Let me explain. Short and sweet, I’m a financial advisor (< 1 year). Since last fall I’ve had to basically study finance from the ground up and learn about the history of the stock market. It’s been difficult, but it led me to having this theory about crypto (it’s a giant bubble). So why do I think this. One thing I learned while studying was the reason behind the 1929 stock market crash, Black Tuesday (one of the events leading up to the Great Depression, if not the event responsible). Real quick: obviously stock market crashes are caused by a variety of things, but for the 1929 market crash it’s generally agreed that Black Tuesday was caused almost primarily by excess debt, or leverage, used to buy stocks in a slowing economy (end of the roaring 20’s). This leverage wound up causing the stock market to rise uncontrollably, far past its intrinsic value, and stocks eventually became worth far more than what the companies’ were actually valued. Once this happened, and the market eventually dipped (as it does regularly), panic set in and huge sell offs began to happen. Despite efforts by banks to buy up large chunks of the stock market, by Monday, the 28th, 1929, the market fell 13% and a further 12% on Black Tuesday in record-setting volume. As stated by Investopedia, “The market hit a 20th-century low of 41.22 on July 8, 1932, which was a fall of 89% from its high of 381.17 on Sept. 3, 1929”. That’s like Tesla dropping from 1,036 (current price) to 113.96 - but for the entire stock market. Anyways, check my math, but this idea of panic-stricken sell-offs was eventually solved (or mitigated) by the use of Trading Curbs (placed into effect after Black Monday later in 1987) which stock exchanges used to temporarily halt trading during panic-sell offs, to help give investors time to think and cool-off. This tactic actually wound up preventing a crash from occurring on October 27th, 1997 (24 years ago today!) during the Asian financial crisis. And, although the DOW dipped 554 points (the largest in history up to that point), it eventually rebounded (337 points - also the largest single-point gain in NYSE history up to that point) after trading curbs kicked in during the drop. So what does this have to do with Crypto? Well, from what I’ve gathered, there are a LOT of retail (un-seasoned) investors with money in crypto. And, as is historic, when prices begin to decline it is usually the irrational and emotional investors who decide to sell off first (as most weathered investors know to hold or buy in times of extreme volatility), and, reasonably speaking, most retail investors often let emotion get the better of them in times of uncertainty. This uncertainty can be initiated by anything, but the important thing to know is that the absolute worst place to be invested is in a falling market full of emotionally driven/compromised investors. So where do the two connect?? Well from what research I’ve made, there seems to be little evidence of trading curbs (also known as circuit breakers) being implemented into major crypto exchanges (I found some evidence on bitFlyer, but nothing close to as rigorous as NYSE’s - which, I guess, is fair). Coinbase, for example, simply states “Coinbase Markets does not use circuit breakers or automated trading halts based on predetermined price bands…Coinbase Markets Market Operations may, in its discretion, halt trading” - oof. This, I believe, is a big mistake. It might certainly be bad enough that the crypto market is full of retail investors, but with so few trading curbs in place, crypto is certainly on my list of my “Do-Not-Touch” investments. So why is nobody talking about this? I think it’s because of the same fallacy that got us into the Great Recession back in ’07/’08. The “Hot hands” fallacy, which is the expectation that past performance will create a more-successful future outcome. This goes counter to a widely taught investing principle, that past results are never indicative of future performance. However, in this case of cryptocurrency, we have a market more-or-less reliant on the opposite of this current concept. Frightening. And to think some people have their life savings in Bitcoin. Thoughts?
so what?
Decouple bitcoin from crypto pls
As of now, I can’t.
Can you do a TLDR plssss
Crypto is bubble because so many inexperienced investors are involved and the remedies to stop a crash are not there. This is bad because crypto is becoming more involved in society and people’s retirement/investment accounts. No bueno
Message me if you want more
Bitcoin winter is expected, it's happened, what, five other times? In 2017 tons of retail investors got wiped out. I don't think the problem is as bad as you describe because there are many institutional investors now. And people have a better understanding of the cycle. I don't find it frightening in the slightest. What I find much more terrifying is the debt driven economy our society is based on.
Money is the bubble that never pops.
Inflation inflation inflation
Things have changed. You’re missing the HODL meme. It used to be that retail would sell if prices fall or soar. But that’s no always true these days anymore. There are plenty of metrics on long term holders with little price sensitivity when it comes to selling. “Buying the dip” is also a real thing. Outside of crypto there were the obviously GME and Hertz case. You can think this is a fad that will go away. But this new retail behavior is only possible because of structural changes in the real economy. Deflation in the real economy is real, which leaves exceeds dollars looking for things to invest. And with basically negative real interest rates, betting on an asymmetrical return is a strategy that both the stupid and sophisticated investors adopt, because either they dont know the principles or they know enough to challenge the principles. Only the middle tier/mediocre investors try to stick with the “principles” these days.
I don't think Bitcoin or Ethereum are in a bubble, and here's why. 1) Central banks around the world are generating a lot of new cash to buy bonds and securities to keep interest rates low and markets liquid. This is what you could call currency debasement. Doesn't necessarily lead to inflation, but it's often a precursor. Governments around the globe run massive deficits and basically can't continue to operate without the support of central banks and low interest rates, or drastically reduce spending. 2) The implications of (1) mean that bond yields are so low that any normal person should not own them because it's an all but guaranteed loss against current and future inflation expectations. This causes people and institutions to move up the risk curve. Stocks, VC, crypto, real estate, art, and anything else that can't easily be generated. 3) The value of crypto comes from a combination of acceptance as a means of value transfer or store of value, censorship resistance, decentralization, speed, security, etc. In general, we're not witnessing a bubble in cryptocurrencies, stocks, or real estate right now. We're witnessing a global debasement of currencies in response to the pandemic, the 2008 GFC, and unsound monetary policy for the last 50 years. I highly recommend you read the Bitcoin Standard before you make up your mind on crypto.
Shut up nerd
3 stars
This is neither short or sweet LOL!
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This is widely known — so what? What is your point?
😂 It’s like 5 years we are all aware
So what? Well truthfully I don’t know. But the more it becomes incorporated into peoples lives, country’s currencies, and retirement accounts, the more likely that we are going to have a repeat of 1929.