbase.com and then enter pro.coinbase.com to trade.
Referral Bonus: Use our link and we both get $10 after you trade a volume total of $100.00.
CAUTION: Your cryptocurrencies are not insured against someone hacking your account either directly through your login or indirectly through Coinbase’s servers, so you might want to consider keeping your coins “off-the-network” using a crypto wallet.
Why do we recommend Coinbase and not a lesser exchange that doesn’t report to the IRS?
We believe everyone has a social and moral obligation to pay taxes (we’re big fans of roads, emergency services and schools).
The other major benefit Coinbase offers is allowing you to transfer your cryptocurrency holdings out of the brokerage. In other words, you can hold your actual Bitcoin in a digital or hardware wallet in your own possession.
You can “take possession” of your own crypto coins.
“I don’t buy often, but when I do, I buy small.”
You don’t need to buy a whole Bitcoin at a time. You can buy as little as 0.001 BTC at a time. Why buy all at once or buy a large quantity when you can place orders Buying in Stages at increasingly cheaper prices?
Plus, since an exchange like Coinbase charges a percentage instead of a flat fee, there’s no cost advantage of buying all at once like a stock broker which charges $4.95 a trade (buying more reduces the commission cost-per-share in a flat fee scenario) .
What’s the downside to Buying in Stages? If Bitcoin suddenly explodes in value, you’ll miss some of the upside, but wouldn’t you prefer to know that the asset’s actually reversed direction and is increasing in value and not collapsing to zero?
Where Do We Go From Here?
Truly, we don’t believe Bitcoin will ever go to zero. Bitcoin may be worth $10 or $100,000 in ten years and neither outcome would surprise us.
For the moment, however, there’s no news on the horizon and the entire space is trending downward. We don’t advise doing anything in the cryptocurrency space at this time, but if you do, approach any speculation with extreme caution.
As with any investment, you invest at your own risk
and should only risk money you’re willing to lose entirely.
Check out Crypto Corner every week in our Week in Review!
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Disclaimer: Eric "Irk" Jacobson and all other Get Irked contributors are not investment or financial advisers. All strategies, trading ideas, and other information presented comes from non-professional, amateur investors and traders sharing techniques and ideas for general information purposes.
As always, all individuals should consult their financial advisers to determine if an investing idea is right for them. All investing comes with levels of risk with some ideas and strategies carrying more risk than others.
As an individual investor, you are accountable for assessing all risk to determine if the strategy or idea fits with your investment style. All information on Get Irked is presented for educational and informational purposes only.