A new wave of Bitcoin and crypto investors don’t understand why Bitcoin’s price is going down. Now it’s more than 50% off of its high. Bitcoin has a cycle of volatility terms a bull-market cycle with periodic crypto winters.
Even as mainstream interest explodes in Bitcoin as a digital gold, it’s not acting as a hedge against falling equity markets like some had hoped.
Even as mainstream and institutional investors have embraced digital assets, DeFi, NFTs, crypto investing platforms and various distributed ledger startups, why does Bitcoin go down?
Bitcoin is a volatile asset. Since crypto is traded and uncorrelated with anything (some like to correlate it with copper), it’s likely more correlated now in a hyper liquidity environment with BigTech stocks.
Even with more wallets, few people globally actually own any Bitcoin. In 2022 maybe 20% of Americans own some crypto. It’s believed globally around 106 million are Bitcoin owners (this doesn’t mean they own even a single Bitcoin, just some). It’s widely understood Bitcoin ownership is concentrated in a few hands. This means if a huge whale decides to cash out when Bitcoin’s price spikes or when volatility hits, it can cascade down very easily.
The all-time high price of $64,800 was reached on April 14, 2021. This is perhaps the peak of the Second bull market.
The first bull-market was once Bitcoin reached $19,834.93 in 2017. Even that seemed like an absurdly high price for a single Bitcoin. It’s believed each bull cycle Bitcoin and other cryptos reach higher and higher prices. The entire crypto system scaled with Bitcoin in a very centralized way. (Even though the ecosystem is supposed to be able decentralization).
Today Bitcoin’s price is going down quickly in January, 2022. Bitcoin is down yet another 4% today and has gone below $35,000 levels.
So, just how centralized is Bitcoin (and other crypto) ownership? The top 10,000 individual investors in Bitcoin control about one-third of the cryptocurrency in circulation, according to a study by the National Bureau of Economic Research. These are termed whales.
People have a really bad memory. Remember in March, 2020 when stock markets tanked, Bitcoin was only $5,150. It was only until October, 2020 that we saw the start of the Bitcoin 2nd Bull Market, many years after the last peak in 2017. The peaks and valleys of Bitcoin are volatile for very fundamental reasons.
Etheruem’s price in March, 2020 was only $132. Ethereum's price has gone as high as $4,812 (which is ETH's all-time high). You will notice it and other cryptos follows Bitcoin’s bizarre historic patterns.
Bitcoin is a bit of a whale owned momentum play. New retail investors can be pawned by more experienced crypto traders. They understand Bitcoin’s market cycle of volatility. They know how to pump an alt crypto to levels that aren’t sustainable. Sometimes sentiment drives up a particular crypto to shady levels.
It’s only since December, 2020 that Bitcoin going over $20,000 was a normal event. But like so many stocks during that liquidity pumped era, so many IPOs, SPACs and meme-stocks it wasn’t a new normal at all but just a momentum of the Fed injecting 30% more liquidity than was in the system before. It was a gigantic pop.
The truth is Bitcoin is among the most centralized ownership schemes of all-time. You might call it the ultimate ponzi-scheme. For instance, the top 1,000 individual investors controlled about 3 million Bitcoin, and the (REAL) concentration could be even greater.
In 2021 it’s clear Billionaires got into crypto in a major way. They will also buy it up when its price also faces a correction or what we term mean reversion. This is because with more mainstream and institutional investors, crypto is a new way for the rich to get richer that’s more efficient than even stocks.
Bitcoin’s price plunged below $35,000 several times Saturday, extending a slide that started when it dropped below $40,000 Thursday evening. It’s not as if we haven’t seen this before, we know Bitcoin and crypto are volatile digital assets. When you aren’t correlated to anything, supply and demand is driven mostly by sentiment. In this world sentiment is just a name for manipulation. Weirdly crypto bulls and Bitcoin HODLers don’t like to admit this, but what do they actually know?
How Bitcoin is mined is even more concentrated. The concentration of miners is even more profound, data shows. NBER found that the top 10% of miners control 90% of the Bitcoin mining capacity, and just 0.1% (about 50 miners) control 50% of mining capacity.
That Bitcoin is actually declining as BigTech stocks and the NASDAQ is in correction mode proves that it’s a sentiment driven asset. If it were a hedge against inflation, it would be going up to $100,000 instead. Bitcoin stays true to its historical cycle, so study its 5 or 10-year chart if you want to understand how it works. History remains the best predictor in most things of future behavior.
The irony is mean reversion for Bitcoin is more sudden, dramatic and extreme. Bitcoin is down 28% in the last month, almost like a Cathie Wood ETF. ARK Innovation ETF is down 27.8%, coincidence? The same types of investors are likely manipulating the price of both “investment” categories. The Billionaires, the hedge funds, the Wall Street pros.
It appears that not even Bitcoin can fight the Fed.
Is Bitcoin really a hedge against inflation as we were told?
What would you do if you thought Bitcoin might be going down to $15,000 or less?
Frankly major institutional investors also understand a new threat to Crypto. Additionally, there’s concern over the potential for more cryptocurrency regulation in the U.S., as well as how the Federal Reserve potentially dialing back its monetary policy would impact the overall market.
Bitcoin bulls also say you should hold even in these incredible dives. This dip isn’t unusual for bitcoin; cryptocurrencies are known for their volatility. As quickly as prices rise, they can tumble back down. Because of this, experts say it’s important to consider if you can handle the ups and downs before investing in bitcoin or any other cryptocurrency.
I don’t know who would want to hold a fastly declining asset, no matter what it is. If I bought Bitcoin at $65,000 and it goes down to $5,000 I won’t be feeling so great. I’m sure this actually happens a lot to real people, as we buy based on an emotion and not always with considerable due diligence.
The highest Bitcoin rages in optimistic glee, the more silly the decline appears. Technically, Bitcoin is off to its worst annual start since the dawn of crypto. I don’t own any Bitcoin (nor if I did would I buy at the peak of a cycle), timing markets is for the fools.
Bitcoin, created in the wake of the 2008 global financial crisis by an anonymous individual or group that went by Satoshi Nakamoto, has still gained almost 500 per cent since the end of 2019. It first began trading in 2009 and pricing information from during the early days is limited.
Got to love something so hot and cold, so volatile and that melts the hearts of young people who want to rebel against capitalism itself. Funny how Billionaires can hack it like a ponzi scheme for profit. Ironic that Bitcoin has become such a centralized asset, the headline of Silicon Valley tycoons and internet tyrants we have been trained to love.