Today, (Thursday, 15 June) prices for Bitcoin, Ethereum and the majority of Cryptocurrencies are nosediving. It started yesterday, actually. I tried searching for what the reason could be. So far here are potential contributors:
1. There is an announcement that some mining company is going to fork Bitcoin.
So what? They split Bitcoin, then you just choose which version you like right? It is no reason to panic now.
2. Some politicians in Europe and America want to regulate Bitcoin and Cryptocurrencies.
Some of, what seems to me, sneaky ways they do this is to associate Bitcoin to terrorism or drug dealers and other criminals. Have they ever made the association between the person from a first world country sending cryptos to a relative in Asia or in Africa, incurring less cost and taking less time than what it would normally cost? How would regulation affect that relatively low-cost?
Sure. If you want to regulate it, look into it. But there's still a lot to talk about. How exactly, do you want to regulate it? Is it technically possible? What is the cost for the industry? What is the cost for society? Is being regulated good or is it just a way to keep those who are already rich and powerful remain try to stay rich and powerful by embedding themselves within the Crypto ecosystem like they have for the rest of the financial system?
3. Theresa May has proposed banning Bitcoin or Cryptos
This is not the first time that a British PM suggested this. David Cameron proposed it too but since they haven't gone ahead and done it yet, I take that as there being not enough good reasons to do it. If people are spooked by this, causing them to sell their cryptos, more likely at a loss, why? It is only a proposal, a suggestion. It takes time to discuss all this.
4. Some big investing company (Goldman Sachs) in America says something like Bitcoin is looking 'broadly heavy'.
They want in but they want to get in at a cheaper price. Because they have a big name and people revere big names, that move worked favourably for them. They spooked enough people to sell, causing the price to drop, then they can buy in cheaper. If you sold because of this piece of news, then it is likely you did not read between the lines. They actually indicated that they wanted to buy at a lower price. The take-home message is that, they like Bitcoin, they want to buy Bitcoin. It did not say, sell your holdings.
5. Mark Cuban says Bitcoin is in a Bubble.
This may have caused some traders to sell but when you look at what he actually said, he meant that according to him, Bitcoin is overpriced. He did not say Bitcoin was a bad idea. Even if he did, does that mean he's right? Yes, Cuban is a billionaire but his opinion is just one of the many opinions of billionaires, including many who would disagree with him.
Is the Market really Crashing?
Is there really a 'bloodbath'? Be careful of the words that articles use as their titles. They are designed to be sensational by maximising emotional effect. But let's try to think as clearly as we can. Let's put things in perspective.
You see a chart similar to this being used in articles online:
The article would say something like: "Bitcoin crashed. Bloodbath everywhere." It looks darn right scary right? But this is a 2 hour chart from the start of June to now, June 15. If you bought in from June 6 onwards (the start of the plateau) and this begins to happen and you've allocated too much of your life savings into this trade, then naturally, you will see it as being a bloodbath.
However, let's look at a more long-term perspective. Here is daily charts from the start of the year:
You'll see the long run that this has been a normal pattern in Bitcoin price movement. The movements when it was cheaper looked less violent because this is a linear chart. If you look at it from a logarithmic chart, this dip is no bigger than the rest.
From this chart, we can see that in the long-run, this dip is merely a reversal of the latest burst of equally humongous price hikes.
The Cryptocurrency market had indeed been going through such euphoric rallies that sent many people to believe that it cannot be sustained or that it must correct. That in itself is interesting because we are basing this on the markets we have known before. Yet we apply it here with cryptocurrencies, we tell enough people about it and it becomes a self-fulfilling prophesy.
It's understandable that people get emotional especially when they came late to the party and bought at the most recent expensive prices. The moment, the price starts falling, the more emotional they get and they sell. Then what happens? Around the same time that they got out, most of the other scared people were doing the same thing. We are all human beings, we have the similar thresholds for pain. By the time, they have gone out, all the other people in the same boat have also sold their holdings. Then what happens? Less sellers means upward pressure on the price. They miss out again because now people are buying in and the price begins to go up. They bought high and sold low. The opposite of what they hoped to do.
That's why it is good to buy a little at the start. Don't be greedy. Expect that the market does NOT DO what you want it to do. Wait for that to make some profit then you buy some more. That profit you made from your initial investment acts like an emotional cushion so that when you add more in, you are not too emotional when the market moves against you.
Let's look at a chart for as far as Poloniex can take us, back to April 2015. It looks like this:
So if you hold Bitcoins (or any cryptocoins) at the moment, you're probably asking, should you cash out or should you stay? That's not for me to say. You have reasons why you bought in. Do those reasons still stand? Do you still believe that Cryptos are a good idea for the long term? Do any of these news items actually prove to you that Cryptos will end tomorrow?
As a trader, you must remember your reasons for your trades and not allow big names like Mark Cuban or Goldman Sachs influence your thinking.
What I am trying to do here is to inject my perspective out of this event to balance out the articles that to me are either 'fanning the flames' of already-emotional traders and investors and those that are trying to push for regulating crypto-currencies on oversimplified and commonly used-excuses of terrorism and criminal activity to regulate.