The biggest asset bubble in history
A market I have not touched upon in recent months is Bitcoin, a cryptocurrency.
This week I will review some of my past columns about Bitcoin and bring everyone up to date about what that mysterious market has been doing this year and outlook for values moving forward. But before I review some of my past comments and thoughts about Bitcoin, understand that this year alone it has dropped 48% in value.
On January 19, in column entitled, “Finally Popped” I stated,. “The hottest topic in the world of investing and trading is cryptocurrencies such as Bitcoin. No other market in the Big Four: stocks, bonds, currencies and commodities is discussed more often, investigated or envied more than cryptocurrencies that did not even exist until 7 year ago. And because a handful of cryptocurrencies have improved a kazllion percent, or so, everyone now wants a piece of the action.”
And in the final paragraph from my January 19 column I wrote, ” I am not in the camp that believes cryptocurrencies are anything other than a bubble. Based on history, past and present, it does indeed appear that cryptocurrencies have finally popped.”
On December 18, 2017, Bitcoin topped out at approximately $20,500 each but in early February, slumped to $6200.
From the February low, the market rallied sharply as bulls viewed the break as a buying opportunity. Over the ensuing weeks, the bulls pushed the market up $11,480 by early March. But once that high was carved out, it was downhill from there with this weeks low approximately $6140.
With Bitcoin in a world of hurt, Goldman Sachs weighed in on the mysterious market and posted an article on Business Insider.com entitled, “Bitcoin is never coming back.”
The reasoning G-S used to make such a bold forecast was as follows, “We expect further declines in the future given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency: they are neither a medium of exchange, nor a unit of measurement, nor a store of value.”
In my weekly column from February 23, a short time before Bitcoin hit a high of $11,480 I wrote about a, “deep pocketed investor that bought nearly $400 million in Bitcoin between February 9 and 12. The investor already had a Bitcoin balance of 55,000 and his new purchases pushed his total holding to more than 96,000. I also disclosed his identity was known because his Bitcoin address was, “ 3Cbq7aT1Y8kMxWLbitaG7yT6bPbKChq64.” Yes, it is true I made his address a household name. Shame on me!
Each day this week and in particular since Goldman Sachs “badmouthed” Bitcoin the market has been leaking badly. The weakness has become so pronounced that the market psychology has turned ice cold bearish. Most that follow the whims and ways of Bitcoin now believe that any decline in value under $6000 level will bring forth a total collapse. And the low this week is $6145 each.
My February 23 column, “The Cat Is Out Of The Bag for 3Cbq7aT1Y8kMxWLbitaG7yT6bPbKChq64”, I wrote the following, “Daily, I watch the Big Four: stocks, bonds, currencies and commodities trip the light fantastic (to dance nimbly or lightly) trying to figure out which way values will move in the future. Over the past few several years, bitcoin and other cryptocurrencies have been a total mystery to me. I do not understand what makes those markets rise. Or fall. I do not understand the psychology of the crypto bulls.”
“Here are the five largest asset bubbles in history. The Dutch Tulip Bubble of the 1630’s: The South Sea Bubble of the 1720’s: Japan’s Real Estate and Stock Market Bubble of 1990’s and The Dot-Com Bubble that burst in March, 2000.” And if Bitcoin drops below the $6100 level it will join the ranks as one of the largest asset bubbles in history.
As I stated above, I do not understand what makes cryptocurrencies or Bitcoin rise or fall. But I do know history. And for years, history has suggested loudly that Bitcoin is the largest asset bubble in all history.
If you wish to learn some history about markets go to www.commodityinsite.com. And take note of the special offer to those that actually buy my book, “Haunted By Markets.”
Moving forward, do not let history catch you by surprise if trading or investing, in the Big Four: stocks, bonds, currencies or commodities. Know your history!