In 29 years in the financial markets, I have witnessed numerous bear markets - and care of the wonders of fiat money printing, market manipulation, and financial engineering, epic bubbles.
The 1987 stock market crash occurred while I was in High School, so my memories of it are dim. However, what I do know is the “President’s Working Group on Financial Markets” was created by Executive Order a month later – led by the new Fed Chairman, “Maestro” Greenspan. His subsequent experiments with near-zero interest rates created the dotcom bubble in 1999 – which he took to a whole new level when it burst, fostering the real estate bubble in 2008 that his protégé, Ben Bernanke, took the blame for.
Bernanke, who unlike Greenspan was a diehard academician, had the crazy “thesis” that the 1929 Crash was due to not enough money printing – and thus, used the nascent example of the Bank of Japan to institute “quantitative easing” and zero interest rates after the 2008 crisis. By the time he was through with hyperinflating the dollar, the concept was taken “nuclear” by the BOJ and ECB, in the form of negative interest rates. Throw in the “miracles” of off balance sheet derivatives; high-speed algorithms; and the full force of previously modest intervention agencies like the “Exchange Stabilization Fund,” and the means of creating history’s most aggressive, and dangerous, bubbles was in place. This is why stocks and bonds currently trade near record valuations with debt skyrocketing and inflation eating away at fiat currencies - and why bubbles have been so easily created, like the historic altcoin bubble that is in the process of deflating as we speak.
During each of the previous bubbles – from dotcoms, to real estate, and even mining stocks – I witnessed incomprehensible breakdowns in logic, as increasingly uneducated investors joined the party; whilst equally clueless, yet adulated, journalists and analysts fueled the fire with careless, lazy, fallacious, misleading, or plain old wrong commentary. Throw in the countless “technical analysis” gurus purporting their “proprietary” methods would make you rich quick, and you can see how easily things spun out of control. Oh, and one more horrible thing all bear markets bring; which in my case, I dealt with in the Precious Metal industry for a decade – when the mining stocks peaked in 2007, and the metals themselves in 2011; i.e, the worst aspects of humanity, when people losing money viciously attack each other…particularly those who speak TRUTH, no matter how much it hurts.
Not that this cycle is any different than previous bubbles, of course. However, the increased amount of (printed) money, leverage, information access, and government intervention has cumulatively acted like financial market nitroglycerine, blowing up bubbles further than the past, and deflating them more spectacularly.
This time around, we have the 2017 cryptocurrency bubble – which was so powerful, it put to shame the simultaneously inflating, and government-aided, stock and bond bubbles. Blame the “Digital Age”; lack of crypto regulation; “double dog years” pace of technological and political development (like the Bitcoin “scaling debate”); or all of the above. However, the fact remains that what occurred in cryptocurrency in 2017 was not only the largest bubble I’ve ever seen, but the fastest developing. And by “cryptocurrency” I mean altcoins – as while clearly the Bitcoin rally got frothy at the end, it was based on real, dramatically positive fundamental developments; as opposed to altcoins - of which 95%-plus were pure pump-and-dump money grabs, created solely to leech off the hype stemming from Bitcoin’s (and Ethereum’s) success…the former of which, are real, and viable over the long-term; and the latter, as we are seeing today, built nearly entirely on smoke and mirrors.
Most crypto investors entered the market in the Fall and Winter, in the bubble’s final blow-off stage. However, few realize the ICO bubble of May and June was even more powerful – so much so, that despite Ethereum’s surge to an unfathomably ridiculous $138 billion market cap in January 2018, its peak ratio to Bitcoin of .112 was dwarfed by its peak ratio of .151 in June, when its market cap was just $35 billion. In other words, the first “Ethereum Flippening” scare was far more powerful than the second – particularly as it occurred at the height of Bitcoin’s scaling debate, when Bitcoin’s very future was in doubt. The problem being, that while Bitcoin won its scaling debate just one month later, Ethereum’s was lying in dormancy – going all the way back to Vitalik’s ill-fated decision to fork it, creating Ethereum Classic in the process, when the DAO storage wallet was hacked in June 2016. Which, as it turns out, is coming out of “hibernation” as we speak.
By the Fall of last year, the ICO bubble was thoroughly deflated, not just due to the failure of most ICOs, but the regulatory investigations and decrees that – perhaps, justifiably so – followed. However, when Bitcoin was revalued dramatically higher in August, following the historically bullish fundamental developments of the locking in of SegWit (mid-July) and failure of the BCash fork to split Bitcoin (early August), a whole new round of bubble speculation was launched.
