These indicators point to a bubble in Bitcoin and other CryptoCurrencies (part 2)
The mechanism of bubbles is that investors cause great inflation in the stock prices of companies of by dumping their money almost blindly into companies without proper due diligence. The herd effect.. In my modest opinion, this is something that is happening right now.
This last paragraph brings us to the third and final factor (among the main ones): the rotation of the demand for alternative secondary assets, once the main assets have reached a point of saturation in the market. Obviously, the rotation is occurring with all those successful outflows. However, this latter factor also serves as an indicator of the maturity of the bubble, since it usually occurs in the final stages of the rise before the puncture. Remember that when chips come up like foam, you can be sure that the stock market rally is reaching its most dangerous phase.
And what will the puncture be like?
To the great concentration of Bitcoiners that we mentioned before that supposes an important embalmed supply, the technical and operational limitations are united.
We also have the fact that many operators of Bitcoins in many cases do not reach the availability or scalability of operations of traditional banking, with operational problems such as those suffered by one of the main operators Bitfinex.
However, I would like to point out that, in this analysis, we are applying tools from the past to detect bubbles of the future, and that the future financial bubbles will change in form, but not in depth: bubbles are sure to continue – human nature is behind them.
High doses of passionate and irrational ambition will continue to appear every few years, but in a new economy they will manifest themselves in new and different ways that we still do not know today. This is an approximate exercise, with the sole aim of alerting them to what may be just around the corner. Caution and not chasing after rising prices are one of the best advisers in the markets.
Do not worry if you did not go into Bitcoin when it was listed for pennies: entering now at current prices will not make those prices come back, and you do not have to worry too much: markets will always be there offering new investment opportunities. And in any case, remember that Bitcoin is a currency, and however much it rises, you will always be able to use it as such for your transactions at any time.
The big question is no longer whether to puncture the Bitcoin bubble and/or other crypto-currencies: at this point I hope this answer is obvious to you. The big question is whether (and which) will survive the puncture. Probably (some) will survive as the stock market, gold, oil have survived, but what we can not know for sure is to what degree these crypto currencies will recover.
The magnitude of the bump in each case will be determined by the concrete limitations of each crypto-currency, by its true projection to the future, by the bottlenecks generated in each of them, by the magnitude of the preceding rise and of the subsequent stampede.
And let me also include a certain component of chance. No doubt, multiple factors will determine who will survive the calamity, and who will pass to better (or rather a worse) life. If, finally, some crypto-coins crash, remember that the only thing left in your wallet will be a few strings and zeros with a value that can perfectly become an absolute zero.
We can’t conclude this analysis without saying that the only thing I can not tell you when, nor what specifically, but that several crypto-currencies will fall. And although, in principle, Bitcoin is the most consolidated, never disregard the stampede effect, which can pull down even the most liquid asset.
What is clear is that, just because blockchain technology and cryptocurrency in general will probably be the way that we transact in the future, that doesn’t mean that just any crypto-currency has a future. We still have a long way to go. Brace yourselves for the crash.