The animal spirits are strong in Bitcoin as prices hit >$30k and news and social discussions around it reach fevered pitch. The Bitcoin prophets can be found everywhere preaching to their flocks about the imminent monetary apocalypse and the salvation to be found from the digital ark which will save and even make them rich at $200k, $400k and even millions of today’s USD value.
Here's the truth: 1) most people buy Bitcoin because they think they'll get rich, not because they care or need to protect their wealth, 2) humans like to act as a herd (just look at the global toilet paper panic this year lol), and 3) people tend to extrapolate current conditions forwards perpetually. Prices going parabolic and the enormous build up of sentiment should be a cause for Fear, not Greed.
I cannot think of a single instance in history when a scheme promising astronomical, quick and easy riches targeting the Masses has turned out to be true and sustainable. The capitalist system concentrates wealth and rewards the Few for the Productive assets they run and own. Pure safe haven/storage assets rarely change throughout history and remain a side attraction. Therefore it seems to me the sudden mass creation or transfer of wealth towards the common people (via crypto) is as likely to succeed as the idea of giving money away = alleviation of global poverty.
Here's another truth: governments will do everything they can to preserve their powers with the Monetary Power key among them. The foundations of Bitcoin and other cryptocurrencies are laws, policing and financial structures which provide the electricity, computing power and Exchanges. Therefore governments retain absolute control over their population's interactions. China's ban is a demonstration of this absolute power. There is no reason for any government to erode their monetary powers - if the US government prints towards hyper-inflation, do you think they'll want any wealth escape channels? The rise of digital versions of their home currencies make it even less likely. Western governments will dress up the tightening noose on cryptocurrencies as legislation such as anti-money laundering, taxation, securities fraud, etc but the direction is the same: stunting and possibly ending these risks. A separate example: XRP was a fledgling risk to SWIFT, anyone still want to touch XRP now? Furthermore, blockchain technology relies on distributed computing power and getting >51% is effectively being handed the keys to Fort Knox. Which major government wants to be exposed to that risk (or entering that arms race) or for their population?
The conclusion I'm left with is Bitcoin is an idealistic concept dreamed up by armchair Fight Club fans and peddled by pyramid scheme planners. It promises a solution to something that wasn't really a problem (wealth storage, financial flows) and to protect against a risk that isn't really a risk (sudden mass loss of purchasing power in top economies). Even the blockchain technology built on distributed computing power faces eventual technological redundancy with quantum computing.
Price can continue to rise because trading/manipulation back and forwards on the edges is sufficient, but cashing out in size will become increasingly hard. HOWEVER HIGHER PRICES DOES NOT EQUAL PROOF OF LEGITIMACY. This game of musical chairs is in the same design as the Dutch Tulip mania: then as now, people only care about becoming rich in USD/Dutch Guilders and Sensible Monetary Spending/Pretty Tulips was just the excuse. Of course Greed can inflate these bubbles well beyond imagining (re-enforcing false security) and some people will undoubtedly become rich even when it ends just like the Dutch Tulip craze but these are the Few, not the Masses who will eventually be left holding the bag. To have a good chance of remaining rich on Bitcoin/other cryptocurrencies one needs to get out early or ride the bubble with key advantages like Druckenmiller: a Superior Trader or a Supplier of Pickaxes (to the goldrush): the Blackrocks, Bitmains or Bitmexes.
I believe Bitcoin is a symptom of the times, not the solution - a reflection of the speculative and liquidity excesses rather than protection against a collapse. For any readers holding Bitcoin today, firstly congratulations, I'm happy for you and you have my respect for putting your money where your convictions lie. But consider these sincere suggestions for the future:
Keep your speculation to a small % of your wealth. Don't add further
Put on a wide stop-loss limit sell order on some or all of your position: either an absolute number or a moving %. Prices will move dramatically so don't expect to time the top
Watch for further legislation against cryptocurrencies especially those originating from the US. Curbing speculative excesses will become increasingly prioritised as prices rises and participation increases. Tightening anti-money laundering laws is the most likely. Run at the first signs
Lastly don't be a Bitcoin fanatic, if prices fall a lot then be content selling out, even if it is early. Doing another round of HODL seems increasingly risky given the pool of future entrants is shrinking, government attention is increasing and Bitcoin promises is down to the last one: Scarcity; the others like Anonymity, Security (storage), Efficiency (transfer costs) and Acceptability are mostly gone or heavily eroded.
I believe hard work, superior analysis and prudent use of risk builds sustainable long term wealth. There are enough opportunities in the world that I don't need to swing for this one and I can live with that even if I am eventually proven wrong. Good luck!
Comments