What started it, in my view, were the slew of Bitcoin forks that immediately emerged, seeking to capitalize on BCash’s “success” by creating money out of thin air with hare-brained schemes that were essentially,100% pump-and-dump money grabs. BGold was the first, but more than a dozen others followed; often with cult-like followings, and huge expectations in the “futures” markets.
BCash, with its unique, deep-pocketed “backing” - and as it turns out, Ponzi scheme growth strategy – pumped-and-dumped relative to Bitcoin multiple times; on two particularly egregious occasions, reaching the unfathomably ridiculous levels of 0.40 and 0.25 BTC, respectively. And 0.25 BTC again in late December, when an historically transparent manipulation scheme was launched, involving blatant collusion with Coinbase and CNBC; which, in my view, marked BCash’s “jump the shark” moment – in terms of investors’ realizing it was a scam, and its “credibility” in the market.
Simultaneously, the other forks were slowly dying, as it quickly became patently obvious that simply creating clone Bitcoins with extremely modest “upgrades” was a fraud. Thus, with ICOs and forks dead, a new crypto bubble needed to be created. After all, Bitcoin had just hit $20,000, with the “wall of institutional money” from Wall Street schedule to arrive January 1st, in the form of hundreds of freshly-minted “Crypto Hedge Funds.”
Hence, the historic altcoin bubble – which started with the two most widely known alts, Litecoin and Ethereum, when they were blindly bid up in unprecedented fashion, for no reason other than rank speculation. And then, the deluge of new altcoins – many of them Ethereum-funded ERC tokens, which surged so rapidly, and spectacularly; in the space of just 2-3 weeks; they put the entire dotcom bubble to shame.
When it peaked in mid-January, the decline through early February – aided in large part by non-fundamentally driven Bitcoin sales by the Mt Gox Trustee – was spectacular. Still, Bitcoin “dominance” was near its all-time low when Bitcoin hit $6,000 on February 6th, of just 36%...compared to 61% six weeks earlier, when it hit $20,000. That, in a nutshell, tells you how spectacular, and rapid, the altcoin bubble inflated – which is why, based on history; and oh yeah, the fact that 95%-plus are 100% useless; the bursting of the altcoin bubble will be equally spectacular…both absolutely, and as a percentage of Bitcoin.
The way I see it, the core of the altcoin bubble, BCash and Ethereum, are seeing their Ponzi-esque natures exposed – given the massive amounts of hoarded BCH and ETH held by a handful of motivated, or soon-to-be-motivated sellers…who will only become more motivated as their prices decline. Ripple, which isn’t even a cryptocurrency, was heavily pumped by CNBC at the top – and thus, may still have a significant amount of retail ownership. And as for the rest of the Johnny-Come-Latelies; most of which were pre-mined, and many of which are in the altcoin top 20; far shrewder investors are starting to ask what on Earth they do. Not to mention, Litecoin, which doesn’t do anything Bitcoin can’t; doesn’t spawn cryptodividends; and doesn’t even have its “leader” anymore – now that Charlie Lee sold his entire position while LOL, retaining his Bitcoin.
From a social standpoint, I am seeing everything I saw in Precious Metals, and then some. To wit, since selling my last mining stock in 2011, and spending the ensuing six years warning people of their risks, I spent years being vilified for being correct – whilst those that continued to pump them to their bitter ends continued to be adulated. Which is exactly what I’m seeing here – as I continue to preach Bitcoin Maximalism; and warn investors of the eminent, and potentially catastrophic dangers of altcoins; and heaven forbid I say it, the BCash, Ethereum, and even BPrivate scams.
I can only hope that this time around, more people catch on to reality sooner than later. However, I doubt human nature will change – and expect to continue to be attacked for attacking…or better put, defending the best interests of Bitcoin, the only true cryptocurrency. Hopefully, you do your due diligence objectively, and make wise crypto investment decisions.
Good analyse of the current situation, I only disagree on LTC. It is not said that the high fees in Bitcoin won't come back and since BTC and LTC can be connected through LN and atomic swaps, it could become very useful. LTC is the only altcoin that has a purpose in my opinion (and Monero until Bitcoin solves privacy).
Is there really a difference between. Bitcoin and B cash?
with so many years in the markets how manipulated do you think these markets are today?