While it took about five to six years for Bitcoin to move away from the fringe of society, where it was half seen as a novelty and half seen as the savior from the world's fiat monetary system, its sudden emergence into the mainstream has been incredibly robust and unlike anything ever seen in monetary history.
But as we enter into the second quarter of 2017, what was originally intended for the masses to be used as a medium of exchange has suddenly turned into a speculative investment that is being lapped up by the very institutions that would see it financialized instead of used as a real currency. And the massive rise in value over just the past five months is threatening to categorize the cryptocurrency as a bubble, and scare away many individuals who might seek an alternative to the dollar, euro, or yen as a way to secure their wealth.
Analysts including Charles Hayter, the CEO of CryptoCompare, explained that the Japanese and South Korean Bitcoin exchange markets played a key role as the driving factor of Bitcoin’s recent price surge. In an interview with CNBC, Hayter stated: "Arbitrage between the fiat pairs drags markets up or down in line with leading markets. At present, volumes on the KRW and JPY pairs dominate trading with a combined 48 percent market share.”
From a purely fundamental point of view, investors and owners of Bitcoin need to realize that the market is treating the cryptocurrency like a security, and at a time when nearly all other assets such as bonds, stocks, and real estate are at all time highs. And one of the reasons that Bitcoin is skyrocketing in price and value right now is because institutional players are moving money into what they believe is one of the very few potentially undervalued assets. But like with any security or investment that receives too much buying in a short amount of time in relation to selling, at some point it will hit terminal velocity, and the fall in price will be just as fast as the velocity in which it rose.
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Great piece Ken. Have you seen what's been going on with Ethereum? Simply incredible. I am really beginning to believe that the bankers will stockpile hundreds of billions, if not trillions in the crypto space.
https://steemit.com/ethereum/@sgtreport/ethereum-just-hit-usd140-and-i-just-bought-more-here-s-why
I agree. When you look at the Fed's newest report (over on Zerohedge) that 25% of Americans cant pay their bills, and 50% couldn't afford a $400 emergency, then who is buying Bitcoin and other cryptocurrencies right now? Asians who are Momo investors, and then of course as my article cites, Institutional Investors who realize there are few paper assets (bonds, stocks, real estate) to buy now since they are all overvalued.
This means that the buying is extremely speculative and far beyond normal market conditions, and placing nearly all cryptocurrencies on the edge of overvalued, or bubbles.
I can't give advice, but there are NO sure things in this world... and if someone has the chance to take a profit, then I would thoroughly do so and move into extremely undervalued assets like Silver.
Why? No one absolutely knows if Bitcoin or other cryptos will be in for the long run. I DO believe cryptocurrencies will be the wave of the future, but they will mostly be controlled at a sovereign level, and perhaps Bitcoin or the next version of cryptocurrencies will function as a domestic medium of exchange.
Nice simple and clear analysis, I would like to see more discussion of the big picture of bitcoin. The idea that using it as a security and as day to day exchange having a conflict of interest, is in practice going to be complex.
I have always been a big proponent and fan of Bitcoin as money, but once it starts getting financialized (Winklevoss Twins ETF attempt), and over-populated in one region of the world (Asia), then at that point I have to treat it as a security and investment, and play my hand for taking profit, waiting to get back in at the drops, and look towards something else to protect my wealth (gold and silver) until it stabilizes back into a currency again.
Perhaps the future will see a multitude of designer coins for different purposes, or nations and groups of nations/people using crypto over fiat.