This is a unique point in the history of money. Finally, we have achieved a method where a few people (in government) can no longer have an overpowering control over the wealth of people. If you are into crypto today and you don’t know how we got here in the first place, you may not appreciate crypto, especially at this point. But looking at the whole spectrum, I am delighted to be in crypto.
I recently finished reading the book, Digital Gold by Nathaniel Popper. I have since had a renewed sense of appreciation for bitcoin and blockchain. It’s amazing the things that have transpired to get the crypto industry to where it is today.
This crypto bear market is not the first and certainly will not be the last. I was watching an interview where the reporter said that blockchain technology (if you still don’t understand what that is, check this out) has come to stay and the society already accepts that, but cryptocurrency still calls for some skepticism. She even went on to say that it is perceived to be in a bubble and thinks the normal range for bitcoin price is between $1k to $3k. If you are here and you are thinking that way, let me first clear your doubts. How much does it cost to mine 1 bitcoin? Come on, let’s see:
This chart was drafted as of June 2018, and the difficulty has increased since then. These figures are definitely obsolete but let’s assume it still applies today. Now, the common sense question; if it costs $6k to produce a commodity, how is it possible for it to be trading at $3k?
Why should bitcoin be trading at a price less than what it cost to mine it?
Why is the crypto industry in a bear market? Or let’s make it precise, why is bitcoin trading at such a low price and going lower? It is very simple. Market price is determined by the market forces known as demand and supply. Only this time, the supply is already there and there is no changing it. So the market price is purely influenced by demand. Demand means how many people are buying relative to how many are selling. The crypto industry is in a bear market because there are lots of people selling and not so many buying. Now the question is, who would sell their bitcoins at this time?
From the fundamentals of bitcoin, it is clear that nothing has changed. The only thing that has changed is the excitement and sentiment of people. Let’s take a trip down history lane.
When bitcoin was launched in 2009, it was mainly a thing among cyberpunks and libertarians (although it is unclear whether Satoshi was any of that). The next group that picked up interest were developers. The set of adopters that followed were people who carried out stealth transactions (mainly for illegal stuff, which is a human problem) and gamblers. After then, it extended to those who just want to shield their wealth from governmental forces. After this, it moved to early adopters of technology who just want to use cool, new stuff. When the price action started getting interesting, bitcoin lured in people who just want to make money on their money.
That’s where the issues began. Today, a majority of those into bitcoin want to make money. Some are professional traders, some are just ordinary traders, others are just excited people who think they can make money buying and selling bitcoin. The reason we have a bear market is that these people who hoped to make money have had their hopes dashed to a wall. Apparently, someone or some people at the beginning of the year decided to sell off their holdings at a profit which triggered a downtrend. Other fat and medium-sized pockets followed and those led the market to where it is today.
Why the sell-off? Sentiment. People see the value of their holdings drop and then sell so that they would not see a further drop. Does that make sense? In a way it does! This is because if you sell at $5k, you can re-enter the market at $4.2k. Aside from that, it makes no sense, except you believe that bitcoin is not worth the price you got it at. Or perhaps, you have a need for the money and require to cash out. I have always said that crypto trading is not a job or work, because no value is created. But when people are making insane bucks on something, they believe they are dons.
What is the purpose of this sell-off then? That is the most important question! CZ asked on Twitter recently why crypto is heading in the same direction with the stock market. Giving all we have told ourselves about crypto all this time, the crypto market should be moving inverse of the stock market. Why is it not? This is because the majority of those into crypto right now are traders (and perhaps gamblers). They trade the stock market, forex market, and the crypto market. As far as they are concerned, crypto is just another market to trade in. Some are even ex-forex traders, while some trade on every available market they can get their hands on. Such people have the volume to dictate wild swings in the crypto market. Looking in hindsight, you would see that the fast move especially from $10k to $20k was too short and could only be the doing of traders.
The purpose of this bear market is probably to shake out the traders. In the end, everyone sends and receives crypto, but doing it for the sole purpose of margin gains is not so wise. Everybody does require trading of some sort, but there should be boundaries. I can understand trading within cryptocurrencies, but when it’s all about profiting in fiat, there is a problem. The question needs to be asked; are you really into crypto?
I entered bitcoin quite heavy (for my level then) at about $12k earlier in the year. (That wasn’t my first though). I still don’t see a reason to sell. Yes, the thought has crossed my mind to sell and get back in at a lower price. But you know, that is also not a certainty. Who told you it would go further down? The risk-less thing to do (if you believe in the long-term prospects) is to just hold. And I make money in fiat from my works, so I buy more bitcoins on the cheap. I do not sell what I bought at a high price because the price came down. This is the rational individual approach that I see to the market.
Until the crypto industry has more users and hodlers than traders, this manner of sell-off will keep happening. This is why the lasting solution for this bear market is to build and create something to enhance the crypto industry. All those crypto ETFs and others will probably only lead to greater wild swings. Healthy growth will have to come from boosting usage. And this is not hard at all.
Before now, the community has been pumped about getting more people to open crypto wallets. I think most people who would have crypto wallets with the current state of the invention already have. Now it’s time to take it to the merchants. This bear market is to awaken the active community to get people who have things of value to offer to accept bitcoin as a form of payment. Also, the revolution will be indebted to merchants (and people who offer value) who define their value in bitcoin.
The next stage of adoption is to focus on merchants; giving people reasons not to change back to fiat
Accepting bitcoin as a means of payment means that the value is defined in fiat, but paid in bitcoin equivalent. For example, the item costs $90 and then you pay $90 (real time) worth of bitcoin. Some merchants and companies are already doing this, but we need more. The second and much higher level is when the merchant defines their value in bitcoin. This means the merchant will accept 0.1 btc for the product or service, regardless of what 0.1 btc says in USD. This is much riskier as volatility thrives in the crypto industry, but there is a way it could still be achieved.
First, this can probably only apply to services for now. Even so, it should not be applied to everything a merchant or value provider offers. It should just be for one or two special things. Second, the merchant or value-provider can approach the balancing of volatility from a yearly spectrum. For example, they can decide the value they pick for 1 btc for Q1 2019 is $6k. Hence, 0.1 btc will be benched marked at $600. So, they will sell that product or service of theirs that is valued at $600 for 0.1 btc throughout Q1 2019 regardless of what happens to btc price. Towards Q2, they can do their analysis and review that 0.1 btc quote. Maybe the market has seen a significant uptick and they agree to base 1 btc at $10k, then the product or service that was 0.1 btc in Q1 will be 0.06 throughout Q2 regardless of whatever that happens to btc price.
This is just an illustrative form to help drive the next level traction for bitcoin and the crypto industry at large. I don’t believe in the ETF thing “helping” crypto, in fact, I think it is a kind of chain to tie crypto with the traditional systems. Bitcoin is designed to be decentralized and doesn’t need any affirmation from Wallstreet to get it going on the right track. I think the industry on the verge of something phenomenal here.
God bless Satoshi wherever he is. Take my ideas with your own discretion. This is not a financial advice. I’m just playing a small part in taking bitcoin and cryptocurrencies to the next level.