I’ve said for a while that bitcoin is a Ponzi, a fraud and a bubble all at the same time. Yet that’s not my view of blockchain technology as a whole.
The technology is sound and has a bright future. New improvements are being made all the time. Some new cryptocurrencies are emerging that have radically different governance models and security protections than bitcoin. Those new cryptocurrencies are worth a look. But not bitcoin.
Bitcoin is a technological dead end that has no use cases other than crime, terrorism and tax evasion. What about the “bitcoin billionaires”? These are the 1,000 or so people who own 40% of all bitcoin. They have huge paper profits (measured in dollars), but if they all sell at once, those profits will disappear as the price plunges. How can they cash out without trashing the price?
There are several ways to do this. One is to short bitcoin futures on CME and then dump coins on exchanges. The coin sales will trash the price, but the price decline will result in profits on the short futures positions. Being long bitcoin and short bitcoin futures is a hedged position that leaves you indifferent to price. The small loyal “hodlers” get trashed, but the big money does fine.
Another technique, described in this article, is to write call options on physical bitcoin. The writer keeps the bitcoin, but collects the premium. If the price rises and the bitcoin gets called away, the option writer still gets the option strike price in dollars. You give up some upside but you lock in gains. It’s a simple covered call strategy.
Whatever strategy you choose, it’s clear the big money is now taking their gains and getting out when they can. This is exactly the wrong time for new investors to get involved.