The Cash Wars Crash of late 2018


#1

I thought I’d share a few of my thoughts about recent general market activity - looking a BTC as a proxy for the general market movements. We had a painful drop in mid-November after an already painful year.

I think it’s very likely that the bottom has passed. What we saw was a relatively stable Bitcoin price in the $6500 range through late summer and fall until November 14th, followed by a precipitous drop with little negative news on fundamentals.


(Chart from CoinMarketCap.)

Bitcoin didn’t fall on Nov 14 because of some “breakdown of support.” It fell because a lot of nervous people pulled out of the markets on the uncertainty wrought by the Bitcoin Cash wars - recall that the fork date turned out to be November 15.

BCH (Bitcoin Cash) has long been claiming to be “the real Bitcoin,” in contrast to the obviously larger and more valuable BTC (Bitcoin.) This caused a measure of fear, uncertainty, and doubt. Then, two factions of BCH were going to war over who is “the real the real Bitcoin,” and doing so very publicly, throwing things into greater doubt, jeopardizing valuations of a major company holding a large amount of BCH (Bitmain**), and causing tremendous uncertainty in the eyes of the many non-crypto-savvy investors.

These frightened sales, in turn, triggered a large number of “blind faith TA artists” who are effectively just momentum traders - they buy when others buy, and dump when others dump - and this decline led them to go ahead and sell into the decline. (I don’t mean to disparage real Technical Analysis, but the vast majority of TA I see in the crypto space amounts to amateurs forming into herds of lemmings.)

The rallies we’ve seen the past few days are simply a recognition that this tremendous decline from the $6500 range simply has no rational basis.The fundamentals for Bitcoin are as good - or better - than ever, even if ICOs and ETH are struggling.

What we saw was the Cash Wars Crash.

As the Cash War Crash nonsense subsided without actually causing the feared crypto apocalypse, the end of the senseless decline brought smart money into the space to acquire at depressed prices. They couldn’t help buying when prices were such a bargain - which in turn triggerred a rally.

If we don’t have a huge negative event that again makes the crypto space look like a bunch of squabbling nerds to the outside world, then I see no reason prices should go back down below $3500, and I see many reasons they should continue to rise back towards $6500.

In fact, the bearish economic and market sentiments in the traditional markets suggest people may be doing a lot of searches for alternative investments into which to diversify - and the crypto space is a likely beneficiary of those searches. US markets are down, European markets (especailly with Brexit confusion), Asian markets… I don’t closely follow South American or African markets, but I expect they’re immune to what appears to be a global economic and market phenomenon. People all over the world are likely to be looking for ways to hedge - places to put their money that have a chance of rising. An asset calss that has recently begun rising after a long decline can be an enticing place to try to cover some of their losses. They all know that Bitcoin can get close to $20,000, and $4000 is awfully low compared to that… so even if they don’t think it’s going back $20k any time soon, there’s certainly plenty of upside from here to $6,500 or $8,000 or $10,000 - and even $10,000 may not feel like a “bubble” price after the 2017 bubble.

Am I certain that the worst is over? No. There’s no such thing as certainty. Something stupid and terrible for crypto could happen next week, next month… crypto is not yet mature. On the other hand, maybe nothign happens, and things rise - or maybe even something good happens, and things solidiify and grow. I think those are much more likely that any more decline.

** Mind you, here in BTG land, we have no love for ASIC manufacturers like Bitmain, but there’s no denying that Bitmain is a large company with significant valuation, and that a lot of people outside of crypto are probably more aware of the valuations of companies like Bitmain than they are of the existence of cyprtos other than the basic.