Bitcoin: The Bears are awake

On Wednesday, January 17th 2018 the crypto party came to an abrupt but not wholly unexpected end.  The price of Bitcoin plummeted from $14,046 USD where it started that week, to a low of $9561 USD that Wednesday morning.  Since then, it has fluctuated between $10,200 to $11,500 USD never really threatening to go above that threshold.  Are we now in a bear market?

The South Korean government played fun police.  At least that is by consensus the principal reason for the massive sell-off of bitcoin and it's companion digital currencies.  They raided our party, threw out the bowl of punch, pulled the plug on the DJ, and told everyone the party is over - go home.  Bitcoin was corrupting the youth they said and it was their responsibility to intervene and save the next generation from the perils of speculative gambling. Exchanges were raided and talk of regulations and even banning of bitcoin and cryptocurrencies were bandied about.  The end result was F.U.D. (Fear, Uncertainty, and Doubt).  And this FUD permeated the entire crypto market.

It's no secret in the world of cryptocurrencies that South Korean private investors make up a sizeable percentage of the market.  And now that they have been spooked by their government that uncertainty has spread to the West.  It appears to me that we are in for a prolonged bear market.  

I don't see this as a bad thing at all.  In fact, this correction was sorely needed.  Bitcoin was overvalued in my opinion.  It's no longer being used as a digital currency, transaction fees are ridiculously high, and it's price appears to be manipulated by small groups of so called 'Whales' investors.  So what was holding it up?  Where is it's inherent value?  I have yet to hear satisfactory answers to these questions. 

The correction also purged the gluttony of initial coin offerings (ICOs) of the so-called "altcoins".  This altcoin market is nothing short of bizarre.  A few individuals come together to create a new coin project which they claim will revolutionize a given industry, trade, or profession through blockchain technology.  They write (or plagiarize) a white paper, create a fancy webpage, and release their coin on an exchange for a fraction of a penny.  A few weeks later, fueled by nothing but Twitter hype and rampant speculation that "this is the new bitcoin" the price goes up a 1000% and their market capitalization reaches in the hundreds of millions and even billions.  The creators are instant digital millionaires and billionaires.  No operating company, no product, no revenues, no profits, no nothing but they and their investors are all driving Lambos and taking round trips to the moon.  You'll forgive me if I postulate that 90% of these "Altcoins" are nothing but scams to fleece fools from their money.  I'll save my thoughts on Bitconnect for another post.

This bear market will hopefully purge the crypto world of many of these unsophisticated investors who think this is the ultimate get rich quick scheme.  I also hope it will separate the wheat from the chaff as it pertains to digital currencies.  Either a digital currency has real world use or it's just a vehicle for speculative investment.  I'm more interested in the former rather than the latter.