Hi, my name is Mitya Dementy. My experience in the stock market is 11 years. I invested in stocks directly, invested in the same stocks, bonds, and valuable metals through mutual funds. Actively traded indices on the derivatives market, indulged with currency pairs on the "Forex". I closed all positions in 2017, but out of habit I follow the markets. Today I’ll tell you why I don’t see prospects in cryptocurrencies and why ordinary people should stay away from Bitcoin.
"Buratino" in the slang of financiers is an unqualified gullible market participant, who is lawfully or unlawfully deceived by experienced players.
Why bitcoin is not "digital gold"
I have never invested in Bitcoin, have not traded this tool and have not used it for calculations. Mining cryptocurrency and ICO do not interest me either. I can not get past Bitcoin and other cryptocurrencies for one reason. On sensations, we observed and most likely we observe a classical market bubble. Same as tulip fever in the 17th century or dotcom bubble.
The term "bubble" in the slang of financiers describes the speculative growth of the value of an asset. There are no objective reasons for the price increase, therefore, bubbles sooner or later burst. This is accompanied by a sharp drop in value or a complete depreciation of the asset. The collapse of a large bubble adversely affects the financial system and the real economy.
That is, I consider Bitcoin and all other cryptocurrencies a market bubble. Yes, let's agree: when I say "Bitcoin", you can automatically substitute the phrase "and all other cryptocurrencies."
Pay attention to the date of publication and comments. This is the height of the rally cryptocurrency. People call Bitcoin digital gold and wait for prices to increase to 50 thousand dollars per coin.
Well, the commentators almost waited. About a month later, in mid-December 2017, Bitcoin was worth 19.5 thousand dollars. Peak prices can be seen in the chart above. I saw the nature of this growth in the midst of madness.
The bubble developed in the usual scenario: it pouted and was blown away. The word "burst" from my point of view does not fit, because the bubble was not too large. Anyway, on February 2, 2018, adherents of “digital gold” could kindly troll.
Pay attention to the schedule. February 2, 2018 Bitcoin has already cost less than November 27th.
Now look at the chart again. Red highlighted bubble, which quickly pouted and just as quickly blown away.
Although I would single out the bubble differently. To do this, change the scale of the schedule.
The last graph shows that the bubble has not blown away yet. Moreover, it can not be ruled out that it only inflates.
Intermediate result: at the end of 2017, the cost of Bitcoin rose sharply, and then also dropped sharply. A classic bubble appeared on the chart. On the five-year graph, it can be seen that the bubble was either not completely deflated, or was just beginning to inflate.
By the way, I am not the first to call Bitcoin a bubble. Many well-known and reputable financiers also apply to cryptocurrencies. For example, investment guru Warren Buffet in the midst of crypto-insanity said that speculation with virtual coins would end badly.
Why bitcoin is not suitable for investment
Let's go back to the graphics (see illustration below). In 2011, Bitcoin cost about $ 1, and now costs about $ 6.5 thousand. If someone bought bitcoins 7 years ago, and sold now, the yield would be about 650,000%, or approximately 92,857% per annum.
If the cost of Bitcoin has grown so much in 7 years, and the hypothetical investment in cryptocurrency has shown such fantastic profitability, why not invest in this, ahem, asset?
With this logic, buying Bitcoin is possible and necessary. Right now, get in the time machine, go to 2011 and buy cryptocurrency. And sell it not now, but in December 2017, at the peak. And if the time machine can fly to the future, do not rush. Look ahead, suddenly the cue ball really grows to $ 50,000.
Back in reality. At the moment, Bitcoin is absolutely not suitable for investment. Here are the reasons.
Volatility is the beast that will not allow you to easily buy Bitcoin for 6.5 thousand dollars in 2018 and sell for conditional 100 thousand dollars in 2025.
Volatility is the volatility of the instrument price. Bitcoin is a very volatile asset. To understand this, just look at the illustration below. On the thirty-day chart, the price jumps up and down. For example, on September 5, the coin was worth $ 7113, and on September 6, already $ 6433.
Volatility is the main enemy of long-term investors who look at the chart and want to buy an asset conditionally in 2011 and sell in 2017. When you are in the market and risk your money, price spikes create tremendous mental stress. I was in the market throughout 2008, when the global financial crisis was raging, which was transformed into a global economic crisis. Therefore, I remember these emotions very well.
Volatility forces the investor to make irrational decisions. Even the most cold-blooded financiers close their positions when the market is in a fever.
Every beginner investor knows the secret of financial markets. Need to buy in a downturn and sell during growth. It is possible to follow this rule units. Most market participants act like frightened deer: sells on the decline.
Lack of real security
The US dollar is provided by carrier strike groups. The Chinese yuan is provided by the people's hardworking and low labor costs. Bitcoin is not secured.
The value of money is preserved until someone is ready to exchange them for real goods, services or other currencies. States and central banks, which issue dollars, euros, rubles, yuan, yen, guarantee that tomorrow, the day after tomorrow and in a month and a half you can go to the store and buy something for money.
Behind bitcoin are not the state, central banks, financial systems. Today, you can exchange a coin for a few thousand dollars just because someone is willing to buy it. What will be tomorrow? A rhetorical question, and to whom to ask it. Blockchain and decentralization are a great way to hide the ends in water.
Lack of tools for analysis and forecast
Long-term investors like Warren Buffet are guided by a simple idea. Stocks are a great investment because successful businesses work and make a profit. Profit makes shareholders richer since they receive dividends. In addition, the shares of successful enterprises are becoming more expensive, so after a few years of purchase, they can be sold at a profit.
