Bitcoin and cryptocurrency: Falling Knife or Buying Opportunity?

Let’s talk about the current state of cryptocurrency, what’s at cause, and whether or not this could potentially continue dropping…I’m already aware that this is going to be a controversial topic…some people are going to agree with me, some will like this video and my thoughts, others will get upset, feelings might get hurt, some might start crying, there might even be riots in the streets…but all I ask is that if you disagree with me, instead of just unsubscribing and then calling me nasty names in the comments…at least comment a well formed argument and let me know why you agree or disagree, and I’m totally open to other perspectives and insights. Not just “go fuck yourself, you suck” comments…just put more effort into it than that :)

So let’s just get right into it…it’s no surprise that the cryptocurrency market has fallen from an $830 BILLION dollar market cap to about $320 billion, a 60%+ decline in the last month. So what caused this and what can we expect going forward? Is it a smart time to buy in, or should you avoid catching a falling knife if it’ll just continue dropping? To answer these questions, it relies on both a look into investor psychology and a few of the recent events that could hold long term implications going forward.

First off, I’m not going to talk about all the weird conspiracies that suggest the government is manipulating the crypto markets to steal our money…let’s get real, here. While there’s certainly some Wall Street manipulation happening and taking an opportunistic stance on events, overall there are way more factors contributing to what we’re seeing.

1. Let’s first start with one of the more subtle points that many of us can relate to…people are getting impatient and the growth we previously saw was largely unsustainable. Let me explain…people are getting frustrated because crypto hasn’t gone up in price in a month. As much as we need it, the WORST thing for cryptocurrency from this standpoint is stability. Stability is boring. Stability isn’t exciting. Stability doesn’t get people talking about it. If people aren’t talking about it, it has a hard time attracting new money - and investors get bored. The excitement of 20-50% daily gains dwindles when your coin hasn’t moved in the last few weeks or even worse, it actually goes down in value…crazy concept, right? Investors don’t make money if the price holds stable - instead, they want upward volatility. So what do many of them do? Cash out and look for other opportunities.

Many people largely got spoiled over the last few months of upward movement…and like I said, that type of growth is unsustainable. It HAS to end at some point in favor for more stability in a normalized market. Now while the impatient investors are often not the whales who drive the markets, the impatient investors are the ones who often start the waves of hype and popularity. And if the impatient investors get bored, there goes an initial spark of speculation. And what caused this…from my perspective, was lack of utility for the price it was formerly trading at. You can only attract new money for so long until price stops rising…then people cash out…causing other people to cash out…causing the price to drop…and then people panic…and the price continues to drop…you repeat the cycle. This was unavoidable, and in terms of bitcoin, was just as likely to happen at 20k as it was if it went to 25k, at 30k, or at 15k. So to me, this isn’t surprising.

1. The next, and probably the most impactful is the legal uncertainty surrounding cryptocurrency lately. In a speculative market like this, the slightest chance of regulation sends many investors into a state of panic. China banned ICO’s last September, naming the majority of them as fraudulent. Further rumors suggest China banning cryptocurrency or cracking down on cryptocurrency miners. Rumors began spreading about India banning cryptocurrency, even though this is false. Point being, regulation in these markets shouldn’t - in theory- impact the market as a whole from a utility standpoint. Cryptocurrency is world wide and one segment shouldn’t have the immediate implication as it does now. However, the significance this poses is fear - fear that if one market bans or regulates cryptocurrency, it sets a precedent for others to follow.

In all seriousness, this is segment that DOES need some type of regulation…even though this goes against the entire purpose of cryptocurrency, I do believe there needs to be some type of law or regulation that everyone will need to abide by. Having an entirely unregulated market leads people to do some pretty wild things for money…which brings me to my next point.

1. The failing of Bitconnect. This, by itself, isn’t a cause of the recent price drop but more so a symptom of what’s currently allowed and what we can expect to see more of in an unregulated market - which, to me, doesn’t seem sustainable. For those who are somehow not aware of Bitconnect, it was a pyramid scheme that promised pretty hefty daily returns, but relied on the price of bitcoin increasing AND more people being referred into the system to pay back its investors. After being served with cease and desist letters, while Bitcoin was declining, they decided to close up shop, leaving many investors losing their investment…this leaves us thinking, how long until government steps in to save us from ourselves? And also, will there be any legal repercussions for being involved promoting a cryptocurrency pyramid scheme or a largely anonymous company like Bitconnect scamming its users out of money? As of now, this is widely unclear…but will we find out one way or another and it will set a major precedent moving forward.

Facebook understood the ridiculousness of this by banning cryptocurrency ads - which I tend to agree with. Many of these ads were fraudulent, many were sketchy ICO’s, and many of which were entirely misleading. The ease of marketing for shitty ICO’s was way too simple - and it was way too effective. Just like Individuals promoting Bitconnect through YouTube ads…at what level is someone held responsible? At what point does something cross from entertainment into illegal activity? At one point should someone be responsible for influencing the decisions of others? All of this falls in a gray area yet to be discovered.

