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RE: When to Buy in New Era of Cryptocurrency Regulation

in #bitcoin5 years ago

Hey crypto folks,

I see the following headwinds for cryptocurrency this year:

  • regulation - it is coming, all governments seem to getting very serious on this matter. In the long run it could be good for the market (unless they outright ban crypto), but in the short term it could have quite negative consequences for valuations as, at the very least, it should put an end to wash trading, pump & dumps, etc, which keep prices artificially high

  • altcoin crash - there are over 1500 altcoins. The vast majority of these do not have a valid business model. Their only reason for being is speculation. Like the dotcom bubble, these will probably crash to nothing.

  • stock market crash and possible recession caused by this. Has anyone looked at the S&P 500 lately? It looks like bitcoin in December when things were going nuts. What happens to the cryptomarkets when the stock market is crashing and some people are potentially losing their jobs? I am guessing that this would hit crypto hard. Crypto has never had to deal with a recession. People tend not to gamble with their money when they don't know where their finances will be in the near future.

  • bitfinex/tether crash - we all know that this is a possibility. No need to say any more on this potentially dire eventuality.

I would imagine that any one of these on their own could hit crypto prices by 50%. I am not saying that we are going to see all four this year. But we will probably see a few at least, which would hit crypto hard.

Who knows the future, but we could easily see markets down 80% from where they currently are. I am hopeful that at some time in the future (2019?) things might have started to pick up. But I am, I think justifiably, bearish for crypto in 2018.

What does the hive mind think? I would really appreciate your views.

Thanks

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Crash of stocks might have an opposite effect. What other asset classes do you see that could absorb money from stocks?
Also Tether crash would be significant, but its not the end of the world. USDT market cap is what 2B? Is it much compared to total crypto market cap of >400B?

A crash of stocks implies loses and the feel poor effect. Second order effects could be people losing their jobs. Some people even losing their homes. I don't see how any of those could be anything other than negative for crypto currencies?

When the shit hits the fan, cash is what people rush to - not risky investments? Also the safety of gold? People rush to risky investments, like crypto, at the end of the market cycle, which was the mania in December.

Your second point regarding tether is not valid. I will try to explain why. Many people confuse market cap with amount of money that people and organisations actually exchanged for crypto. Market cap is what the last person paid for a coin multiplied by all the number of coins in existence. Not what was actually paid into the system. I read somewhere recently that the amount of money actually exchanged for cryptocurrency was estimated at no more than twenty billion dollars. So you can probably now see how two billion dollars can effect the market. Not to mention the shear panic of people and organisations who lose potentially all of their money.

I hope this makes sense? These are just opinions of mine. You could well be correct. What are your thoughts?

When one side looses, other side wins. During normal times cash is a guarantied 2+% loss per year. During crisis this percentage may be much higher and those "winners" might see crypto as good investment considering its historical gains after crashes.

If market cap for all crypto is no more than 20B, then why this couldn't apply to USDT too? Can we know if all issued USDT are held by people/traders?

No I did not say market cap for crypto was $20B. I said that the amount that people and institutions have invested in crypto is $20B. Sorry if I did not make that clear. The money spent purchasing crypto coins is estimated at no more than $20B.

To illustrate...

Let's imagine that all of the bitcoins have been mined. There are 21 million.
Next imagine that first 20,999,999 were bought for 1 penny.
Next imagine that the last coin was sold for $20,000.

The market cap of bitcoin is now $20,000 * 21 million coins = $420B.

The money put into the market was $229,999 and 99 pennies.
The market cap is $420B.

Obviously this is an extreme and over-simplified example that I constructed in order to illustrate the point that market cap is not the same thing as the amount of money that people have actually spent.

Tether is a different case entirely. Each tether in existence is supposed to have been created by the exchange of exactly 1 US dollar. So tether is the only cryptocurrency that there is where the market cap also is the (supposed) amount of money that was paid for it.

Total crypto market cap = however many hundred billions
Total amount of money paid for crypto = no more than twenty billion
Total amount (supposedly) paid for all tether coins = two billion

I hope the makes sense?

In this case USDT makes for about 10% of total invested money into crypto and impact will be more significant than I imagined

Yes, it looks that way. Will have to see how things pan out...Also we have to remember that Bitfinex is basically the same company as Tether. We found this out from the Panama Papers. Bitfinex are the largest crypto exchange in the world. If Tether goes belly up then possibly Bitfinex do to. Who knows what that could do to the market.

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