The thought of investing in a Bitcoin, toeing the $10,000 line, is creating an investor frenzy reminiscent of Microsoft going public. Over $9,000 above its January valuation of $968, the cryptocurrency essentially mined from thin air into existence is enjoying record-setting days that compliment its excessive press coverage. But before investors delve into the world of cryptofinance, a market crash must happen.
Not a bitcoin. This medium is different than silver or futures.
Lauded more than shares of Amazon, a single bitcoin reaching $40,000 or more is possible. Likening this new investment craze to the dot-com bubble (which burst, of course), is more realistic.
Some call Bitcoin’s value a conflated speculation. Believers, miners and those making thousands each day are holding their breath as new highs – and more ‘hating’ – make their way onto global news sites.
Since a Bitcoin is considered ‘self-sustained’ value, storing real-world capital is far too risky for seasoned investors. Bridewater Associates, the world’s largest hedge fund, recently stated that Bitcoin met it’s internal ‘bubble’ criterion. And bubbles burst.
The Anatomy of a Bitcoin Crash
Markets crash when underlying factors, such as consumer sentiment or unforeseen disasters, contribute to consumers and investors very quickly selling stock and emptying bank accounts. Crashes are often unanticipated events capable of spinning an economy into recession. Regulated instruments – such as dollars and coin – can quickly become worthless.
Due to market crashes in 1929 and 1987, trading is heavily regulated. Insider trading and other forms of market manipulation have long been outlawed. This means real-world indices are heavily monitored for securities fraud.
With a Bitcoin, however, such regulations are devoid.
Nothing is stopping several dozen investors from pumping and dumping. Fire sales are very real possibilities once market value caps. Circuit breakers – which prevent trading during periods of drastic decline – cease to exist in a deregulated trading environment. Banks ponder scenarios where your FDIC insured money is placed in an imaginary medium they agreed to back – only to have its value shorted. I discussed bitcoin security before.
The sharp price increase in 2017 alone – coupled with predicted worth in Q1 of 2018 – will only position investors for a Bitcoin crash by 2020.
Crypofinance believers find no historical precedent to compare Bitcoin stability to. In fact, ‘market stability’ is reliant on blockchain security since Bitcoin’s value is gauged by trust rather than tangible goods. Merely thinking about a digital bubble bursting is enough to make any savvy investor sweat since so much is riding on ‘unknowns’.
Stock holders weren’t exactly trading ‘unknown’ stocks in 1987 when the NYSE bottomed out. Makes you wonder what could happen to something seemingly ‘mythical’.
Worth It To Mine A Bitcoin in 2017? Depends.
With nine years of circulation under its belt, mining a bitcoin may seem improbable.
Difficult, yes, but not impossible.
The bitcoin network is dissimilar to trading metals, stocks or futures in the sense no participants trust each other but are handsomely incentivized to do their part in maintaining a flawlessly synchronized network. With quintillions of hashes per second, bitcoin miners both provide value through security, and ongoing participation through innovation.
But unlike during its freshman year, mining blockchains from the comfort of home would take an astronomically powerful rig – the reason many mine in pools. However, if you’re adamant about keeping more of your spoils, opening a cloud mining contract may be suitable. Like any venture, education and due diligence are necessary components of successful cryptocurrency navigation.
As of 2017, miners were finding 12.5 bitcoin per 10 minute period, roughly 1/4 of the 50 bitcoin per 10 minutes being harvested in 2010.
This figure is relevant to the over 100,000 Coinbase accounts opened in November.
Enjoy every hash before it’s crash, Bitcoiners.
Disclosure: My words should not be construed as financial advice. I write points for readers to research on their own – that’s it.