Bitcoin - a bubble or a hope for decentralized money?

Bitcoin - a bubble or a hope for decentralized money? © Own image

The Bitcoin hype that we have been experiencing since last year has hardly lost any momentum in the new year. There is a gold rush atmosphere and everyone seems to want a piece of the pie. Unfortunately, many investors are blinded by the supposed prospect of quick profits and plunge uninformed into speculative adventures that can result in a rude awakening.

In the meantime, the Bitcoin fever has gripped almost everyone. Price records are breaking, people are buying in at the highest prices - a fatal mistake that often happens. The amateurs - contemptuously called the "shaky hands" by the professionals - do not really get in on their own initiative, but are "let" by the big players like sheep to the trough, where they are then "slaughtered" in rows by extreme price drops. Buy when fear rules, sell when greed rules. The most important thing for an investor is not intellect, but temperament.

"Your temperament should be such that you feel neither great joy when you run with the crowd, nor when you swim against the tide." (Warren Buffet)

Although I am not an opponent of digital currencies, I remain a realist. This includes reading the news between the lines:

On Dec. 18, 2017, the U.S. Securities and Exchange Commission approved a so-called "future" on Bitcoin. A future is a market instrument that can be used to bet on falling or rising prices. The volume of issued futures can be many times larger than the commodity against or on which "bets" are made, and that is exactly what it is then in essence: BETTING. The gullible among the "Bitbugs" thought the price would shoot into infinity and make Lieschen Müller and also Max Mustermann rich - immeasurably rich. And so the Bitcoin finally made its way onto the stock exchanges, because now the big players are also interested in it.

Why am I being so sarcastic?

You see, I have been watching gold professionally for almost 25 years. Again, since the all-time high, the stock markets started to take an interest. What happened? Quite simple: enormous amounts of money were bet on falling prices by the Big 4 major banks. The reaction: the gold price actually fell - the money power of the world's biggest banks has since then repeatedly brought the gold price to its knees and has it under control, as you can see in the weekly COT (trading positions = long/short of the biggest traders) data published. But these players cannot be called gold traders, even if they trade more gold than all the mines in the world produce. Because again, similar to Bitcoin, gold is only traded as paper in the form of futures.

The advantage of futures is that even quantitatively limited goods such as gold, or now bitcoin, can be issued without limit. In the case of gold, this has led to the fact that there are now 250 (!) ounces of "paper gold" per ounce of physical gold. Thus, even a medially hyped sale of several tons of physically actually existing gold influences the gold price in the end as much as the often strained falling sack of rice in China.

Cryptocurrencies: More than just Bitcoin

The big players have almost overlooked the fact that Bitcoin has outgrown its infancy, but at the same time they have recognized with concern the growing popularity of Digicoins, from which they could earn nothing. Nothing was more obvious than to apply the tried and tested recipe that was already used for gold to Bitcoin: Create derivatives on a limited commodity that can be used to indirectly control the object of desire.

And what does the future hold?

At this point, I would like to venture a prediction that almost approaches crystal ball reading: In many cases, one can learn from history, because one factor remains identical in every equation: human greed. The bitcoin price was whipped up in the run-up to the futures awards, only to fall again by almost 30% within a few days. This game will repeat itself a few more times until the "shaky hands" have been driven out of the market and the "strong hands" can gratefully buy up the Bitcoins at favorable prices with funds from the inexhaustible pots of the national banks.

Know your options!

Some smart people did something predictable in advance, they switched the currency from BTC to BitcoinCash - a currency that was created from a split, a so-called hardfork. This influx of buyers has done a lot of good to the price of BCH, for instance, as well as some other cryptocurrencies. Etherium, Ripple, Bitcoin and Iota, for example, have enjoyed major price gains of up to over 800%.

At the moment, Digicoin prices are as nervous as a teenager about to confess his love to the girl of his dreams. An entry into one or the other digital currency can still be quite rewarding, but my tip is:

Don't take those recommended to you by the cab driver or the supermarket clerk, nor those that don't have a market cap and are only recommended as insider tips by blog prophets.

Too big to fail?

Some talk about a speculative bubble, similar to the tulip bubble of 1637, which is certain to burst, while others say "it is too big to fail. We have also heard the latter somewhere before: Didn't the then CEO of Lehmann Brothers say exactly this sentence to the U.S. Congress at a hearing in 2008? And we all know what happened after that.

Again and again, prominent supporters but also opponents of Bitcoin are quoted loudly and widely, causing enormous movements in the prices. This is now an old trick that JP Morgan (with cheap money from the last money supply expansion) used to get into Bitcoin more cheaply after the CEO called Bitcoin a "scam" in the media - which, by the way, he took back again on 9.1 just as ruefully in the media. In times when "fake news" and "alternative facts" have become acceptable in everyday politics, this is no longer a problem.

My personal opinion (I emphasize this PERSONALLY and explicitly that this is NOT AN INVESTMENT ADVICE ) is that it is a fact that Bitcoin was the first currency, and probably will remain so, but the technology behind it is outdated and not suitable to replace even 1% of our usual cash transactions. Other currencies have much more potential here. Which one will prevail in the end remains to be seen. One thing is certain, however: It remains exciting on the cryptocurrency market.

My tips on the subject

  • do not put money, the loss of which can put you in financial straits.
  • do not under any circumstances use money that you have borrowed or borrowed through credit.
  • never put all your eggs in one basket.
  • decide on your coins, and set exact price targets at which you want to sell.
  • they stay cool, even in the face of bad news - that only works with money they don't need.

Remember: Wrong news is dangerous! But wrong interpretation of right news is even more dangerous!

  • keep a cash reserve for favorable purchases.

Buy when fear reigns, sell when greed gets the upper hand.

  • pay attention to the market volume when choosing coins.
  • pay attention to the publishers of the coins - who is behind them?
  • avoid structural distribution systems!!!
  • stay away from apparent "hot tips" that have just come out.
  • forget about "mining" it yourself. That is too expensive in Austria.
  • read forums and blogs about technical background & future developments of the coins.
  • be aware that ANY investment in an intangible asset can mean a total loss.
  • set yourself a realistic selling price and stick to it: Don't get greedy - greed eats brains!
  • also remain faithful to gold - it will always be faithful to you, too.

Finally, I advise to think maturely and independently. No medium reports 100% objectively and neutrally - there are always again interests which stand behind it and sheet lines give!

The bears make headlines, the bulls make money. ("Bears" or "bearish" = falling prices - conversely, "bullish" or "bullish" means rising prices).

Don't buy when the price is lowest, don't sell when it is highest. Only liars can do that.

I would like to conclude with an old stock market saying, of which there are hundreds:

On the stock exchange, two times two is not four, but five minus one - and you have to have the nerve to endure this minus one. (André Kostolany)

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