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I’m not calling the top. There is a bubble of people calling bitcoin a bubble. Normally bubbles end when the shoe shine boy gets in. This one is the other way round. The shoe shine boys got in early. This one will pop when the institutions get in…
The original article by Dominic Frisby (via Gold Seek.com) has been edited for length (…) and clarity ([ ]) to provide a fast & easy read. For all the latest – and best – financial articles sign up (in the top right corner) to receive munKNEE.com’s free bi-weekly Market Intelligence Report newsletter (see sample here) or visit our Facebook page.
When manias end, what is currently euphoria turns to pain…and such pain will be spread among the hordes – and I mean hordes – of inexperienced investors who have only recently got into Bitcoin. Many of these people are kids who’ve never lived through bear markets before. The pain will turn to panic.
The Achilles heel in the whole crypto infrastructure is the point of transfer between fiat and crypto – getting your money in and getting it out. It’s got better, but it is still not easy. One reason so many people have not invested as much as they would have liked has been the simple practical difficulty of actually buying the coins in the first place. Selling them for fiat, when everybody is trying to do the same thing, and getting your money out, will be harder.
The deeper you’re into crypto – perhaps you’re into monero or dash or some other altcoin – the harder it will be to get out into fiat. The diehards will tell you that you never need to leave crypto. That may be so, but many will not feel the same way in a bear market. If there is a rush into the arms of fiat, the point of transfer from crypto to fiat is where the issues are going to be.
At present there is a plethora of buyers. There won’t be when sentiment changes. When Bitcoin comes down, they will all come down. The sector moves as one. The very liquidity issues that have driven the Bitcoin price so high so quickly could work in reverse so, if you are long Bitcoin or any other crypto, my first bit of advice is this:
- Sell a small amount now. Practise selling. Identify the obstacles in moving your money from crypto to fiat, and learn how to deal with them.
- Have your escape strategy clearly mapped out so that, when there is a rush for the exit – and there will be one day – you know exactly what you’re doing and you won’t get caught out.
When liquidity dries up and the tide goes out, that’s the point at which you realise who has been swimming naked. That’s when the scams emerge, the frauds, the excessive debt and margin.
- Do the exchanges you use have the wherewithal to deal with an 80% crash (there have been five of these in Bitcoin’s history) and the overwhelming traffic that accompanies a stampede for the exit?
- Which of these ICOs and altcoins are the genuine article and which are just hype and BS?
- Which are the ones people will hold onto and which will they drop?
The above are the questions you need to be asking now, during the euphoria stage of a bull market…I’m not calling the top. I’m saying prepare for the top.
What happens in the aftermath of a bubble such as this bursting? A lot of pain, a lot of recrimination, a lot of new demands for new laws and regulations to make it impossible for such a thing to happen again.