I have a lot of friends who have gotten wealthy by getting into Bitcoin and Ether at the time both were very cheap and experimental. And that made me wonder for the past few years about them.
I'll be referring to all cryptocurrencies as bitcoin just to try and capture the essence of the beast without diving too deep into nuances and details.
Do they have any value?
While the value of bitcoin is clear for some, others will strongly argue that it's just one big scam. My answer would be is it depends on your time frame. Yes, at the moment, without a doubt, bitcoin has value. But the value does not come from its proof of work or the millions of engineering hours spent thinking and developing the echo system around it. Its value comes from the fact that some people have agreed to use it as a currency to transact in. To the satisfaction of the bitcoin community, there are quite a lot of people at the moment who will be happy to buy your bitcoin from you all over the world. That means you can easily transfer your money from country to country with little regulation, people who don't have access to banking can finally have savings accounts, and merchants who were restricted by the banking system can finally transact and make business. And in a world that's being more and more chocked with rules and regulation, that is not something to be taken lightly.
So at the moment, without a doubt, Bitcoin has value. But what about tomorrow?
Can it store my wealth for the long term?
The answer is... Maybe. Bitcoin will be able to store your bitcoins for the long term for sure. But will these Bitcoins will be worth anything?
The good Scenario - let's look at the good scenario. US dollar collapse (can you call this good?) will immediately lead to a search for an alternative currency to transact in worldwide. At the moment the US banking system is regulating pretty much the entire world. Any bank that's not willing to corporate with USA's regulation is mostly restricted from the banking system, so the hands of everyone's are cuffed - that is until the collapse of the US Dollar. Bitcoin bugs must be thinking by now that "if the US dollar collapses, Bitcoin will become the currency of the world" - Yeah.. maybe, but maybe not. If another bank can offer digital certificates backed by tangible assets that can be easily traded worldwide and transferred from person to person by inputting someone's global ID - you can say bye-bye to Bitcoin. You see, Bitcoin thrives in a regulated environment, but in the good scenarios that the markets will open and trade will flow more freely - people will not have a reason to use alternatives means of banking, they'll just use regular banking. People will trust a centralized or semi-centralized organization that says "Hi we've got 100k tones of gold in our vault, here's a 10gram certificate which you can redeem at these 5 major countries". People will always be suspicious of someone saying "Look, it's a decentralized network, anyone can participate in it, as long as they don't have 50% of the computing power, your Bitcoins are ok, just don't lose this wallet of yours, and don't let anyone know the 12/24 words you had written down on a note somewhere when you opened your account, got it Bronko? you are one of us now."
The bad Scenario - Has anyone forgot about quantum computing? That technology which countries are pouring billions into? One big reason countries are interested in breaking this technology is because they can break the SHA512 encryption algorithm and reverse engineer your private key. And basically destroy the entire Bitcoin network. A participant of the network has no reason to destroy his network, but a government entity or someone from outside has a lot of interest in sabotaging it's competition. And the worst thing about quantum computing is that it'll take much longer for it to become a common technology (if at all) that can be used by anyone. That means there is an asymetric power for big entities over smaller players, exactly the opposite power dynamic that created Bitcoin in the first place.
The Meh Scenario - No Major breakthroughs in quantum computing will happen, the markets will keep being as regulated or worse as they are today. In that case Bitcoin has a future - but you are betting on a dark world.
Can I trade them successfully?
Yeah of course! Bitcoin is a great vehicle for trading 24/7 market, high liquidity, big exchanges with low fees - it's a trader's heaven.
Near future prediction?
Some.. I have been thinking for the past week if I can come up with a person or an entity that will bid bitcoin above it's 20k ceiling. So if we want Bitcoin's price the exceed 20k, we need some major force to come and hit the bid at 20k, 21k, 22k, 23k and so on.. I can't in my life calculate a plausible scenario that it will happen in a big scale. We already had few bids above the record of 2017 - but these were few, and price quickly went down. Most likely few traders that got prematurely excited that some trend line was broken. But in order to move the price seriously above the previous limit, we need serious money to come. Raul Pal likes to say that this is the opportunity of the small investor to front-run larger investors which can't buy bitcoin just due to regulation and that ETFs, Pension funds, Hedge funds, they'll all jump into Bitcoin just because of FOMO. Notice NON of the organization specified have any interested to play outside of the government/regulation rules, their only reason to buy Bitcoin is because of the FOMO. I do think there is some chance these players will join, and maybe they'll be the suckers that will hit the bid at 20k+ price. Who knows.. But if they don't come, we will quickly go back to 8k-10k levels which seem to be sustainable.
