Bitcoin down over 80% from its high - Does it even matter?


VTS community,

Well folks, the day has come!  I'm sure if you've been paying attention to the alarming price action, you knew at some point I was going to say something.  This is a very polarizing topic, so if you wildly disagree with me that's just fine, I'd love to hear your opinion so email me back and let's discuss.  But at the very least, give me credit for diving into it because it can bring a lot of hate  :)



From its high of 19,346.60 to the current price of 3,753.30, Bitcoin is down over 80%.  Now I can't say I'm surprised.  Long term followers will know I've been quite bearish on Bitcoin since long before it even made it over 19,000.  I started questioning things back when it was just a few thousand.  So I guess it would be fair to say I was dead wrong about it when it was rising to meteoric levels, and thus far I've been right that it perhaps should not have gotten there to begin with.

I would never tell anybody what they should or shouldn't do with their money.  If they are a believer in the future of crypto, that's just fine.  As long as an individual doesn't try to convince themselves that it's anything more than a long shot speculative gamble, and they keep their allocation size to it very small, then have at it.  I don't see any real harm in that.  In fact, I may try to jump into a crypto trade or two myself, but more on that if the time comes.  But as long as a person keeps their allocation size small, I don't see any harm in taking a few long shot trades.

If it's price does go to astronomical levels like some are predicting, then even a small allocation will be enough to hitch a ride on that profit train.  If it doesn't and it eventually crashes and burns to zero like others predict, then a small allocation won't be enough to derail a diversified portfolio. 

Either way, the key to navigating a market like Bitcoin is proper position sizing because there is nothing else to control for.  A quantifiable fair value analysis is impossible.  I see experts on TV talking about its fundamentals, it's multiple.  That's absurd.  It has no earnings, no cash flows, no dividends, no assets.  Fundamental analysis is impossible. 

But further than that, it has no association or consequence in the real world.  If every cryptocurrency in existence disappeared over night, besides a bunch of people who hold coins waking up in a very bad mood, the world itself wouldn't even notice.  Can the same be said for the US dollar?  If it was gone overnight, I can imagine there would be some consequence.  Or real estate, bonds, oil, steel, these are assets that are fundamental in the way our world functions and we would definitely notice if they dropped 80% in value. 

That's the biggest problem facing Bitcoin investors.  So far, it just doesn't matter either way.  Sure it may go to 50,000 or higher, and yes it may go to 0, only time will tell.  But either way, currently, does the world in general even care?  At least in the case of gold which also can't really be valued fundamentally, at least gold has some industrial use and is important for many central banks around the world.  It's not totally meaningless in the grand scheme of things.

So if Bitcoin is to grow, it has to become more important.  Essentially, more popular in day to day use.  So are we seeing signs of that happening?  




Bitcoin isn't being viewed or used as a means of exchange yet.  It's being used primarily as a speculative investment.  If it was a means of exchange gaining in popularity, we would see it start to replace standard methods.  But based on point of sales statistics, clearly at this point, very few people want to use Bitcoin to buy things because what if goes to 50,000?  You don't want stories written about you like that guy who used his coins to buy pizza that turned out to be worth hundreds of millions.

I need to buy a new computer soon.  Does the thought of not buying it because my dollars may double in price this year even cross my mind?  No, of course not.  I need it, so I'll use my dollars to buy it.  Bitcoin investors see the devaluing of dollars as a flaw.  Actually, it's a feature.  It means we can use them to actually transact.  Remember, dollars held in interest bearing accounts have not lost value.  Only dollars in a shoebox lose value, so they are meant to be invested or spent, not hoarded.

This is an inherent problem with Bitcoin investors.  People want to see it as a compounding investment, and a way to transact.  Unfortunately, it can't be both.  A viable means of exchange needs to be viewed by most people as nearly worthless.  It has to be an afterthought to be a currency.  

So which is it going to be?  Is Bitcoin going to have a stable price and be viewed as a means of exchange so I can buy a new computer with them?  Or is it something that I can never actually use, in fear that I'll miss out on the explosive growth?  



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