Why is Bitcoin "digital gold" crashing right now?

[DublinHead54]

Do you believe that there's anything tangible to invest in (as I've yet to hear a single positive statement on btc from you) or you're smarter than everyone else and you feel you're benefiting from all the stupid people that have put some $ in crypto?

In a fledgling market like cryptocurrency, there are opportunities for arbitrage, you rightly point out people get more discerning and savvy as they use it. The exchanges and trading platforms just aren't as advanced or regulated as financial markets, so as somebody who has worked in financial markets for 20 years, I consider myself savvy.

Lastly, you asked me to describe what my thoughts were as to how I saw the space play out with regard to bitcoin - going forward. I gave you my best guess (my current guess based on an opinion that is always open to adjustment). I provided you with my thoughts. Given that you've worked on blockchain-related projects, I'd be curious to hear your own view (whether that's about BTC, CBDCs or crypto/blockchain generally).

Apologies, I must have missed that, so how do you see it play out?

As I have mentioned, the political, economic and cultural issues are as important as the technology itself, so there will be varying adoption across the globe. My first point is I don't believe BTC will be used as a currency, it will become some form of digital store of value, whether that store of value becomes $1 or $50k, I have no clue.

In terms of Blockchain Technology, there are lots of interesting Proof of Concepts being proposed, but currently we aren't seeing a whole lot of adoption, I think the cost of implementation for corporations will out weigh the benefits.

The most interesting area is CBDC and Decentralized Finance. Central Banks have the biggest impact on us day to day, so they have the power to force adoption of digital assets (most money is already digital). I am excited by the concept of programmable money, for example, the stimulus checks for Covid in the US could have been delivered digitally and programmed to be only spent in certain areas of the economy. This gives another tool in the monetary tool box for Central Banks, and also goes towards moving towards a platform economy. It asks important questions around the role of Financial Intermediaries etc.

DeFI, is probably the coolest idea around at the minute and we are seeing lots of people benefit from it, I am working on a project currently in DeFi.

 

[DublinHead54]

Personally I think it will be absolutely terrible for stability, as bitcoin is propelled to the moon with this as the catalyst in the next year or so.

HODL

 

[Leo]

In terms of Blockchain Technology, there are lots of interesting Proof of Concepts being proposed, but currently we aren't seeing a whole lot of adoption, I think the cost of implementation for corporations will out weigh the benefits.

Indeed, there was a huge drop in venture capital funding for blockchain projects over the last year or two as the early hype and enthusiasm didn't bear fruit. There was over $4B invested via VCs in 2018, but very little actually making it to market.

 

[Gus1970]

Indeed, there was a huge drop in venture capital funding for blockchain projects over the last year or two as the early hype and enthusiasm didn't bear fruit. There was over $4B invested via VCs in 2018, but very little actually making it to market.

Could your share your source please?
Thank you

 

[Leo]

Could your share your source please?
Thank you

There are a number of platforms that report on VC investment, CBInsight make some of that available without subscription and do regular features on the blockchain space.

 

[Gus1970]

There are a number of platforms that report on VC investment, CBInsight make some of that available without subscription and do regular features on the blockchain space.

Thank you Leo

 

[tecate]

Sept. 2017: JPMorgan's Jaime Dimon - "Bitcoin is a fraud and will blow up".
Feb. 2019: JPMorgan launches its own stablecoin.
23 Oct. 2020: JPMorgan in a note to investors - "The potential long-term upside for bitcoin is considerable as it competes more intensely with gold as an 'alternative' currency we believe, given that Millenials would become over time a more important component of investors' universe".

 

[MaxGordon]

Good one, Tecate

Of course we need to bear in mind that back on 2017 the head of cryptos at JPM was just starting out on his CFA journey and is now fully qualified! No point in getting edumecated if your ideas ain't going to change!

 

[DublinHead54]

Sept. 2017: JPMorgan's Jaime Dimon - "Bitcoin is a fraud and will blow up".
Feb. 2019: JPMorgan launches its own stablecoin.
23 Oct. 2020: JPMorgan in a note to investors - "The potential long-term upside for bitcoin is considerable as it competes more intensely with gold as an 'alternative' currency we believe, given that Millenials would become over time a more important component of investors' universe".

Have you got the actual report? Interested in reading.

 

[tecate]

Have you got the actual report? Interested in reading.

As you can see, there's a link to the article by Business Insider (which isn't a crypto publication). There's no sign of the note itself. As something that wasn't destined for broader dispersal, perhaps they can't publish a copy of the actual note itself.

EDIT - This seems to be it -> here.

A couple of other take-aways:

"The market cap of bitcoin would have to rise 10 times from here to match the total private sector investment to gold via ETFs or bars and coins".

"We believe the market value of cryptocurrencies could eventually rise beyond what could be justified by only valuing them as a store of wealth. Cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment."

Back in 2017, JPMorgan CEO Jamie Dimon said that he'd "...fire a JPM trader in a second who traded [bitcoin]. Its against the rules, its stupid, its dangerous".

 

[DublinHead54]

As you can see, there's a link to the article by Business Insider (which isn't a crypto publication). There's no sign of the note itself. As something that wasn't destined for broader dispersal, perhaps they can't publish a copy of the actual note itself.

EDIT - This seems to be it -> here.

A couple of other take-aways:

"The market cap of bitcoin would have to rise 10 times from here to match the total private sector investment to gold via ETFs or bars and coins".

"We believe the market value of cryptocurrencies could eventually rise beyond what could be justified by only valuing them as a store of wealth. Cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment."

That's just an extract, this was a lengthier research piece. Let me see if I can get a copy of it.

