Crypto-world Up In Chaos

This is what a blow-off top looks like. Cascading sell orders that trigger more sell orders with no bottom in sight. If I were to guess, the top in Bitcoin has been put in for the foreseeable future. I’m not suggesting it will go to zero like many critics are – that would also be unproductive, but even at $10k a coin it is still grossly overvalued.

Every single cryptocoin at this stage is still a ‘proof of concept’, Bitcoin included. Many of these blockchain-backed ideas, albeit innovative and useful, will take many years to play out and see wide-scale adoption. Most, naturally, are utter garbage and are destined to trade down to zero or lower, bankrupting many HODLers in the process.

The crypto-space is a difficult area to invest, mainly due to the fact it is fueled and controlled by emotion. A large percentage of those involved in cryptos are not seasoned investors, rather a bunch of clueless ham and eggers crawling through reddit forums all day. Furthermore, entering the space is easy, but converting back out into fiat currency is not quite so – a black hole of sorts designed to suck money in, tempted by usury returns. Granted, a solution will be found for this problem in due time and there are many projects working on it. In the meantime however, the imbalance on the demand side is going to create wild moves in cryptos like what we’ve been seeing all of last year. Unhealthy, but unavoidable.

Unlike liquid financial securities, the prices you see on crypto-coins are nothing more than a mere guideline, since the prices actually paid during an exchange are nowhere near the listed price due to lack of liquidity. On some exchanges like in Korea, spreads are actually over $1,000 off the listed price on Bitcoin (lol), simply because sellers can find a willing buyer. If you are wondering what that means, imagine responding to an ad selling an iphone for $1,000. You agree to buy and as you are about to pay, the seller satirically responds, ‘I’m going to add on an extra $300, just because I can’, prior to you closing the deal. Since you are an impatient HODLer and sellers are few, you have no other choice and pay the asking price. That’s what sellers on crypto exchanges have been doing in S Korea, all day, everyday. Funny as it may seem, I actually see an opportunity for market makers to establish business here, but that is a topic for another discussion.

If this really is the top, OSTK would be the easiest short of all time. At this point though, that trade is still too risky and I still believe there is still more upside in cryptos in the near term. With certainty, however, the risks in investing in Bitcoin here are exponentially greater than in investing in smaller cryptos that are gaining traction, built on much more scalable blockchains.

As for myself, don’t you worry – my portfolio survived the crypto-crash just fine. I made some moves yesterday though, selling out of the rest of my PEGI at $21.71 for a loss (cost basis $23.80), and bought some SLCA in the high $36s. The role SLCA plays in oil and natural gas recovery is of paramount importance and those guys will kill it in an environment of $65+ oil prices.