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The Second Bitcoin Boom

Dana Blankenhorn

Bitcoin is back, baby! Or so say its advocates. Bitcoin can act as a proxy for crime, as the Mueller Report has described, as a measure of distrust in traditional “fiat” currencies like the dollar or as a measure of the general market’s speculative fever.

The Second Bitcoin Boom

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With U.S. stock markets trading near all-time highs, this looks like a fever.

Since the start of the year, the price of a Bitcoin is up roughly 46%, rising from under $3,800 to an April 25 price of about $5,521. (Crypto markets are electronic, open 24 hours per day.) Most of the positive action is centered on Bitcoin itself.

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There’s a reason for that.

Enforced Scarcity

Bitcoin was developed around a concept of enforced scarcity.

Only 21 million Bitcoins will ever be mined. With the total available now at about 17.6 million, the value of mining is due to drop soon. There are also millions of Bitcoin that have simply disappeared, in wallets whose encryption keys have been lost.

This enforced scarcity means that renewed interest in Bitcoin quickly turns into profit. As the rate of transactions increase, it feeds on itself, until the bulls start screaming “it can only go up from here.” 

Smart people can easily be caught in the fever. Softbank (OTCMKTS:SFTBY) CEO Masayoshi Son reportedly lost $130 million on Bitcoin recently, buying near the early 2018 high and selling near the low. Naturally, Son’s losses have only encouraged the fever. Everyone thinks they’re the smartest person in the room.

Bitcoin Still Useless

Bitcoin is still useless, in an economic sense. When the price starts rising, few try to argue that it’s a real currency with a stable value that can stand in between, say, you and a pallet-load of Chinese toys being loaded at Shanghai that must be offloaded to your warehouse in Hoboken for the coming Christmas season.

When the price is rising, as it is now, no one even tries to make the argument that Bitcoin can stand in for dollars. Instead, it’s all about “parabolic” growth, as in 2017. Buy, hold, get rich. Bitcoin is invisible gold.

This only works if you sell at the right time. But if the whole world is going to heck in a handbasket, what are you buying? When everything crashes but Bitcoin, what can you get into that retains your Bitcoin wealth?


Don’t Talk, We’re Trading

Bitcoin markets are still filled with crooks.

Two Nigerians are now on the run from a 13-count indictment lodged in Oregon over a $59,000 Bitcoin scam.  A crypto market called HitBTC has been accused of not performing trades as ordered.  This is a business where you can’t even trust your broker.

You can’t even trust Twitter.

The Twitter account @bitcoin stands accused of being an online shill pushing Bitcoin Cash, a different cryptocurrency. In a poll by Bitcoin developer Jimmy Song, 54% supported suspending the account for fraud.

A group supporting cryptocurrency based on freedom wants the online law to go after its critics.

The Bottom Line

The rubber hits the road here when fear replaces greed in the wider market.

Bitcoin bulls are claiming that when the stock market turns down, as it did as recently as December, people will start rushing back to Bitcoin, which will magically rise to $20,000 and beyond. The scarcity of Bitcoin is said to make this a self-fulfilling prophecy.

So, what happened last December? When tech stocks dropped 20%-25%, the price of a Bitcoin fell from just under $6,400 on Nov. 12 to less than $3,200 on December 15. The Bitcoin recovery began before that of the tech stocks, which bottomed on Dec. 24, but they were no safe-haven.

Imaginary money never is.

Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com/

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