1. With the push to regulate these markets comes the requirement for exchanges to verify its users in order to withdraw or move funds, especially in high dollar amounts. Again, I value the anonymity of being a total stranger on the internet…but when you’re dealing with the move of hundreds of thousands or sometimes millions of dollars, the government is going to want to make sure the exchanges know who’s moving money around and will find a way to identify them. They could say it’s to prevent money laundering and terrorism…which, hey, maybe has a grain of truth…but in reality, it’s to make sure people pay taxes and to have a trail to those who don’t. And with this, comes the requirement to collect its user’s information or get shut down. It puts many exchanges between a rock and a hard place of operations…again, this isn’t a cause of the recent drop, but a symptom of the current state of the market and the growing pains of legitimizing cryptocurrency. And frankly, I think this is a good sign - this means that cryptocurrency is being taken seriously, it means that the bad apples will be weeded out, and the legitimate coins will have more room to grow.

2. Lastly, I think we’re seeing the appeal of Bitcoin slowly dwindle as Ethereum takes over from a practicality standpoint. This isn’t surprising…shortly after I bought Bitcoin when it was in the $17k range, I did some further research and then sold it to buy Ethereum. I posted this on my snapchat at the time and explained I saw more utility and use for Ethereum and felt that it had more potential than the holy grail of Bitcoin…it wasn’t hard to see that other coins are much better in terms of functionality and daily use. While theoretically we shouldn’t see a drop in market cap if money is moving into Ethereum, it does put uncertainty within the cryptocurrency most people are familiar with - Bitcoin is like the metric we measure everything else against and regardless of anything else, if a person’s confidence in bitcoin diminishes, the entire market seems to suffer at the same time.

So with that said, here’s what this means from my perspective. Even though prices have been depressed, I think this is largely a move in the right direction for cryptocurrency in the LONG TERM. Now before you think I’m crazy, hear me out…moon-like growth isn’t sustainable. You can’t have shit coins going up 100x in value and millionaires consistently being made overnight. You can’t have people promoting pyramid schemes and profiting without legal repercussions when it fails. You can’t have exchange owners picking up and running away with millions. You can’t have some dude creating his own ICO and then cashing out at its peak. And short term investors only in for the quick profit won’t be able to forever turn a profit consistently without losing money at some point.

In terms of whether or not this is a good time to buy, no one knows. I’m not a genie. But just like any investment, it’s important to take a step back and view things in the long term…not the short term. I found it funny that when I made a video about not buying Bitcoin at 10k, people told me I was a piece of shit because it went to $20k and I missed out on doubling my money…even though I got the same return in Real Estate this year, without all the volatility, and with a cash-out refi my profits are also tax free. When I then made a video that I decided to buy in at close to $17k, people congratulated me and said “OMG you were right it hit $20k!”…and then when it dropped below $17k a week later, even though I had already sold by then, the same people called me an idiot that I bought near the top…my point being, none of us know what’ll happen in the short term and it’s short-sighted to point to short term fluctuations to determine whether something was a good or bad investment. If Bitcoin goes to $50,000, those same people who said I was an idiot for buying near the top would be congratulating me for buying in and holding. So none of that matters. Realistically, we should care what the prices are a YEAR from now…not what the prices will be like next week, unless you plan on day trading Bitcoin…which, to me, is basically just as good as gambling. Even reading candlestick charts and technical analysis can only go so far with something as unpredictable as crypto - while you can measure some key support and resistance levels, ultimately a well-timed article has more of a direct impact in price.

So basically…if the market drops, don’t panic. Let’s not forget that a year ago, Bitcoin was $1000…while past performance doesn’t indicate future results, it does give us perspective to take a step back and realize that in any market, patience is a key takeaway.

Just for fun, I’ll make a stupid prediction what I think will happen and we can look back in a few months or year from now - not in a week from now - and see what actually happened. Personally, I think we’re coming into a time where prices will be fairly stable and unsexy for a little while. I think fear is largely running the market and too many people are sitting on the sidelines waiting for the right time to invest, but holding out to pull the trigger until things begin trending upwards again - which could be awhile.

Frankly, I think we’ll see Bitcoin hovering around the $7000-$10,000 mark for the near future, while regulation and bans slowly begin improving as government eases their restrictions and fine tunes their strategies with how to handle it. Uncertainty is cryptocurrency’s biggest enemy and investors biggest fear…as long as there’s uncertainty, prices will be depressed. But once regulations are ironed out, we’ll see an ease of money back into the market.

We’ll also slowly start seeing more companies adopting smaller, legitimate altcoins that have some real functionality behind them, while this will also slowly legitimize the entire market as a whole. I can definitely see Ethereum improving and continuing to grow, and I can definitely see many of the other shit coins continuing their decline - inevitably going extinct. We’ll likely see fewer ICO’s and Ponzi schemes as governments crack down on the fraudulent ones…which there are too many. And we may start to see some legal measures taken against those involved in pump and dumps, shilling, or promotion of scams. We may see some short term price movements upwards, but I believe those will continue to be depressed by people who want to sell just to break even at key resistance points…so we’ll likely go through a period of this before prices can consolidate and stabilize.

Again, all of this is healthy for a market and had to happen at some point…so until then, it’s just a waiting game. In the end, I believe if you decide to invest in something that has a great development team behind it, strong use case, and potential for implementation day-to-day…it might be worth taking a gamble on it. Who knows. But it’s better to do this with a long term outlook, rather than with a get-rich-quick mentality. If anything is takeaway from this, it’s just to have patience….and also I have no idea what I’m talking about with any type of certainty and all of this is just a guess, just like 99% of the other people out there talking about crypto :)

Enjoy!

Graham