Mystery Buyer Sends Bitcoin Higher
- Apr 12, 2019
YOU’VE SEEN THIS MOVIE BEFORE.
The one where the hero just finished killing the last zombie.
Everyone takes a deep breath. All the tension is released. People start to subtly smile to each other to acknowledge what they just went through. That they got through it. And then out of the blue, the zombie nobody knew about pops in and takes a few more people out before it’s gone for good. Roll credits.
Well folks Bitcoin is back! Just when investors were starting to take that deep crypto breath.
Bitcoin prices jumped above $5,200 yesterday as word of a $100 million mystery buyer emerged. That caps an April that has seen the price move 26% higher from $4,188. Other cryptocurrencies have moved in tandem.
Promoters are already licking their chops. That means it won’t be long before you start seeing marketing saying crypto is back!
But here’s the problem.
During the past two years, I’ve sat down with the biggest Bitcoin bulls, crypto believers and blockchain fanatics I know.
And like all true believers, they all speak with that special glint in their eye that only someone who is certain they are right has. But so far, I’ve asked them one question that none have been able to answer yet. Not one.
(In fairness, I’ll let you know if someone writes me a valid answer after posting this).
Using Bitcoin as an example…
My first goal is to get the person to acknowledge that there is in fact a difference between the “currency” (in this case Bitcoin) and the actual blockchain it sits on.
In other words, you can think the blockchain is the greatest technological evolution since the internet. That’s fine. Many well-respected people do.
But the digital currency that sits on “top” of the blockchain (in this case Bitcoin) is a completely separate issue.
You would be shocked at how many self-proclaimed “experts” I’ve heard confuse the two.
Now that we’ve separated the “currency” from the “blockchain” I ask them this –
How can a volatile “currency” be used in the real world?
For example, let’s say you want to buy a pistol. You contact a black-market gun dealer who is selling one for $500 worth of Bitcoin.
The good news? He has the exact pistol you want. The bad news? Your Bitcoin has already gone 26% higher this month. And it’s going up every day!!! Tomorrow it could be worth $6,000. Why get rid of it now?
What do you do? You decide to sit on the Bitcoin you have instead of buying the gun and using it as an actual currency.
Let’s flip the script and say the price of Bitcoin is going down every day. You go to buy the same gun. But since the price is going down every day now the seller doesn’t want the Bitcoin. She’d rather have the dollars…
…and just like that very reason for its very existence has disappeared.
Let that cryptocurrency fact sink in for a moment. You know what it means?
It means that many of the people who recommended cryptos are either (a) too stupid to understand how currencies are supposed to work or (b) too cynical to care.
Does this mean Bitcoin, Ethereum, Ripple and the rest of them can’t go higher from here? Of course not. They can go as high as the mania takes them.
I’ve been in the business long enough to know not to try to predict the direction of a flock of birds. The “dot com” bubble of the 90’s taught me that and the real estate bubble of the 00’s reinforced the lesson.
Maybe I’m just not smart enough to get it. I can live with that.
“The Buck Stops Here”
Behind the Markets