By now you’ve seen the headlines about the return of bitcoin. Bitcoin mania is back!
Bitcoin rose from about $2,000 in May 2017 to $20,000 by December 2017 in one of the greatest asset price bubbles in history. Then it crashed from $20,000 to $3,300 by December 2018, an 83.5% collapse in one year and the greatest recorded asset price collapse in history.
The crash of bitcoin was even more dramatic than the infamous collapse of tulip prices in the tulipomania in Netherlands in the early 17th century. Suddenly bitcoin is back in the news as a new asset bubble is developing.
Bitcoin rose from $3,900 on March 26, 2019, to $8,100 on May 15, 2019, a gain of 52% in less than seven weeks. This recent bitcoin price action is described in this technical analysis article. Is this the start of a new rally back to the heights of $20,000? That seems highly unlikely.
Bitcoin still has no use case except for gambling by speculators or the conduct of transactions by terrorists, tax evaders, scam artists and other denizens of the dark web. Bitcoin is still unsustainable due to extreme demands for electricity in the computer “mining” process. It is still nonscalable due to the slow and clunky validation process for new blocks of transactions on the bitcoin blockchain.
Bitcoin has no future as “money” because the supply of bitcoin cannot grow beyond a preset amount. That feature makes bitcoin inherently deflationary and therefore not suitable for credit creation, which is the real source of any system of money.
Bitcoin has been subject to continual price manipulation by miners through wash sales, front-running, ramping and other tried-and-true techniques for price manipulation. The bitcoin infrastructure has been plagued with hacking, fraud, bankruptcy and coin theft measured in the billions of dollars.
Bitcoin may go higher, but it will soon come crashing down again. This is a phony rally and one best avoided.
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