Some did not make it, but many of those that survived have become much bigger businesses than they were in 2000 Bitcoin is not a business. It is a line of code that people are bidding up because it’s going up.
But the flipside of buying it because it’s going up is selling it because it’s going down. That part will inevitably come, the same way the Dutch stopped bidding insane monetary amounts for tulip bulbs in the 1630s.
My concern is that, in this case, we have the introduction of futures contracts to legitimize this absurdity, so when it does crash, the effects of futures leverage will add fuel to the fire.
How will we know when bitcoin tops out?
We have to see a break in the market that is significant, as we did in March 2000 in the case of the Nasdaq, followed by a failed rally that fizzles out.
In the case of the Nasdaq, the fizzling ended in August 2000 and then a long and protracted slide began. Again, the Nasdaq recovered because those surviving businesses had rising sales and earnings over the past 17 years, while bitcoin has nothing to support it other than pure investor mania.
A recent crash that is more near and dear to my heart is that of the Shanghai Composite. The crash in the Shanghai Composite was correctly predicted six weeks ahead of time on April 27, 2015, on Navellier.com, “Can Crashes Be Predicted?”
While it was not difficult for me to see why the Shanghai Composite was going to crash — based on incoming data, new account openings and leverage being used — I have no such data for bitcoin.
While I am certain that bitcoin is a bubble that will end badly, I can’t be as precise as was the case with the Shanghai Composite.
It could end this week or the madness may continue into 2018 due to the limited numbers of bitcoin, limited to 21 million, and the still-functioning dynamics of the Greater Fool Theory, with investors still paying rising sums of money for a line of code they don’t understand.
In the case of the Shanghai Composite, we have the classic “bear market rally” unfolding, where the weak rebound in the index could not recover all that the index lost in a single month like January 2016.
I have a sneaking suspicion that the Shanghai Composite has not found a bottom yet, as some small-cap indexes like ChiNext never rebounded and already took out those climactic January 2016 lows.
While the worst is not over for China’s stock market or economy, I am sure that after what I believe is a coming economic hard landing, the Chinese market will come back, just like the Nasdaq did.
Bitcoin won’t come back because there is nothing behind it other than rising numbers of investors bidding rising amounts of money for a line of code.
That’s the big difference. It is nothing more than an electronic tulip bulb. So far it is tracking the major bubble phases perfectly Gold is a tangible asset, while bitcoin is a line of code. If the power goes out or the currency gets hacked, bitcoin disappears.
If the choice were given to me to hold one bitcoin or the equivalent in gold bullion for the next 10 years — and have no ability to change my choice other than to sell the asset after a decade is out — I would take physical gold. Because in the case of bitcoin, there won’t be any “thing” to sell.