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You may have noticed that Bitcoin has gone from a high of $69k USD in November, hovering around the $40k mark the last month or so, and sliding to under $30k this past week. The main causes of this have been two: the fall in tech stocks and the failure of “stablecoin” cryptocurrencies such as TerraUSD.
You may also be hearing stories of people losing their life savings and becoming destitute. Personally I have no sympathy for people so greedy that they’re willing to gamble all they have.
Golden rule: Only invest what you can afford to lose.
Many commentators will be saying that the cryptocurrency bubble has burst. I disagree, because I don’t think there is/ever was a cryptocurrency bubble. The reason I say this is because if you look at financial bubbles of the past such as tulip mania, they’ve been driven by “dumb” money (as the old saying goes, as soon as your neighbour’s dog starts investing it’s time to get out). When you have more dumb money than smart money then you have a bubble. The more dumb money there is the bigger the bubble. That hasn’t been the case with cryptocurrency. From what I can tell the dramatic increase in the price of cryptocurrency up to last November, especially Bitcoin, was driven by Wall Street.
So should you do an El Salvador and “buy the dip”? My answer is a definite no if you can’t afford to invest, and a probable no even if you can. In my opinion, Bitcoin will sink to around 15k to 10k USD before bottoming out.
The second question is: if you’ve already invested in Bitcoin should you cut your losses and sell? My answer is a definite no! Bitcoin has a habit of acting like the phoenix and rising from the ashes. So if you hang on long enough you should get your investment back.
(As an aside, mining of Bitcoin takes a lot of energy. If new technology were to be created that greatly reduced the amount of energy used, this would likely result in a rise in the value of Bitcoin and other cryptocurrencies.)
But the unsung star in this drama is the blockchain, a kind of decentralised ledger that’s behind cryptocurrencies and more recently NFTs. The blockchain lets you prove that you are the owner of a digital asset such as a bitcoin. This is where the real action is. And the blockchain is only starting to realise its full potential.
Watch this space.