Anyway, I think betting short is the right way to go in the next few weeks. you can always put a stop at 20k.
I'll be referring to all cryptocurrencies as bitcoin just to try and capture the essence of the beast without diving too deep into nuances and details.
Do they have any value?
While the value of bitcoin is clear for some, others will strongly argue that it's just one big scam. My answer would be is it depends on your time frame. Yes, at the moment, without a doubt, bitcoin has value. But the value does not come from its proof of work or the millions of engineering hours spent thinking and developing the echo system around it. Its value comes from the fact that some people have agreed to use it as a currency to transact in. To the satisfaction of the bitcoin community, there are quite a lot of people at the moment who will be happy to buy your bitcoin from you all over the world. That means you can easily transfer your money from country to country with little regulation, people who don't have access to banking can finally have savings accounts, and merchants who were restricted by the banking system can finally transact and make business. And in a world that's being more and more chocked with rules and regulation, that is not something to be taken lightly.
So at the moment, without a doubt, Bitcoin has value. But what about tomorrow?
Can it store my wealth for the long term?
The answer is... Maybe. Bitcoin will be able to store your bitcoins for the long term for sure. But will these Bitcoins will be worth anything?
The good Scenario - let's look at the good scenario. US dollar collapse (can you call this good?) will immediately lead to a search for an alternative currency to transact in worldwide. At the moment the US banking system is regulating pretty much the entire world. Any bank that's not willing to corporate with USA's regulation is mostly restricted from the banking system, so the hands of everyone's are cuffed - that is until the collapse of the US Dollar. Bitcoin bugs must be thinking by now that "if the US dollar collapses, Bitcoin will become the currency of the world" - Yeah.. maybe, but maybe not. If another bank can offer digital certificates backed by tangible assets that can be easily traded worldwide and transferred from person to person by inputting someone's global ID - you can say bye-bye to Bitcoin. You see, Bitcoin thrives in a regulated environment, but in the good scenarios that the markets will open and trade will flow more freely - people will not have a reason to use alternatives means of banking, they'll just use regular banking. People will trust a centralized or semi-centralized organization that says "Hi we've got 100k tones of gold in our vault, here's a 10gram certificate which you can redeem at these 5 major countries". People will always be suspicious of someone saying "Look, it's a decentralized network, anyone can participate in it, as long as they don't have 50% of the computing power, your Bitcoins are ok, just don't lose this wallet of yours, and don't let anyone know the 12/24 words you had written down on a note somewhere when you opened your account, got it Bronko? you are one of us now."
The bad Scenario - Has anyone forgot about quantum computing? That technology which countries are pouring billions into? One big reason countries are interested in breaking this technology is because they can break the SHA512 encryption algorithm and reverse engineer your private key. And basically destroy the entire Bitcoin network. A participant of the network has no reason to destroy his network, but a government entity or someone from outside has a lot of interest in sabotaging it's competition. And the worst thing about quantum computing is that it'll take much longer for it to become a common technology (if at all) that can be used by anyone. That means there is an asymetric power for big entities over smaller players, exactly the opposite power dynamic that created Bitcoin in the first place.
The Meh Scenario - No Major breakthroughs in quantum computing will happen, the markets will keep being as regulated or worse as they are today. In that case Bitcoin has a future - but you are betting on a dark world.
Can I trade them successfully?
Yeah of course! Bitcoin is a great vehicle for trading 24/7 market, high liquidity, big exchanges with low fees - it's a trader's heaven.
Near future prediction?
Some.. I have been thinking for the past week if I can come up with a person or an entity that will bid bitcoin above it's 20k ceiling. So if we want Bitcoin's price the exceed 20k, we need some major force to come and hit the bid at 20k, 21k, 22k, 23k and so on.. I can't in my life calculate a plausible scenario that it will happen in a big scale. We already had few bids above the record of 2017 - but these were few, and price quickly went down. Most likely few traders that got prematurely excited that some trend line was broken. But in order to move the price seriously above the previous limit, we need serious money to come. Raul Pal likes to say that this is the opportunity of the small investor to front-run larger investors which can't buy bitcoin just due to regulation and that ETFs, Pension funds, Hedge funds, they'll all jump into Bitcoin just because of FOMO. Notice NON of the organization specified have any interested to play outside of the government/regulation rules, their only reason to buy Bitcoin is because of the FOMO. I do think there is some chance these players will join, and maybe they'll be the suckers that will hit the bid at 20k+ price. Who knows.. But if they don't come, we will quickly go back to 8k-10k levels which seem to be sustainable.
Anyway, I think betting short is the right way to go in the next few weeks. you can always put a stop at 20k.