March, what a great month of
spring winter with plenty of events that took place and another market correction in the crypto world.
I’m living in Europe and we can definitely see the climate change is no joke and how ignorant we can be.
Now, let’s get back on track to what I wanted to talk about.
A brief history of crypto currencies corrections
I’ve been semi-active in the crypto currencies markets, I was lucky enough to discover bitcoin in it’s infancy when it was in cents and I remember well enough that you couldn’t buy it from anywhere. My feeling back then was if it actually had any value at all, why would anyone pay anything for a digital nothingness?
This sounds familiar I guess, in a way it’s more like the fiat currencies backed by “nothing” and trusted by everyone.
I remember when bitcoin when from $1 to $8 and then crashing back to $5. I didn’t buy it then either, I thought it was too risky, again, why should it have any value at all I asked myself?
Years later after reading more into finances and figuring out how money works, I started to understand what’s what and how to take advantage of the new information. Regarding to money, what I took for granted as true was actually completely opposite and it was a good lesson for me to pay more attention to how things are working in the background. I am still fascinated how the whole system works so well, I doubt it’s an easy task to fine tune it.
This month I’ve seen another correction in the crypto market and what I saw was the overall panic of those who early said to buy & hold. This brings back memories, that’s kind of ironic I guess, but that’s how people react and sentiments most of the time take over the logic.
I saw a lot of recent posts of people freaking out due to that fear and new predictions to sell and how far it will go down.
Always make your mind why you are buying something
Why did you buy in the first place?
Just because it was going up for me it’s not a good argument. I usually get confused why people would do that, I understand that’s a decision based on the sentiment rather than logic. You wouldn’t jump off the roof if you saw multiple people jumping, yet you would buy something when others are saying to buy…
This behaviour actually is better explained in a great book called “Predictably Irrational” by Dan Ariely. I strongly recommend it if you want to find out more about our patterns and some of our common habits.
Bubbles and market corrections
I actually “survived” multiple market corrections, but the worst one was after the bitcoin reached over 1k and the Mt Gox exchange that was hacked. Still, years later I see something similar, all over again just that this time it’s a more complex situation and there are more factors.
I like the fact that the ones that are shouting out loud right now are the ones who stated that some of the coins will go “to the moon” (lol), I guess by that they were talking about a black hole rater than a moon.
For someone that was active in the markets in all this time I must confess that it was a thrilling ride and I didn’t become rich either. Probably my mentality of better making a smaller profit than no profit didn’t actually let me hold on coins for so long and I’m happy with my decision.
Bitcoin price vs value
My biggest problem and why even now after some time, I can’t really establish the value of bitcoin. Make no mistake value is different than price. For example if you take Apple, you know it’s selling phones and laptops and it’s value is selling those items, while with bitcoin I can’t establish what’s the value of it’s digital asset.
Bitcoin price sky rocketed recently not because it offered something better in terms of value, but because it got viral again and some new buyers got into the market. The Wall Street followed that trend and cashed it in with bitcoin futures and the market went higher and higher in terms publicity and options. SEC got involved as well and things got a little better.
But in terms of value, at least how I’m looking at it, bitcoin and many similar coins didn’t demonstrate that they can actually replace current centralised payment methods. Moreover, I am seeing that most of the coins are focused on anonymity like that’s the best thing to do for a currency. Let’s take a look at the world, there’s no currency that’s anonymus, all the fiat currencies are backed by governments. I agree that it can be a good thing and a bad thing, but that’s really relative and it’s not the main characteristic of a coin.
I still can’t figure out how to calculate the bitcoin or any other coins value and that’s why I wouldn’t actually invest in the crypto market. It’s not that I don’t understand how things are working, I’m one of those guys who’ve read the white papers and took a dive into how things are working under the hood. It’s not that I don’t acknowledge the hard work put into things and the incredibly smart people working at the coins, just that most of the things they did so far, for the end user it doesn’t bring almost any value.
If you want to enjoy this trend but you didn’t do your homework, just put a amount of money and enjoy the ride without losing your shirt. My advice is to risk so much that you rest sleep without having to think about it.
Regarding the nay sayers, I understand that most of them are well intended, but I haven’t seen them shorting on bitcoin either. So all that talk without skin in the game is nonsense, like Nassim Taleb likes to call them.
What I am expecting from this market
Nothing can go up forever and a correction it was probably much needed. The great part is that other big institutions got involved and that’s a good thing for the whole infrastructure, it’s no longer a no man’s land.
From my point of view, just by looking at the numbers and thinking that there won’t be any major implementations in terms of the discussed value in the coins on the short term, I think that this correction in the market could go even lower and that’s still a good thing.
I’ll explain why this might happen by looking at the numbers and comparing it with the real estate or other available businesses. Mining is already a multi-billion industry and it’s the pinnacle at most of the coins, it’s the infrastructure in some way. Even after this correction you can see a nice return rate in mining in the range of %40-100% in one year, which is surreal.
As any other industry it will get way more competitive and the profits will drop to a normal rate. Considering that in real estate after all that work you can generate something like 14% per year and stock market at 7%-8% the mining returns are quite insane, even in this period.