“Paul, what do you think of bitcoin?”
If you read my ll, you know that I believe bitcoin is real. However, the current mania for it looks unsustainable.
Now, bitcoin fans and owners are going to disagree with me. After all, how can you really argue with their success?
On December 31, 2016, you could buy a bitcoin for $968.23. At its high on November 8, 2017, it was at $7,879.06. That’s a gain of 714% in under a year! Astonishing, incredible and mind-boggling gains.
In other words, when it comes to the real bottom line — making money through gains — bitcoin owners have been right.
However, bitcoin has suddenly lost its mojo.
A Sharp Pullback in Bitcoin’s Price
On Friday, the digital currency suddenly sold off and is now at $6,692.26. Then over the weekend, bitcoin lost more ground until it was down by nearly a third from its peak.
Now you might be thinking. Should you jump in now?
A Bad Reaction to Good News
Personally, I’d stay out and the reason why lies in what has unfolded over the last few weeks.
First, there was a fight between two groups over what the original bitcoin should be.
One group wants bitcoin to be a store of value like gold. The other wants bitcoin to be liquid and accepted around the world like cash.
This fight was to be resolved by splitting bitcoin. One version of bitcoin was going to be the store of value, while the other would be more liquid like cash.
Then suddenly on Friday, the split was called off. Bitcoin prices dropped on the news.
That came as a surprise to me. After all, no split means fewer bitcoin. And in the way I look at markets, fewer bitcoin means more scarcity and higher prices.
Instead, bitcoin continued to plummet through the weekend. And through the writing of this commentary, the cryptocurrency continues to be incredibly volatile.
I can tell you that this sequence of a rapid decline in bitcoin following what should have been seen as good news is always a bad sign in my experience.