The Bitcoin price last traded at USD 790 (this morning) which represents a 37% price crash against its trading high of 1242, vaporising the wild dreams of just a few days ago where some reported that the virtual money could be destined to go as high as 1 million! Whilst never realising the difference between what is virtual and what is real, instead in large part bitcoin pumper's remain in denial as many have been seduced by the golden coin image to imagine that bitcoins and gold are the same or similar when the reality is the exact opposite. Bitcoins is fairy dust, it is perceived as being very valuable but a small gust of reality is enough to make it disappear.
Bitcoins is DESIGNED to play out as a ponzi scheme bubble to enrich those that created it as they mined over a million bitcoins (current 12.1mln bitcoins) relatively easily (initially low processing power required), with future supply increasingly limited as much greater processing power is required to mine more blocks which coupled with the media frenzy has helped push up the price which the designers and early adopters can offload into and onto unsuspecting fools. This is a ponzi scheme where only the designers and initial miners win hugely, that I suspect will lead to criminal prosecutions.
Meanwhile, over the past 24 hours the blogosfear, mainstream press and the sales men have been busy writing reams of commentary on the bitcoin crash AFTER the event, AFTER the bitcoin crash, and many can be seen floundering like fish out of water as to what direction bitcoins are likely to take going forward as they delve into double speak i.e. implying that the price could continue falling or then again might be a great opportunity to buy, the broadcast news is full of such double speak by the media whores that populate the likes of CNBC, you know who they are!
So whilst the media was painting a picture of bitcoins soaring into the stratosphere, I made it clear in my article of just over a week ago as the bitcoin price homed in on its 1242 high as to why bitcoins were a ponzi scheme destined to collapse and what bitcoin holders should do IMMEDIATLEY.
As was the case for the original Tulip Mania, following the bursting of the bubble Bitcoins will soon be forgotten and so will the craze for all peer to peer i-currencies, as the bottom line is that bitcoins never matched the hype for transactions are NOT anonymous and it IS heavily manipulated by a handful of mining pools so is not decentralised as today ordinary people cannot muster the processing power required to mine for bitcoins.
The bottom line is that bitcoins are a pyramid ponzi scheme where those who got in early win, whilst everyone else loses. If you own bitcoins then you should get out IMMEDIATELY!
Here are some mainstream media excerpts of the bitcoin craziness in the run up to the crash.
The Guardian - Is Bitcoin about to change the world?
If you want to buy drugs or guns anonymously online, virtual currency Bitcoin is better than hard cash. Canny speculators have been hoarding it like digital gold. Now the world's leading bankers are even talking about as a rival for real money.
People keep describing this price behavior as "crazy" and "insane," but it's actually not that surprising. Earlier this spring, when Bitcoin was trading at about $90, I "raised my Bitcoin target" to $400. This was an inside joke that referenced an old price target of mine. I don't actually have a Bitcoin target. But I was getting at a more profound point: $400 is a perfectly reasonable target for Bitcoin. As is $1,000. As is $10,000 or $100,000 or $1 million.
In January of 2009, Satoshi started mining the first crop of bitcoin, creating what is known as the “genesis block.” By year-end, over 32,000 blocks had been added to this original block, producing a total of 1,624,250 bitcoins. Since all transactions are public on the blockchain, we know that only a quarter of those bitcoins have ever changed hands, which means Satoshi is believed to be sitting on a stash of roughly one million bitcoins. With Bitcoin surging past $1000, that stash is worth about $1.1 billion.
Wednesdays price crash was followed early Thursday with my next article that laid out a forecast of how the bitcoin crash would play out over the coming days as the price at the time had recovered strongly from its initial crash to 900 to stand at 1074 at the time.
What's Next for Bitcoins
A quick technical review of the charts implies that a double top pattern is being formed which is a warning that the bounce from the neckline is not something that bitcoin holders should put much hope into for the price is likely to reverse within days to break the neckline and retrace all the way down to at least 500 (current 1074), which is more than a 50% drop of the last price and a 60% drop from the high.
Longer term my view remains that bitcoins could lose as much as 99% of their value, so following a 60% crash, don't be seduced into the buying opportunity sales pitch that you will hear much about, no matter how hard the price bounces following the crash it will as the bitcoin longer term history illustrates just mark the initial phase of a prolonged price collapse towards 1/99th of its trading high or about 15, at which point even I would consider a speculative buy.
The bitcoin stepped crash with much volatility continues to play out not just towards my technical target of 500 but eventually towards virtually zero as represented by my longer-term objective of just 15, that is 1/99th of its trading high. So understand this that the nightmare for those who continue to hold onto bitcoins is only just beginning, yes the price has crashed by 37%, but it is still stands 37% above its technical target of 500 and has the potential for a 96% loss of its current value should the target of 15 be realised, so this is NOT the time to hold on hopes of recovering back towards the highs as the loss of value sustained could literally be TOTAL! A lesson that all market traders have to learn else they will go bankrupt holding on for price recoveries that always become more distant with each stomach churning lurch to the downside.
For more analysis of why bitcoins is crashing do read my two recent articles on bitcoins
- 05 Dec 2013 - Bitcoin Mania Bubble Bursts, China Triggers Price Crash Start, Technical Forecast
- 29 Nov 2013 - Bank of England UK Housing Market Bubble Panic is Mark Carney Playing Game of Thrones
Charts courtesy of http://bitcoincharts.com
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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