Many of you are perhaps enjoying the crypto fortunes that Santa brought along during the Christmas season of 2017 and even continued into the New Year. But, once Santa retreated, he also took away some of the smiles. Bitcoin climbed to $20,000 and in all likelihood most of you who did have the 100s or perhaps the 1000s of coins sat watching the graphs hoping that there is more upside. But, lead by Bitcoin, the crypto prices started climbing down the hill losing over 50% from the peak they had climbed.
There are many hardcore believers who won’t wink an eye to put Bitcoin and some of the other top cryptos on par with gold or other asset classes and that the events in the second half of January, 2018 are at best passing clouds. In the short run, this could even prove to be true considering that Bitcoin has climbed back to $8,500 from the recent low of $6,000 a few weeks ago. But, what are your crypto fortunes from a longer term perspective?
Why Bitcoin and other cryptos will lose their sheen?
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In absolute terms, Bitcoin, or for that reason, the other cryptos are merely a set of 1s and 0s sitting on the internet and lacks intrinsic value. Conversely, the 1s and 0s created by federal governments are ‘legal tender’ and can be used as money. Bitcoin, on the other hand is voluntary making an effort to short circuit power structures and national laws. This is one major reason why the ‘power structures’ cannot allow the ‘playboy’ to continue disrupting their power centers.
Why the national governments are waking up now?
When Bitcoin started about a decade ago, it was not a significant player and therefore, the national governments did not perhaps wholly envisage the disruptive power behind the underlying technology called ‘blockchain’. Now, coercive and destructive power is within the exclusive domain of national governments. That is real power and no imaginary power such as Bitcoin can every dwarf it. Bitcoin merely started a new game and there were no opponents in the beginning. Speculators therefore believed that the game will never have any significant opponents, and sadly they were proved wrong with over 1,500 crypto currencies trading today and perhaps an equal number of also rans.
Money and coercive power should be the monopoly of governments
National governments cannot be worried about crypto fortunes and cannot let go their monopoly over money and coercive power. That may not be fair or good, but remains an irrefutable fact. Bitcoin and some of its close competitors are now trying to challenge the monopoly of the governments and perhaps cracks are beginning to show on the forts. Understandably, governments have woken up and their glassy gaze has started prying.
Banning the crypto may not be the singular option before governments
Bitcoin has been declared as “a fraud” by Jamie Dimon of JP Morgan. That could just be the beginning and the big can start playing the hardball, sooner than later. The coercive power and monopoly in the hands of the government will present with an array of measures that can hurt the crypto fortunes and when those measures come from multiple directions, it can be an avalanche for the crypto markets and therefore, your crypto fortunes.
How governments manage and manipulate global economies
In August 2011, gold prices soared and nearly kissed the $2,000 mark per ounce. Did a sudden demand/supply imbalance cause this? Think of it this way – who has inexhaustible physical stock of gold? The federal governments of course, and considering gold is measured in ounces rather than grams or tons, imagine the disruptive power of just about 5 or 10 tons of gold. Between August 2011 and February, 2018 gold never came close to the $1900 mark again. As we write this, gold price is hovering around the $1150 mark per ounce, translating to about $750 from its peak in 2011. If you apply pure logics, there is hardly any reason why gold and silver should have reversed its northward journey and head south. Yet, there are the hopefuls who cling to their gold (not the federal banks) hoping that the earlier peaks will come one day or the other. These are people who have their small holdings in grams rather than tons and their faith is aided by the fact that gold is precious, rare and real.
There is nothing real about Bitcoin or other altcoins
Opposed to gold which has a store value, Bitcoin and other altcoins are made up of a mere bunch of 1s and 0s and there is nothing tangible about them. Momentum and faith in the ‘moon shot’ are the key drivers and if those are gone, everything can come down like a pack of cards.
Governments have no stock of Bitcoins unlike gold reserves
A huge consolation there! Without adequate number of cryptocoins, the governments cannot disrupt the markets and therefore all the above arguments do not hold water! Think again. Governments have access to unlimited supply of money and with that they stealthily build monstrous positions in Bitcoin or other altcoins they choose. They even have all the time in the world to do this and the markets would hardly notice the stealth operation because they can pick up all the 1s and 2s here and there and build their own mountain over several months or perhaps years. Or, they can go ahead and mine some coins when they feel the need. Once they reach a comfortable position, trading bots will be employed to jam prices down and trigger some panic. In turn, this will trigger an avalanche of ‘sell’ orders. Then the panic will die down in some time and the ever hopeful ‘bargain hunters’ will arrive on the scene. That is when the market will be hit by a second wave flooding the market with more coins at the lower prices. These waves will continue on to the third, fourth and so on.
If we go back to the economic meltdown of 2008, we can see that a bunch of junior stocks in the mining sector dropped down by 80 to 95% in a short span of time. This is how panic impacts real companies. So, you can imagine what can happen to the 1s and 0s when panic strikes. You can draw your own prediction on how such a panic will impact individual investors!
But, you can wait for a recovery
Yes, you are one of those hard core, never say die, investors in crypto fortunes. So, you will simply wait till the market recovers. In the process, you will keep watching the charts day in and day out. But, what you are sidestepping is the fact that markets can stay irrational, much longer than your ability to remain solvent! And, this could be doubly true with national governments kicking you, and kicking hard, when you are down. You have challenged the national governments by investing in cryptocurrencies and their power has been challenged. You assumed that the governments can do precious little to reverse your crypto fortunes. You could be proved wrong and this time you could be dead wrong.
We are not telling you this to frighten you out of your wits. But, you should remember that the bullying power of national governments is unlimited and they can dip their hands into your lunch money. Enjoy the cryptocurrency fortunes till the party lasts. How soon the government reapers will come tearing everything down, is anyone’s guess.