Episode Details

With the entire crypto sector crashing – I thought I should give you some thoughts on bitcoin this morning.

Needless to say, it’s not pretty.

At all.

Faith in crypto has been battered, in most cases, quite rightly

This time last year, bitcoin went on one its monster runs above $60,000. It then had one of its monster crashes. 

I can’t remember if it was in Moneyweek or on Twitter, but somewhere I suggested that a reasonable target for the correction might be $20,000. 

$20,000 was the old high from the 2017 boom and bust and an obvious pivotal price point.

But the correction stopped at $30,000, or just below. 

The conclusion I drew – and on current evidence wrongly drew – was that, as bitcoin matured, its volatility was declining. The 90% corrections of previous bull markets were now 50-60% corrections.

Bitcoin had a second run above $60,000 in the autumn, followed by another of its humongous corrections, and lo and behold, $30,000 held again (actually just below, but I use round numbers as they are more readable).

As an asset, bitcoin has become highly correlated to the Nasdaq and tech stocks and, as we all know, tech stocks have been walloped. Peloton, for example, which we wrote about yesterday, is down over 90%.

So over the past fortnight, I was quite encouraged to see bitcoin holding up quite well relative to other tech stocks. $30,000 looked like it was a floor.

Then we got the collapse in the protocol Terra, and its so-called stablecoin UST, and the sector has been absolutely battered.

This is big, and it’s going to take some recovering from. The bubble of 2016 was verging-on the-fraudulent ICOs. Today it’s staking and stable coins. The yields on staking – over 20% in some cases – were unsustainable and so they have not been sustained. (If you’re baffled as to what I’m talking about here, don’t worry, you haven’t missed out and at this stage it’s very much for the best). 

Hundreds of thousands of people have lost money, in some cases fortunes, and as someone who has lost big money in the past, I offer my deepest sympathy. You start blaming yourself for your greed and stupidity, you feel huge shame, worse you start thinking you have betrayed your family, you think you will never get your life back and you sink into a horrible depression. In some cases, people will feel suicidal. I’ve been there (although not the suicide bit) and it is not nice.

Yes, you made a poor judgment and it has cost you, but you haven’t betrayed your family. You were only trying to better your lot and thereby make all of your lives better. There is nothing wrong with that.

The reputational damage of this episode to crypto is considerable. All those who declared that “crypto is a fraud” are now looking wise, while those, myself to an extent included, who made the argument that bitcoin is a hedge against currency debasement are looking stupid, given that it is off some 65% from its highs.

Bitcoin will survive (again) but it’s likely to hit $20,000 and could go even lower

Of course, bitcoin and crypto are not one and the same. Bitcoin remains a product of technical and open-source genius, but forever in its wake, and surrounding it, are disasters, gaffes, frauds and scams. 

Altcoins, NFTs, the Metaverse, Defi, staking, whatever the latest buzz thing is – all of it is puking value, and the bubble has well and truly burst. Again.

And there lies the keyword – again. This is not the first time this has happened, and it will not be the last. And, for all the junk that surrounds it, bitcoin keeps on keeping on.

The sector has lost some $1.7trn in value. That is a number similar to the subprime losses that triggered the Global Financial Crisis. But in