It briefly mentions one of my main discussion points, gold reserves are held by central banks whereas bitcoin large holdings are held privately. I'm hopeful Panigirtzoglou will explore this further.

Interesting that he has called out millennials as one of the reasons for the potential long term. This is one of the first articles I've seen consider a social aspect.

 

[tecate]

Interesting that he has called out millennials as one of the reasons for the potential long term. This is one of the first articles I've seen consider a social aspect.

It is interesting - and it seems to make sense. It's difficult for many to get past the idea of a digital currency rather than a physical currency. From millennial down, that demographic is going to be much more comfortable with and accepting of digital currencies. JPMorgan's Panigirtzoglou referred to precisely that notion back in August -> Bloomberg: 'Older Investors Go for Gold, Younger Ones Bitcoin' .

 

[Brendan Burgess]

From millenial down, that demographic is going to be much more comfortable with and accepting of digital currencies.

As indeed they were with the dot.com boom and any other fashionable hot air.

You will just have to get burnt to realise that this is all nonsense.

Brendan

 

[tecate]

As indeed they were with the dot.com boom and any other fashionable hot air.

Many got burnt due to over-exuberance in the dot com crash. However, in citing that example Brendan, you've never acknowledged the incredible technology that came out of it or the gains made by those that had backed (or went on to back) technological behemoths such as google, etc.

You will just have to get burnt to realise that this is all nonsense.

I don't have any issue whatsoever with the suggestion of a need for caution. What I do take issue with is the consistent claim that there isn't one single tangible advantage to decentralised cryptocurrency. That doesn't make for a reasonable interpretation of it to my mind.

 

[MaxGordon]

What's nonsense is in anyway attributing the .com bubble to millennials - do you honestly understand the meaning of the term?

 

[Brendan Burgess]

Max
I was responding to tecate's use of the term.

The point is that it's the same age group who chase the latest investment fad and get burnt badly.


Brendan

 

[Brendan Burgess]

Many got burnt due to over-exuberance in the dot com crash.

tecate

The common feature is the abandonment of rationality.

Abandoning any of the rules of finance or investment analysis.

And a bit of over-exuberance as well.

I am sure that I have suggested it before but read https://en.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds

It's shocking for me to be able to sit here watching these things repeating themselves. The difference now is that we have a very good contemporaneous record of it. You will be able to look back in n years and say "How could I have been so stupid? I was a millionaire in Bitcoin and I could have cashed out!"

Brendan

 

[tecate]

The common feature is the abandonment of rationality.
And a bit of over-exuberance as well.
I am sure that I have suggested it before but read https://en.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds

This isn't in any way exclusive to crypto/blockchain. The investment aspect of every new technology goes through a hype cycle. There's no disagreement there.

Abandoning any of the rules of finance or investment analysis.

That's a discussion that we've already had - the normal rules don't apply OR they're the normal rules as they apply to the determination of the fair price of gold.

It's shocking for me to be able to sit here watching these things repeating themselves. The difference now is that we have a very good contemporaneous record of it. You will be able to look back in n years and say "How could I have been so stupid? I was a millionaire in Bitcoin and I could have cashed out!"

I don't maintain complete exposure to crypto. However, as it stands today, I also don't share the same thesis as you do (I.e. bitcoin will go to zero -it's just a matter of when). My belief is that we will see further 80% corrections as it progresses. 2017/18 wasn't the first such occasion. However, it appears to me that we're also heading higher.
I'm not in disagreement with the need for caution. For that reason, I've stepped out of the market on a number of occasions. However, after the 2017/18 surge and correction, had I ran with the opinions expressed here on AAM, I would be down considerably on my current position.

I don't have any problem with an abundance of caution. However, as previously stated you fail to acknowledge that there is anything tangible in decentralised crypto - and that's not credible to me. Perhaps you simply believe there's absolutely nothing there or perhaps you don't want to admit it in case it would be seen as an endorsement. The very same with your dot com boom example. Yes, plenty got their fingers very badly burnt. However, there were also those that found considerable upside - with the very same tech/projects that arose from that crash. Why can't you acknowledge that?

 

[Brendan Burgess]

You are repeating the same arguments.

I am sure that I have recognised that there is some application for crytpto just as there is for paper cheques. It does not mean that the cheques have any intrinsic value.

And of course people made money investing in tech shares. I have not disputed that.

I don't know if you were around then. But a share split could result in the share price increasing. Complete madness. The same with bitcoin. They increase the supply and some of the enthusiasts twist that around to say that the supply is reduced.

It's the exact same lack of reason.

Greed makes people stupid.

But if you see an 80% fall coming, then fair play to you. I see a 100% fall coming.

Brendan

 

[tecate]

I am sure that I have recognised that there is some application for crytpto just as there is for paper cheques. It does not mean that the cheques have any intrinsic value.

I don't think you are in any way understanding the proposition at hand. We've been over the intrinsic value debate so I won't labour it here.

And of course people made money investing in tech shares. I have not disputed that.

So the point is that they weren't wrong in terms of the proposition. They were wrong in terms of over-exuberance (or at least a proportion of them were).

I don't know if you were around then. But a share split could result in the share price increasing. Complete madness. The same with bitcoin. They increase the supply and some of the enthusiasts twist that around to say that the supply is reduced.

We've had that discussion - so there's little point in re-opening it other than to say that I disagree. Halving the mining reward isn't increasing the supply.

But if you see an 80% fall coming, then fair play to you. I see a 100% fall coming.

I do - against the background of a fixed supply asset with an overall upward trajectory.

Do you see this advisory from JPMorgan then as treachery? Is this their honest appraisal or a ruse to suck in the feeble of mind such as myself?