My latest article on sharpspixley.com edited and updated slightly looking at the pre-Christmas crash in bitcoin and a slight upturn in precious metals. To read the original article, and also one on the latest Swiss Gold Export figures by me click on SharpsPixley.com and then on the Market Comment dropdown menu.
Bitcoin has demonstrated over the past couple of days why it’s not exactly an ideal investment for widows and orphans. Those who climbed onboard bitcoin as it seemingly unstoppably moved to breach the $20,000 level saw it tank by almost 40% in a couple of trading days and seemed possibly heading to a 50% fall. Whether this is just a correction on its way back up to $20,000 and above, or the beginnings of a bursting bubble, remains to be seen, but it does emphasise the enormous volatility of an ‘asset’ which is being driven up purely on sentiment, and would appear to have little or no material substance. It has all the similarities to a Ponzi scheme where there have to be new buyers in the market to drive the price to ever new highs. But when the new buyers desert it the asset plunges as holders try to bailout at whatever price they can. Of course that applies also to many other asset classes nowadays – even the equities markets which are being driven up to, in our view, unsustainable levels. Bitcoin is perhaps an extreme example and if the crash is sustained, equities could well follow bitcoin’s example and end their bull market too.
What does seem to be happening at the moment is that a section of the bitcoin community is taking huge profits given the growth of the cryptocurrency this year – or indeed in the last couple of months. As I began to write this article, bitcoin itself seemed to have broken through downside resistance at the $12,000 level – still hugely profitable for those who may have bought the cryptocurrency earlier in the year. There has since been a bit of a bounce back up from around $11,000 to the mid $13,000s, but whether this can be prolonged or is of the ‘dead cat’ variety remains to be seen. If say, however, the bounce is not prolonged and $10,000 is breached on the downside, the so-far very heavy correction could become a rout! This was on the last trading day before Christmas and recent investors in bitcoin are not seeing much Christmas cheer so far.
Meanwhile gold appears to be edging up in the other direction, and had broken up through $1,270 before the U.S. opening session, although the COMEX futures market could well bring it back a few notches going by recent experience. At the time of writing though it had moved up a few more dollars, while silver was accompanying it on an upwards path too. One doubts gold’s rise is on the back of bitcoin’s fall, but if the latter’s downturn proves to be prolonged it could pull some investors back into precious metals. As noted above, silver was moving up alongside gold but with the gold:silver ratio seemingly stuck firmly between 78 and 79, silver was just about moving in parallel with its yellow sibling.
Regarding bitcoin there do seem to be rumblings on both sides of the Atlantic about possible regulation of cryptocurrencies being imposed. If this happens, which we feel is inevitable, it will strike at the very heart of bitcoin’s raison d’etre and certainly reduce its desirability as the monetary payment medium of choice for the world’s criminal sector. Lack of any real controls means it is a money launderers dream and that is something governments around the world are trying hard to clamp down on.