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The Rise and Fall (and Rise Again?) of Bitcoin

The Rise and Fall (and Rise Again?) of Bitcoin
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By    |   Wednesday, 21 February 2018 10:39 AM

This wasn’t supposed to happen. As this article is written, Bitcoin is trading around $11,200. It’s up from breaking the $6000 barrier, but this could well be a dead cat bounce. That’s down from nearly $20,000 in mid December. After all, everyone knows that Bitcoin only goes up. Just like the stock market and housing prices. What gives? What’s happened in cryptocurrencies was completely predictable. In fact, I wrote an article about this very scenario back on December 25, 2017.

Of course no one listened, because when you’re under the influence of dopamine (a powerful neurotransmitter) you’re unable to listen to reason and act accordingly. Effortlessly making money in a bubble is quite gratifying and euphoria inducing. No one wants to come down from the high, you want it to keep going forever. But nothing lasts forever, especially financial driven manias. Just ask the tulip farmers in Holland.

Bitcoin and all of its Johnny Come Lately followers are in for some more tough times ahead. If it retraces 80-90 percent of its gains the past year, that will put it in a range of $3800-5600. Such a pullback would not be out of the realm of experience. When a bubble pops, it’s look out below.

There were many other signs that this crypto crash was coming. There were 4 major negative stories running in the media prior to the crash. While these articles didn’t cause it, they were indicative of a shift in the MSM media narrative. Until recently, the media treated the emerging cryptocurrency marketplace as an oddity or a curiosity. It was the province of millenials and geeks. It wasn’t to be taken seriously. But suddenly all that changed. First, BOA, JP Morgan Chase, Citibank and others stopped allowing credit card purchases of cryptocurrencies. Next, there was a stink raised about the North American Bitcoin Conference’s networking event at a Miami strip club. A NY Times story appeared on 1-31-18 “Worries Grow The Price of Bitcoin is Being Propped Up. And a scholarly paper was released early in the month detailing manipulation that occured when Bitcoin went from $150 to $1000 prior to the collapse of the Mt. Gox exchange. On February 6, 2018 the NY Times posted another article As Bitcoin Bubble Loses Air, Frauds and Flaws Rise to Surface.

Were these articles random or happenstance? Well coincidences do happen. While proof is lacking, there’s an argument to be made that the Bitcoin crash was clearly orchestrated between the government and the media. High profile investigations, pump and dumps taking place all over, and the delayed realization that maybe these cryptocurrencies are really are a threat to the central banks’ monopoly power to issue currency, may all have contributed to the takedown. The only surprise is that Bitcoin has retained as much of its value as it has.

But what about the future? Is this the final curtain for cryptocurrencies? Are they entering a more mature phase that will enable them to go mainstream? Can governments effectively regulate these digital currencies or do they even want them to exist? Cryptocurrencies are going to be with us for a long time to come. They exist because they address people’s needs that government issued fiat currency can’t. Fears of currency instability, the desire to lower transaction costs, the desire for private currencies that are free of government manipulation are just a few reasons why cryptos came into existence. These reasons have not disappeared simply because the Bitcoin Bubble has popped. Rather, they will drive crypto entrepreneurs to seek out better ways of insuring value and prices. Currently, several gold-backed blockchain tokens are in the works. They will provide tokens backed up by provable gold reserves kept in jurisdictions that are free from the fear of confiscation. This means that there will actually be cryptocurrencies that have asset backing, much like the US Dollar was until 1971. This should act to stabilize the market and create new confidence.

In addition, the blockchain will enable many of today’s companies and assets to be tokenized and easily traded. This will eliminate a major share of Wall Street’s profitability and open the markets up to many other participants. It’s not going to be a pretty process, but over time the market will drive out the charlatans and it will become a vibrant place for raising capital. The current crash simply marks a transition to the next phase of cryptocurrencies. Don’t be surprised to see other cryptos surpass and supplant Bitcoin.

Kerry Lutz has been a student of Austrian Economics since 1977. While attending Pace University, he stumbled upon an extensive cache of Austrian Economic Literature in a dark, musty, abandoned section of the school’s library. After graduating from The New York Law School, he became an attorney and life long serial entrepreneur. His diverse career has included: running a legal printing company, practicing commercial law and litigation and founding a successful distressed asset investment company.

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The Rise and Fall (and Rise Again?) of Bitcoin
rise, fall, bitcoin, price, cryptocurrency
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2018-39-21
Wednesday, 21 February 2018 10:39 AM
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