https://www.bloomberg.com/opinion/articles/2018-12-11/yep-bitcoin-was-a-bubble-and-it-popped Yep, Bitcoin Was a Bubble. And It Popped. Millennials, like generations before them, just got a painful lesson about speculation. It seems like every asset bubble has a famous anecdote of someone claiming, right at the top, that a crash is impossible. In the stock-market bubble leading up to the Great Depression, it was economist Irving Fisher, who declared in the New York Times that stocks “have reached what looks like a permanently high plateau” a few days before a collapse that would see stocks lose 89 percent of their value. In 2007 and 2008, many optimistic pronouncements by current National Economic Council Director Larry Kudlow turned out to be disastrously wrong. In the great Bitcoin bubble of late 2017, the honor goes to John McAfee, founder of computer security company McAfee LLC, and passionate cryptocurrency evangelist. On Dec 7, 2017, he wrote: Bitcoin now at $16,600.00. Those of you in the old school who believe this is a bubble simply have not understood the new mathematics of the Blockchain, or you did not cared enough to try. Bubbles are mathematically impossible in this new paradigm. So are corrections and all else pic.twitter.com/go9v0w92zk — John McAfee (@officialmcafee) December 8, 2017 A few days later, Bitcoin’s price briefly peaked at $19,511, before it began an epic plunge that would see the original cryptocurrency lose approximately 82 percent of that value as of the writing of this column: Does that mean Bitcoin is dead? Not necessarily — the cryptocurrency has recovered from several previous bubbles and crashes, including one in 2011 that was just about as devastating: Also, it’s worth noting that even if they’ve held on to all of their Bitcoin (or HODLed, as many call it), early investors have still come out ahead in the latest bubble — the current price, though down spectacularly from the peak, is still more than triple what it was when 2017 began. And if they sold some of their holdings at or near the peak, as many are reported to have done, they’re in even better financial shape. But for ordinary investors, who don’t tend to get in early on potentially revolutionary new technologies or to have the savvy or luck to time the market, the Bitcoin bubble should serve as a learning experience. The most important lesson is: Financial bubbles are real, and they will make your life’s savings vanish if you aren’t careful. Formally, an asset bubble is just a rapid rise and abrupt crash in prices. Defenders of the efficient-market theory argue that these price movements are based on changes in investor’s beliefs about an asset’s true value. But it’s hard to identify a reason why any rational investor would have so abruptly revised her assessment of the long-term earnings power of companies in 1929, or the long-term viability of dot-com startups in 2000, or the long-term value of housing in 2007. Similarly, there was no obvious reason why it made sense for the world to believe that Bitcoin was the currency of the future late December 2017, but to think this was less than one fifth as likely today. Bitcoin wasn’t eclipsed by a competitor — the main alternative cryptocurrencies had even bigger price declines. Nor have regulators cracked down on Bitcoin — in fact, the regulatory structure has generally been quite accommodating to the technology. Nor have critical technological flaws emerged — yes, the Bitcoin network has become congested, but this problem was anticipated well before the crash. Instead, it seems overwhelmingly likely that Bitcoin’s spectacular rise and fall was due not to rational optimism followed by sensible pessimism, but to some kind of aggregate market irrationality — a combination of herd behavior, cynical speculation and the entry into the market of a large number of new, poorly informed investors. It was this latter type of investor who got burned. There is no shortage of horror stories about people around the world who poured their modest life’s savings into what looked like a sure bet, only to see it vanish — some of it into the pockets of Bitcoin’s early-investor aristocracy, some of it into thin air. How can regular, average investors avoid this fate? Bubbles are extremely hard to spot — if it was easy, they wouldn’t exist in the first place. But there are two important strategies investors can use to limit their risk. First, realize that there’s no such thing as a sure bet. The optimistic Bitcoin story, repeated often by the cryptocurrency’s army of gung-ho online evangelists, was that Bitcoin was going to replace standard fiat money as the main global currency. But that story always had major holes. Assets with high volatility and high long-term expected returns make bad currency, since short-term volatility renders them less useful for making payments — you’ll notice that nobody buys pizzas with ingots of gold or shares of Apple stock. Second, cryptocurrency is an impressive new technology, but there are major technological limitations related to security and usability that have yet to be overcome. Since nothing is a sure bet, regular investors need to stay diversified. It’s OK to put a bit of your savings into something like Bitcoin, just in case the price goes way up, but just don’t make it a very large piece. The potential pain of a crash should far outweigh the fear of missing out. I myself lost money in the Bitcoin crash (I still have my Bitcoins and have not sold). I just didn’t lose very much, because I only invested a very small portion of my assets. In the end, the Bitcoin bubble may have been a net good for society. The total amount of wealth involved — a few hundred billion dollars, spread out around the globe — was small compared to the 2000s housing bubble or the 1990s dot-com bubble, meaning the pain will be limited. And the experience of such a classic, perfect financial bubble may be sufficient to teach the millennial generation what their forebears learned much more painfully — if something looks too good to be true, it usually is.
Geee, and article only 11 months behind the times. By the first week of February BTC was already down to 6K. By the way I posted this exactly year ago: "Pekelo said: I think the safe bet here is to cash out and put a buy order in at 12K. I expect a 40-50% sell off in the next 10 weeks."
At this rate, you're more likely to be able to buy at $3K - possibly even $2K. My guess is that you have quite a few specs who entered fresh longs at $6250-ish and they couldn't be terribly pleased. Judging by November's price action - it's a big room with a very small door.
Not a word about the proven price manipulation in BTC. And why single out Larry Kudlow for making wrong predictions in 2007? Kudlow was one of thousands of talking heads spewing nonsense. Oh that’s right, because he’s part of team Trump and that’s what the media does. Should have thrown that imbecile Greenspan under the bus for being completely unaware of what was happening with housing and Real Estate in the US. Not only a lame and poorly researched article, but it’s about 10 months late. Great job Bloomberg
Well, I'm not making excuses for Greenspan - I'm going to make a finer point on your thesis. Congress (even more specifically Barney Frank and Chris Dodd on the House Financial Services Committee) foisted the Community Reinvestment Act upon us - which of course required Fannie Mae and Freddie Mac to secure any shit mortgage loan that was dropped into their laps (i.e., NINJA) and the rest is history. Republicans also of course share some blame as well, but Frank and Dodd set the wheels of destruction into motion. I will say that Greenspan was the primary opponent to transparency and investment bank leverage accountability for OTC derivatives. That's his Waterloo. We all know that in 1998 the CFTC was quite concerned about the unknown magnitude and risks for the OTC derivatives markets and they released some preliminary proposals for rule making. Mr. Greenspan subsequently destroyed that CFTC Chairman's career and threw the biggest hissy fit known to mankind.
Bitcoin reminds me of the "Pet Rock", "Beer Cans", "Belt buckles", "Beany Babies", "Cabbage Patch Kids", "Tamagotchis-virtual pet”, "Limited editions of a Minted coin" not done at US Mint, of supply and Demand drives prices up and down on stuff pretty much useless. People get caught up in mania and paying high dollars on useless stuff. Those who got in early reaped and rest take a beating.
Well, the first part (cash out) was indeed a good decision. Price then was around $18,941. The buy order however was a very bad one as of today that buy would have made a loss of 69%. $12,000 seems now to have been rather a resistance level. Once below that level the bitcoin never recovered anymore above that level. The final question is then: when did you buy the first time, the one that you would have cashed out later? Should have been below $ 11,591 , because that should have made a profit of at least $8,250 to be break even. And then you still made no money.