Bitcoin Recoils After Getting Close to $40000 Again; Other Major Coins Follow Suit - A Lesson In Volatility
W. Paul Alexander
Better Call Paul Blog
Latest post is now published here: Losers from 01/16-01/17 | Better Call Paul Blog
Well, everyone, just 5 hours after posting an update article (6 AM on 01/15/2021) in which I discussed the bounce back in price we were seeing after the sharp downturn last week that saw BTC lose over 25% of its value.
As of this morning, we were getting close to breaking through $40,000 BTC/USD, which is where we were before the crash last week. Now, as you can see in the widgets below, we are experiencing another small downturn, right around 5-10% on major coins and around 8% for BTC.
"What the hell is happening?", you may be asking yourself. "Didn't all the experts say that now is the best time to buy and hold?"
Here's what's going on. Bitcoin's initial aim was to become a decentralized system of money. However, it's only natural that the larger players begin to invest, the accumulation of the BTC asset itself begins to create entities that have the power to manipulate the market. What is happening now, more than likely, is that some whale has decided he/she wants to buy a little bit more, but at a lower price -- because American Greed is alive and well.
NOTE: Newbies and Whales
There are tons of newbies to the Bitcoin world lately. This is the beginning of mass adoption, as we see news outlets like CNN placing Bitcoin articles in prominent positions on their home page and large institutional investors like Greyscale buying tons of BTC. All of this causes a bad case of FOMO (fear of missing out on the massive profits), which leads new individual investors buying without waiting for the slump, which means that those holding larger amounts get the benefits of the newbie's entry as resistance is eaten up and new price records are broken.
Principle No 1: The Whales Are Not Your Friends
So, let's assume Mr. John Banksalot is a BTC whale. I mean, this dude has more BTC accumulated that Satoshi himself. Hell, he might even be Satoshi. Whatever the case, Banksalot is thrilled with the recent price reaching $40,000, but he is not happy with the billions he has made from his stash and wants to increase his holdings. So, instead of buying at the $40,000 price, Banksalot initiates a SELL at $40,000 for what would look like a huge amount of BTC to you and me (but just a drop in the bucket for Banksalot), and it immediately induced panic. The newbies start to have buyers' remorse, so they sell the BTC they just bought at a price around 1/8 lower than they paid for it because they fear they will lose more if they stay. This starts a chain reaction, with many BTC being sold back at prices lower than they were bought at, and the newbies leave the market. This sell-off will bring the price of BTC down -- just like we are seeing today -- for a brief period, while the Banksalots of the world swoop in and buy up all they can at these new discounted prices. This leads us to our next principle...
Principle No. 2: Trading On Emotion Is Incompatible With Profit
This is a lesson in volatility, folks, and it is something that we deal with each and every day in the crypto universe. This great article from Investopedia explains the reasons for BTC's volatility, including uncertainly about future value, Bitcoin's perceived value, and negative market news. This uncertainly is one of the key components of "FUD," along with Fear being the other. Both fear and uncertainly are negative emotions that have synergy when applied together, which can make the price of any cryptocurrency soar to new heights and drop to new lows. For an example of this, you only need to look at the recent price swings surrounding Ripple (XRP), due almost entirely to the prospect of litigation against the company by the SEC.
FUD, as it is known, thus always leads to emotional decisions about your trading activity, and almost always leads to one making the wrong decision because of said emotions. All of us have been guilty of emotional trading at some point in time. Those who have been around for a very long time
Principle No. 3: Over time, Bitcoin Will Only Appreciate
Volatility may be a constant in the cryptocurrency world, but over the long haul, coins like Bitcoin and Ethereum will only appreciate in value. Sure, there may be times that volatility causes huge swings and depreciation, but Bitcoin is now an institutional asset. It is even held in reserve by some large financial companies. In the future, we will see two halving events that will literally half the rewards that miners get. This means that, in order to remain profitable, the value of Bitcoin cannot go below a certain level -- that level being the cost of mining -- which will again, only rise as difficulty increases, smaller miners drop out, and institutional mining farms end up
Principle No. 4: Bitcoin will become more and more centralized
This principle is the result of all of the above. As Bitcoin appreciates in value, it will become harder and harder to "buy a bitcoin." Through the process described above, The Whales will eventually consolidate the majority of BTC in circulation among themselves, while smaller traders and investors will still be able to get it, but fractionally only. Think about it. Bitcoin is currently close to 15x more valuable than gold, the world's reserve "safe haven" asset. As the price of an individual Bitcoin reaches 6 figures, don't be surprised if there are several more pumps along the way followed by small crashes like we saw last week. As I mentioned above, each time this happens, more individuals lose money while institutions make their buys on the heels of the losses incurred by FUD-panicked sellers. Each time this happens, Bitcoin becomes less and less decentralized. This trend will continue.
Now, I said all of that because I felt it necessary to explain why the prices I listed in my article from 5 hours ago are now dramatically decreased, with Bitcoin losing around 8% of its value since this morning, and all of the other coins I reviewed this morning suffering a similar drop, as you can see in the widgets in the original article below. When I wrote the article, BTC was on the rebound, closing in on $39K, and it's now sitting around $33K.
I urge all newbies to crypto to read both of these articles and really think about it before you listen to any FUD and sell off the crypto you just bought. Hold onto it -- you will not be sorry. Do not allow your emotions to lead you down a path of loss, and instead, consider the reasons why Bitcoin will only appreciate over time and make the decision as to whether or not you can stick it out.
