Bitcoin: The Panic May Just Begin (BTC-USD)

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Bitcoin (BTC-USD), the most popular cryptocurrency in the world, as well as cryptocurrencies in general, have seen negative news coverage at an increasing rate over the past couple of months. Cryptocurrency market has earned millions and billions of people after rising from close to a dime to over $50,000 per bitcoin at its peak a few quarters ago.

Since then, while some have touted it as a safer way to conduct financial transactions, there have been more and more allegations of hacking and fraud that have been highlighted in the news around the world. The problem with this, it seems to me, is twofold:

First, although those who use Bitcoin, which is about 106 million people, mostly (60%) trust the system, they make up less than 2% of the world’s population. Only 17% of Bitcoin users trust the world’s governments, showing that while some are touting it as a good alternative to global currencies, and that more and more companies are allowing you to use Bitcoin and pay in real time, it is still not adaptable. significant population.

Active Bitcoin Accounts Chainalysis

Active Bitcoin Accounts (Chain Analysis)

This means that there is still a problem with the hypothetical path forward for bitcoin or cryptocurrencies in general, which is wide scale adaptability and use, which may be the only way to make it stable enough to be considered something close to a long-term usable global currency. . . I believe that this means that the volatility in the cryptocurrency system will be observed for many years to come, which will further deter new participants in the system.

Secondly, in addition to the lack of a growing user base, even current users do not fully support the alternative currency system, which leads to it becoming a commodity without any support in people’s portfolios. This means that I believe it will be one of the first things to be sold if and when we face any form of recession, which I think we will soon do.

With massive (relative) layoffs in tech sectors, where a significant proportion of bitcoin holders come from, people who have invested and potentially made good money will think twice and end up selling some of that investment to fund their lives while they look for work.

These two factors mean that I don’t think there are many bottoms in the crypto market where people will buy, and that there is a ceiling in the multi-year span where we expect a recession or slowdown. But that’s not all.

Another short term problem

There is also a third group of bitcoin (and other NFT-style units) holders – young people. For some, this phenomenon certainly brought great results, but for the most part it did not lead to any significant changes in the lives of these people. But due to the fact that a significant portion of these young people who are investing all the money they have in these cryptocurrencies and NFTs due to the influencers trading in these various “investments”, they do not necessarily have an alternative to them if they need money.

Pew Research Center - Crypto Investing

Cryptocurrency trading (Pew Research Center)

For those with a portfolio of cryptocurrencies such as bitcoin that can make up 1% to 50% of their holdings, they usually have regular jobs and other savings and cash flows to cushion any major inflows. But if Bitcoin and the various non-fungible tokens collapse more than they already have, they will likely sell in a panic due to their much lower downside tolerance.

What does failure mean?

If, as I believe, bitcoin and most crypto markets have a ceiling and that the sell-off we have seen over the past few months will turn off many retail investors who have large amounts of bitcoin and other cryptocurrencies, we are probably only at the beginning of this downturn.

The problem here is that the Bitcoin system is not supported by anything other than the faith of one person buying from another – the bottom here is likely much lower than if we entered a bear market in a “regular” stock market. . There will be adversaries in the cryptocurrency system, especially those with Bitcoin only a small fraction of their total financial holdings, which could mean they will need more time to hear the news as things get even worse before they sell.

This means not only that I believe we are in for a shock to the system soon, but also that the risk here is much greater than in the “regular” stock market, given that theoretically there is no bottom compared to a company like, say , Apple (AAPL), which will still generate a certain amount of revenue, make a certain amount of money, and have real value on the books even in a deep recession.

Now what?

While shorting something like Bitcoin is absolutely crazy, even if there was an easy way to do it, the price, as it used to be, can jump hundreds of percentage points over the course of a few days or over a weekend, leaving any short position deep. deep in red.

But as someone who had bitcoin and other cryptocurrencies as a tiny fraction of their total portfolio: I think it’s time to lower it even further and avoid it for now. This is because it can become a slippery slope/snowball.

By that I mean that there are several million people holding a significant portion of their money in bitcoin, cryptocurrencies and other NFT-style stuff who, if the price of these assets eventually falls by 50-90%, will see their net worth of value. their assets are falling. I believe this could lead to actual cost savings if the value of said portfolios falls.

So it can become a snowball effect where people sell some of their bitcoins after losing 50% which causes the price to drop further which then encourages them to sell the rest or all at a loss which then causes them financial hardship and their costs. decrease. Which will then hurt the economy and make more people think about selling their intangible assets, etc.

Given these factors, I have become very bearish on Bitcoin and the outlook for cryptocurrencies and NFTs in general and will avoid Bitcoin for a while.

Written by khirou

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