Cryptocurrencies, Investments

Bitcoin irrational exuberance goes cyber hyper

December 10, 2017

Bitcoin irrational exuberance goes cyber hyper

Just not too long ago, I was writing about Bitcoin breaking US$10,000 and how it coincided with North Korea’s ICBM test launch.

Now, it has set new records and setting a high of US$16,666 on 8 Dec 2017 before retracing to US$13,000 levels in the subsequent days.

Nobody knows exactly why and what caused all these price actions. Is it because of investors who had been procrastinating since eons and have now decided to buy in before the 12 Dec big launch on CME and CBOE Futures Markets? Or is Bitcoin the new currency of the World? 

The New Hope or the New Dope?

Bloomberg published an article titled The Bitcoin Whales: 1,000 People Who Own 40 Percent of the Market” and most interestingly (at least to me) it mentioned that,

“… the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided….”

I am not an expert in Cryptocurrencies, neither am I privy to any of the alleged Bitcoin whales’ identity nor plans.

What I do know is that, 

1) Bitcoin ownership is, by default and by design, not meant to be totally transparent. Nobody should, in theory, be able to openly and easily trace the true ownership of these Cryptocurrencies. Thus, it remains an issue for markets and investors  to chronicle and map out with (forget about 100% accuracy) good confidence levels of the exact ownership of Bitcoin.

Contrast this to a listed Equity counter, Government Bonds or even Commodities futures contracts, where one can find out the exact ownership or estimate the ownership/market players through inference or proxy with good certainty. In comparison, the level of transparency in the Bitcoin market is abjectly low in relativity to other known and traded assets/instruments/counters/indices.

2) Bitcoin is relatively new, but has seen an astronomical ascent to stratospheric levels. Just 1 year ago, it was trading at below US$1,000 levels, and now it is hovering at US$14,000 and aiming for infinity and beyond. With an intrinsic valuation that is almost impossible to gauge nor estimate, it is beyond any rationality (at least Im one rational mind I hope) to assign such an incredible price level and at such rapid rates of increase within a year!

What has fundamentally changed that warrants such a drastic revision to the valuation of Bitcoin? Global shortage of Bitcoins? World War 3? Immediate end of Fiat Currencies?

3) If the suspicions and online stories are true, or half true, that Bitcoin whales exist, then it means investors have to be wary. Caveat Emptor. Seriously, are you sure what you paid for is the true level or hyper inflated prices? Or if you are in the game of “I’m not the last one holding the bomb”, you better make sure your exit plans are sound and market depths and liquidity support your David vs Goliath situation.

When I was trading for pure Alpha, my mentor taught me a couple of lessons, one of which was to know thyself and know your enemies well. In the Bitcoin arena, if whales do exist, and they pretty much know one another quite well, unlike you – an anchovy in the ocean – be absolutely fearful. The tides will change and when that happens you will be swept away by the instant tidal wave.

It’s not a matter of if, but when.

about author

Seng Ti is currently heading a Treasury & Finance team in a MNC and is active in the Corporate Treasury scene. He enjoys reading and discussing about current affairs, politics, life, wine and lives a normal life with his wife and 2 young kids.