Bitcoin just keeps going up but all rallies eventually peter out. The question is how badly will the Bitcoin rally end? Investor’s Business Daily notes that Bitcoin clears $10,000 while other cryptocurrencies fall.
Bitcoin topped the key psychological barrier of $10,000 early Tuesday but several Bitcoin-related stocks like Riot Blockchain (RIOT) and Overstock (OSTK) fell.
But for its soaring highs, volatile Bitcoin has had some lows this year, including three separate drops of more than 25%.
Still investors are pouring into the Bitcoin space to get a piece in the new digital gold rush.
While Bitcoin continues to spiral upward stocks of companies that rely on processing bitcoin transactions for their profits are all taking a hit. Our take is that investors are starting to hedge their bets in preparation for another bitcoin correction. After all, the cryptocurrency has routinely corrected by 25% every few months. How badly will the Bitcoin Rally end once speculators decide that the bitcoin gold rush is over?
How Do Speculative Rallies End?
USA Today writes about Bitcoin’s speculative fever.
Bitcoin’s huge gain – whose bumpy ride includes five rallies of more than 20% and four short-lived bear markets, or drops of 20% – even dwarfs the Nasdaq’s 86% rise in 1999. That run, of course, ended with the bursting of the internet stock bubble.
Bitcoin backers view it as a currency and payment system of the future, as well as a new asset class that people can invest in. Believers say it’s an emerging alternative to currencies like the dollar, euro and yen, and an investment like gold, stocks or bonds.
Skeptics say Bitcoin is impossible to value, wildly volatile and a speculative play that may never gain widespread acceptance from governments and central banks. They brand Bitcoin a “fad,” a “fraud,” and a “bubble.”
The bitcoin rally is different from the 1999 dot com bubble and crash in that the pain will not be as widely felt. Folks who are invested in this mania are speculators and not mom and pop investors or pension funds for millions of workers. Thus the bitcoin rally may end badly but will affect a smaller group of people.
Technical Rallies
There are no fundamentals underlying bitcoin or other cryptocurrencies. There is the argument that this is the medium of exchange of the future but that does not make it valuable. Those who are buying bitcoin today are doing so in the expectation of making a short term profit and hoping that the profit will last into the long term. Simplistic technical analysis shows bitcoin to be a volatile market with an upward trend. Unfortunately there is more to technicals than most bitcoin buyers appreciate. When one or more big owners of bitcoin positions decide that enough is enough they will start to exit their positions and that will eventually lead to a stampede of folks trying to get out. That will turn one of the 25% corrections into a 95% crash. That is how badly the bitcoin rally will end.
