Bitcoin has made millionaires and billionaires overnight, but has fallen quite a bit in recent months, giving rise to bear thesis considerations. Chances are this is not the real bottom. With many people placing a disproportionately large portion of their holdings in Bitcoin and cryptocurrencies, this can get ugly very quickly.
Therefore, the rest of his Bitcoins are selling, and he has become very bearish on the market and the “alternative currency system.”
Bitcoin (BTC-USD), the most popular cryptocurrency in the world, as well as cryptocurrencies in general, has seen increasing negative coverage in recent months. The cryptocurrency market brought millions and billions in value to people after it rose from a level of almost a penny to more than $50,000 per Bitcoin at its peak a few quarters ago.
Since then, while some tout it as a more secure way to conduct financial transactions, there has been an increasing number of hacks and allegations of fraud making headlines around the world. The problem with this, he says, is twofold:
The first is that while those who use Bitcoin are estimated at around 106 million people, the majority (60%) trust the system, but they only represent less than 2% of the world’s population. Only 17% of Bitcoin users trust the world’s governments, showing that while it is being touted by some as a good alternative to global currencies, and more and more companies allow you to use Bitcoin and pay in real time, it is still not adopted by a significant population. .
This means that there is still a problem with the hypothetical path forward for Bitcoin, or cryptocurrencies in general, which is large-scale adaptation and use, which may be the only way to make it stable enough to be considered anything close to coming from a useful long time. -term global currency. . This means, I believe, that we will continue to see volatility in the cryptocurrency system for years to come, further discouraging new entrants into the system.
The second is that in addition to not having a growing user base, even the current users do not wholeheartedly support the alternative currency system, making it more of an unsupported commodity in people’s wallets. That means it will be one of the first things to sell if we get into any kind of recession.
With the massive (relative) layoffs in the tech sectors, where a significant portion of Bitcoin holders come from, people who have invested and perhaps made a lot of money will have second thoughts and end up selling parts of those investments to fund their life while looking for work.
These two factors mean that, he says, there is not much of a bottom in the cryptocurrency market where people will buy, and that over a number of years there is a ceiling where we can expect a recession or slowdown. But that’s not all.
The second short-term problem
There is also a third group of holders of Bitcoin (and other NFT-style entities) – young people. This phenomenon has certainly paid off for some, but for the most part it has not led to any significant change in these people’s lives. But due to the fact that a large portion of these young people who are putting all the money they have into these cryptocurrencies and NFTs because of influencers selling these various “investments” – they don’t necessarily have a alternative to this if they need money.
For those who have some cryptocurrency like Bitcoin in their portfolio, which can make up 1% to 50% of their holdings, they usually have a steady job and other savings and cash flow to cushion any serious inflows. However, if Bitcoin and various non-fungible tokens are more cratered than they already are, they will likely panic sell because their downside tolerance is much lower.
What a crash can mean
If Bitcoin and most of the cryptocurrency markets are limited and the sell-off we have seen in recent months will discourage many retail investors who hold large amounts of Bitcoin and other cryptos, then we are probably only at the beginning of this recession.
The problem here is given that Bitcoin’s system is not backed by anything other than the belief that one person is buying from another – the floor here is most likely quite a bit lower than if we enter a bear market in the ‘regular’ stock market. There will be holdouts in the cryptocurrency system, especially those who only hold Bitcoin for a small fraction of their total financial holdings, which may mean it will take them longer to hear the news as things get worse before they sell .
This not only means that we will soon get a shock to the system, but also that the risk here is much higher than the ‘ordinary’ stock market, as there is theoretically no bottom compared to a company such as, for example. Apple (AAPL) ), which will still draw some amount of revenue and make some amount of cash and have real value on the books even in a deep recession.
While it is absolutely insane to short something like Bitcoin, even if there was an easy way to do it as it has been done before, the price can increase by hundreds of percentage points in a matter of days or over a weekend, making any short position go deep. , end deep in red.
But as someone who has had Bitcoin and other cryptocurrencies as a small part of their overall portfolio: He thinks it’s time to scale back even more and avoid it for now. That’s because it can become a slide/snowball.
What I mean by that is that there are several million people with a significant portion of their money in Bitcoin, cryptocurrencies, and other NFT-style things that if the price of those assets eventually drops by 50% to 90%, they will watch their net worth of the value of their property decrease. This I think could cause a real spending crisis if the value of said portfolios falls.
So this can become a snowball effect where people sell some of their Bitcoin after losing 50%, which causes the price to drop further, which then causes them to sell the rest, or all of it, at a loss, which then puts them in financial problems. will bring and their expenses will decrease. Which will then damage the economy and make even more people want to sell their intangible assets etc.
Given these factors, he has become very pessimistic about Bitcoin and the prospects for cryptocurrencies and NFTs in general and will avoid Bitcoin for a while.