The Crash is Coming!

I could write a post every day saying that ‘Bitcoin Will Crash Tomorrow’, and as with the internet in ’01 and the stock market in ’08, eventually I may be right. But that doesn’t allow me to be hailed as the great foreseer, the person that ‘called the crash’. This is a problem that persists outside of crypto too, with many a youtube channel predicting all manner of catastrophic world events, and within the crypto space it seems almost daily i’m recommended a video that warns me the great crypto crash is just around the corner. All of this is meaningless and only succeeds in spreading FUD. In fact to accurately predict a crash you need just two things, what will cause it and most importantly when will it happen.

Very few people actually saw the financial crisis coming in 2007/2008, and even less fully understand exactly what would cause it, and when. I don’t think there is a debate regarding whether Bitcoin or the crypto markets will see a large correction or bear movement, sparked by some single or number of events. In fact it’s very healthy for markets to go through these types of cycles, and can still result in a net win over a reasonable time frame. What I’m campaigning for is radio silence until someone has attained concrete evidence that things are about to go south.

The most worrying aspect of the financial crisis was how such a small number of players could affect the lives of so many. Your average investor didn’t even know what a CDO was, let alone be invested into it, and yet the ripple affect was enormous. The issue with a large scale crash in Bitcoin is it’s individualistic nature, by which I mean, current BTC investment is spread among a wide selection of individuals or small firm investors and for different reasons, something I covered in Bitcoin’s Value Consensus Problem. This for me gives the price more stability against a large corrective move, but also makes it more difficult to ascertain when and for what reason such a move may occur. Ray Dalio’s Bridgewater (the most successful hedge fund in the world) was able to predict the financial crisis by understanding who owed what to whom, and who would and wouldn’t be able to pay…and by what date. This currently is almost impossible to do for Bitcoin due to the decentralised nature of the investment into it.

To illustrate the point of decentralised investment, just look at the China news. One of the worlds superpowers ‘BANS BITCOIN’ and the price only dropped for a few days before regaining it’s losses and hitting an all time high shortly after. In the past few days Vietnam imposed a fine for anyone caught using Bitcoin as a currency (a strange decision I may cover another day) and the price barely moved.

Everyone seems so excited for institutional money to move into the crypto space, but with it comes greater perils of a large corrective move fuelled by the enormous funds available to the big banks. Sure we have some whales within crypto, but very few have the want or ability to move billions in and out of the market. This issue is mitigated with the addition of an ETF, but as outlined in Is there a dark side to ETF’s there becomes the potential for BTC holders to transfer their funds into the ETF or for new investors into the space, they can avoid a lot of the risks associated with buying and storing Bitcoin, as such they are more inclined to put their money into the ETF and not in Bitcoin.

Again it all comes back to what you want from crypto. If you’re a HODLER then sit tight, if the price plummets to $1000 tomorrow but over the next 3 years bounces back to $10,000 then it’s all irrelevant. Don’t be dragged into the hype that the price will suddenly go one way or the other. Put in place your own due diligence process and stick to it. Map out your intentions and continue to correlate them with whats ACTUALLY happening and not what some over eager Youtuber is predicting. Even someone as respected as Tone Vays makes bad predictions.

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