To select promising stocks, long-term investors use fundamental analysis. They study the state of industries, analyze the financial performance of enterprises. Investors use special ratios, such as P / E, to estimate the current stock price.
Bitcoin price dynamics cannot be predicted using fundamental analysis. There are no real processes behind the virtual coin that can be analyzed.
You can use technical analysis. But technical analysis is usually used by speculators, I'm sorry, active traders who earn short-term price fluctuations. Using technical analysis for long-term forecasts is the same as dancing around a fire with a tambourine and reading the bitcoin-digital gold mantra.
On the two-year graph of the price of bitcoin, adherents of technical analysis will see either a "double top" or "head and shoulders." These are reversal patterns that signal a change in trend. If you have a good imagination, technical analysis works fine in retrospect. This is unlikely to help predict price dynamics for the long term.
Situationally you can trade Bitcoin on the news. For example, if the Chicago Stock Exchange announces plans to launch Bitcoin futures, you can wait for the price to rise. For long-term investors, this method of forecasting is useless.
States do not control Bitcoin and cannot yet resolve its legal status. Only attempts are made to determine the legal status of Bitcoin. For example, in September 2018, the Federal Court of New York equated Bitcoin with securities.
But the adherents of "digital gold" too early to rejoice. Judge Raymond Dury decided to consider Bitcoin as a security only in case of fraud with this tool. That is, the legislation that regulates the circulation of securities will be applied to bitcoin fraudsters in the United States. And for illegal operations with virtual coins, dealers will receive a real prison sentence.
I consider it a clinical insanity to invest for a long time in an instrument whose legal status is not determined. Moreover, the legal status of cryptocurrency can change unpredictably at any time. The range of changes is not conducive to long-term investments: Bitcoin can be legalized and given under the control of central banks or banned and declared illegal means of payment.
Who can still work with Bitcoin
There are market participants who can and should invest in Bitcoin. The list below will help ensure that you are not in this category.
We are talking about active traders who know how to make money on short-term market movements in both directions. Speculators do not care if the instrument becomes more expensive or cheaper. They know how to play the high and low.
Volatility that harms long-term investors helps short-term traders. Due to sharp fluctuations in prices they have more opportunities to earn.
By the way, practically safe conditions for trading with Bitcoin are created for aggressive speculators. In December 2017, in the midst of the insane cryptocurrency rally, the Chicago Stock Options Exchange (CBOE) launched Bitcoin futures.
Bitcoin futures is an extremely interesting tool. A futures contract in itself is a derivative or derivative security. Usually he does not give the right to own a real asset. When someone buys futures for oil, he cannot get a barrel of oil under contract. Calculations are made in cash, it is written in the futures specification.
That is, futures for oil - a derivative from a real asset. This is the idea of owning oil. Bitcoin futures - a derivative from a virtual asset. We get twice a virtual tool or idea of owning an idea. Welcome to the crazy world of stock trading!
Cryptocurrency trading providers
Intermediaries do not risk their money. They earn commissions, so they don’t care what a client is trading in - Bitcoin, gold or futures on the NASDAQ index.
I don't understand anything in mining. If you can get bitcoins and sell them at a profit, do it.
In early October, the famous boxer Manny Pacquiao launched his own currency PAC Coin. If you know what's what, follow his example. Spend ICO and get real money for virtual coins. Just remember the ruling of the court of New York: for fraud with virtual cryptocurrencies in the United States will be judged by real laws. In other countries, you can also get real time.
You can still remember the arms and drug dealers, but better not.
Instead of output: what is waiting for Bitcoin
Bitcoin is not suitable for long-term investments, as its price is determined by speculators. The market bubble of the end of 2017 confirms the speculative nature of cryptocurrency.
It is impossible to reliably predict the future of Bitcoin, since all unknowns in this equation. But I will try to poke a finger into the sky and identify three scenarios for the development of the situation.
The first is the perfect bubble scenario. The price of Bitcoin or alternative cryptocurrency will be inflated to fantastic levels for several years. The coin will cost 100 thousand dollars and more.
A sign of the implementation of this scenario will be the partial legalization of cryptocurrencies and the permission of institutional investors to invest in virtual coins. Attempts to attract major players to the market have already been made. This is the launch of a bitcoin futures at CBOE, as well as a discussion of the launch of a bitcoin exchange traded fund (ETF).
Remember, if American insurance companies and pension funds start investing money in Bitcoin, it will mean the near collapse of the global financial system. The explosion of the perfect bubble will be atomic. It will completely change the landscape of global finance.
The probability of a perfect bubble scenario is very small. Feels like less than 1%.
The second scenario. This, from my point of view, is a base case scenario. Bitcoin and all other cryptocurrencies for several years will hang out as a known substance in the hole. At the same time, local ups and downs of the market are possible. The cost of bitcoin can vary in the range of thousands and even tens of thousands of dollars, but interest in the crypt will fall.
In the baseline scenario, the states will take viable cryptocurrency under control in a few years. As a result, we just get new payment systems. Perhaps the central banks will be issuers of the new official cryptocurrency, which will deal in parallel with the traditional dollar, euro, ruble, yuan and so on.
That is, the state will lead the process to control it. The likelihood of this scenario is very high: above 90%.
The third scenario. Large states will not be able to control Bitcoin, so they will be banned and criminalized. They will do this to retain the monopoly right to issue payment instruments.
The likelihood of this scenario is low, since it is much more profitable for states to take control of cryptocurrencies and receive income from them.
And the final message: I could be wrong. Therefore, make investment decisions yourself. A beautiful bird from the illustration below says hello and reminds: no one knows what will happen tomorrow.