1. Alexander, W. (2021). Better Call Paul Blog: "Bitcoin Stares Down The Barrel At $40,000". Retrieved from https://www.publish0x.com/better-call-paul/bitcoin-stares-down-the-barrel-of-dollar-40000-xjmoqqz.
2. Reiff, N. (2020). Investopedia: "Why Bitcoin Is So Volatile." Retrieved from https://www.investopedia.com/articles/investing/052014/why-bitcoins-value-so-volatile.asp.
3. Alexander, W. (2021). Better Call Paul Blog: "SEC Lawsuit Could End Ripple Altogether." Retrieved from https://www.publish0x.com/better-call-paul/sec-lawsuit-has-a-high-potential-to-end-ripple-altogether-xvwwnjy.
4. Alexander W. (2021). Better Call Paul Blog: "Trump Becomes First President Impeached Twice; Crypto Doesn't Care." Reference article with full text included below.
Original Article Posted 5 Hours Ago
President Donald Trump Becomes First President Impeached Twice After House Votes to Impeach
W. Paul Alexander
Better Call Paul Blog
[WASHINGTON, D.C. | 01/13/2021 @ 7:15 PM]
No matter what happens from here on out, Donald Trump cemented his name in history today as he becomes the first president in the nations almost 250-year history to be impeached twice. The impeachment resolution passed a vote in the house by a healthy margin and was joined by 10 Republicans who say that after the events on January 6, 2021 that escalated to the point of insurrection as an angry pro-Trump mob breached 4 layers of security and ran rampant in the Capitol -- culminating in the loss of at least 5 lives -- that they can no longer support Trump remaining in office, even for the week that he has left.
So, as a taxpaying American, you probably don't understand why our elected representatives would spent tax dollars holding a second impeachment trial for a man that will be leaving office in 7 days. That's probably the most frequent question I've been asked in the last week in the aftermath of the Capitol attack and the removal discussions that almost immediately followed the carnage.
Well, as I described in an earlier article, if the Congress so chooses, they can add extra conditions beyond just the immediate removal from office that comes from an impeachment conviction, such as stipulating that Trump never hold public office again, or that he forego his salary; or any other benefit that may be available to him not protected under statute, such as by the Former President's Act, which allows former presidents life-long Secret Service protection.
In said article, I also published the full text of the Article of Impeachment, so we know that they were already seeking to prohibit him from seeking office in the future, but at that time, the vote had not been had. We now know that the resolution passed, and Donald Trump has been impeached for the second time -- the only US President in history to have that dubious distinction. This does not mean that he has been removed from office -- it means that the House of Representatives has approved the Resolution, which has the effect of starting the process by which the Senate receives such Articles and proceeds to trial.
Mitch McConnell, for one of his last acts as Senate Majority Leader, has rebuffed calls to call the Senate back early to begin the Senate trial before Trump's term ends on January 20, 2021 -- in about 5 1/2 days. This means that Trump's Senate trial will occur after Biden has taken office, so the main consequences will be the future ones listed above.
Crypto Doesn't Really Care About Donald Trump
Political news like this used to have massive effects on traditional stock markets, with news that is bad for business exerting negative price swings. This does not appear to be the case anymore, as Bitcoin and others have already recovered from their dip last week, as so:
Bitcoin, which crossed the $40,000 USD price point before a correction that saw prices swing briefly down to the low-30's. In the time since, Bitcoin has been hovering around $33-35K, but has now recovered and is about to cross $40K again. What's interesting here is that the market dip didn't even break Bitcoin's parabolic upward trend, which is what Bitcoin's price history looks like since the bull run began. Many people are prediction six-figure Bitcoin soon; I think that it will at least his $50,000 very soon. From there, we could see the whales initiate another correction so they can pick up a "low" price before not having the chance to do so again. One prediction I'm very, very positive of -- I don't think we'll ever see sub-$20K Bitcoin ever again.
During the aforementioned dip last week, Ethereum fell from around $1300 to around $1050. As far as I know, though, it did not fall under $1000, and I don't think it ever will again. Keep in mind, before this current bull run, sub-$300 ETH was possible, so those who bought in then and held are really loving the 400% increase in price.
Stellar (XLM) is quickly becoming one of the "buy" coins, in my opinion. Last week, I allocated 8.8% of my portfolio to XLM and I think that it will pay off. One of the main reasons for this is that it is becoming a first-line choice for a platform for many government central bank digital currencies (CBDC). Remember, CBDCs are essentially blockchain projects but are centralized and in the control of a nation's central bank, which causes all sorts of issues among a community founded on decentralization. However, as we've learned lately -- among large projects, decentralization is a myth.
In the case of Stellar (XLM), Ukraine has just signed a contract with the foundation behind Stellar to develop the Ukrainian CBDC on the Stellar blockchain. That's all I needed to know, really -- as once a project has a government sponsor, it will see widespread adoption -- the goal we've all shared since the beginning. I predict that we will see other nations also adopt the Stellar blockchain, following in Ukraine's footsteps.
Bitcoin Cash, the most popular and longest-lasting hard fork of Bitcoin, has breached the very important $500 threshold. Of course, this is nowhere near and all-time high for BCH, which was $3,719 during the 2017 bull market, which also has a great deal to do with the value of BTC at the time BCH was forked. It has remained a solid project, with platforms like read.cash making a great use case for the BTC that tries to imitate the spirit of cash, and seeing it go past $500 already is very promising.
That about covers it for now. As always, comments are welcome! I will do my best to personally reply to each question/comment you all leave!