The Shoe Shine Boy & The Impending Crash of Bitcoin
What you need to know to maximize your investment
Photo Credit: Public Domain
One day a Wall Street Mogol was having his shoes shined. As you would expect, a casual conversation occurred between the businessman and the man applying polish to his expensive wingtips. Unexpectedly, the Shoe Shine Boy began to intelligently discuss various stocks and their potential to generate great profits.
The Stock Market was “Red Hot”; Taxi Drivers, Cooks and even the Homeless who prowled the streets of New York were good for a “Hot” Stock Tip.
"Time to Get Out!"
Photo Credit: Public Domain
Thought Mr. Joseph Kennedy (yup that Kennedy); who immediately withdrew his investments from the Market. Shortly thereafter, the Stock Market Crash of 1929 occurred. Businessman, Stock Brokers, Bankers and even Cooks, Taxi Drivers and Shoe Shine Boys, lost everything. The bubble burst. Some people jumped off bridges; the nation and the world, descended into The Great Depression.
The Wild Frontier
Right now, Bitcoin and cryptocurrencies are the talk of the world with Google key word searches hitting record highs in the last 30 days. Everyone it seems wants to know more and get in on the action and get their share of the profit. Just like the Shoe Shine Boy; you hear “Alt Coins”, “Cryptos” and especially Bitcoin being discussed at parties, by Stock Brokers, Investment Advisers, Gardeners, Plumbers, Baristas and Soccer Moms.
This is a GOOD THING, especially for those of us who support this alternative currency and look forward to the day when it liberates the world from the destructive currency manipulations and outright theft of governments, bankers and other dark forces.
The more people that adopt these alternative currencies and actually use them to buy stuff, strengthens the Alt-Currency market and can lead to greater price stability in the long term and a better quality of life for all.
Not Like Stocks
Unlike stocks, currency is not really an investment, although FOREX Trading of currencies has been going on for a long time. Traditionally currencies don't have have business plans, stockholders, profit & loss statements, shareholder meetings, new product launches, etc. Currencies are simply a medium of exchange that is used to facilitate commerce between parties.
However Bitcoin's increasing value of over 180% year-to-date and over 45% in just last few weeks, has grabbed the attention of Wall Street Tycoons, Speculators and the few remaining Shoe Shine Boys...
They ALL want in.
Photo Credit: Salon Media Group
As I write this, Bitcoin, the original cryptocurrency has hit a high of $2,717.00 USD on May 25th, with some South Korean Exchanges briefly reporting prices of $4,400.00 USD.
The next day, Bitcoin felt a price correction to $2,275.00 and briefly fell below $2,000 last week before recovering. It remains to be seen if the rally has ended or we will continue to see the currency climb to new highs in the near term.
Based on the brief history of Bitcoin, we can see by the chart below, that the currency has a history of high-highs and low-lows. However, in the long run, the currency has always recovered its loses and continues to increase in value.
Image Credit: Chart Courtesy of Coin Desk
The so called “Experts” continue to predict that Bitcoin will see highs in 2017 of $6,000 and reach long term heights of $1 Million Dollars per coin in 10 to 20 years time. They may be right or they may be wrong. Predicting the future is difficult and fraught with danger as most people get it wrong. In any case these high predictions generate headlines for the "Expert", which was their original goal as "Experts".
How to Make Money Today
If you have a bunch of new shiny Bitcoins in your wallet or you've been sitting on the sidelines, wishing you'd bought a few coins when they were basically worthless back in the “old days” of 2010, you may be asking yourself,
”What should I do now?”
It is hard to know the right time to buy or sell, however we can look to the past and to several expected milestones to help us determine what may occur down the road:
As stated previously, Bitcoin will likely experience a price correction, as it has before and lose value relative to the U.S. Dollar. In the past this correction has been substantial, although less so as the currency sees greater acceptance. Predictions of a 40% to 50% price correction are not unreasonable. Keep your eyes open and buy and sell when it makes sense.
Investors also need to remember that since February of this year, The Peoples Bank of China has effectively frozen Bitcoin transactions on Chinese exchanges, not allowing customers to convert their Bitcoins into Fiat currency. This freeze was just lifted in June 2017. Right now it remains to be seen if Chinese investors will convert their Bitcoin holdings en-mass to Fiat and whether this behavior will cause a drop in the price. Currently, two of the largest exchanges; BTCChina & OkCoin are limiting customer withdrawals to a maximum of 10 Bitcoins per day.
To Halve or Halve Not...
The next Bitcoin halving is expected to occur on June 22, 2020. When that occurs, Bitcoin miners will start receiving half of the current 12.5 Bitcoins as a reward for verifying block chain transactions. Less coins available, should mean higher prices for the coins in circulation and as the supply of new money slows. This is especially true if demand continues to increase.
The last time this halving happened was on July 9, 2016 when the existing reward was reduced from 25 Bitcoins.
Bitcoin is Broken and can be Fixed
Photo Credit: Dreamstime
You wouldn't know it by the current prices, but right now, Bitcoin is “Broken” as the miners have been divided into two "camps", as they disagree about the best way to update codes to best scale the network and decrease transaction time and eliminate delays.
On one side you have mostly Chinese based miners who are advocating Bitcoin “Unlimited” and the other group of miners and more importantly users, looking toward the adoption of SEGWIT or Segregated Witness, to improve network speed and reliability. Because of the robust nature of Bitcoin and the Blockchain, no one group can force a change unless they have the mining power behind them.
In addition, Bitcoin developers have deployed a User Activated Soft Fork (UASF), known as BIP 148, scheduled to deploy on August 1,2017. This soft fork is already signaling on around 10% of the network.
If the Chinese miners, who account for around 70% of Bitcoin mining power, do not adopt BIP148, then this soft fork has the potential to cause massive disruptions and perhaps open the door to all kinds of chaos, including individuals holding Bitcoin on exchanges which are not implementing BIP148, actually losing their Bitcoins!!!
Although it is possible that these two Bitcoin factions could remain permanently split and end up like another cryptocurrency, Ethereum (ETH) and Ethereum Classic (ETC); hard forking it into two completely separate currencies, it is in no one's best interest to do so.
When these issues are resolved, you will likely see the market price reward or punish Bitcoin in the short term. In any case, this event will cause a significant change in the price and will perhaps provide a profit opportunity for some.
Investors require stability and predictability; if Bitcoin goes down the "Hard Fork" road and continues to bifurcate again and again in the future, it will deservedly lose support and other Alt Coins will rise to replace it.
Unstoppable Despite Growing Pains
The FBI closure of the illegal drug sales site, The Silk Road, the hacking/subsequent failure of the Mt. Gox Exchange and the recent use of Bitcoin by Ransom Ware Computer Criminals are just some of the challenges that Bitcoin has survived in the past. Despite these negative events and other factors, the currency continues to gain support as its fundamentals are strong.
Bitcoin has a bright future. The only mistake it would seem, as an investor, would be to ignore cryptocurrencies entirely and sit on the sidelines, paralyzed by indecision.
If you haven't downloaded a wallet and entered this exciting New World of decentralized and user controller money; what are you waiting for?
Note: This article reflects solely the author's opinions and does not constitute investment or legal advice of any kind. Investors are strongly cautioned to seek professional advice whenever contemplating any investments or investment strategies.
Unless otherwise cited, all images are in the Public Domain, first published on or before June 1, 1957.