Crypto’s Rocky Ride — Bubble pricking, exploding or filling up again…?
Exactly 6 months to the day, I wrote my first article about certain crypto-currencies with the word “bubble” in the headline.
Upon re-reading it, I realised there was no mention of the first time I had heard the combination of Bitcoin and Bubble in the same sentence. That was at a dinner in Chelsea in February 2014. There present were some banking, spread betting, cyber security and angel investor types. The consensus at the end of the evening was that the technology was interesting, but Bitcoin was a bubble caused by Silk Road being shut down and the Snowden affair pushing more people into the hidden realms of the dark web. It had, after all, rallied by some 400% in a matter of months from $120 towards $600.
Four years later, Bitcoin nearly breached the $20,000 mark which represents a roughly 750% annualised return. 2% daily growth over 4 years isn’t too shabby! None of us at that dinner could possibly imagine such returns. As I have cited before, bubbles are actually notoriously hard to navigate safely. I wonder how many people around the world have been buying Bitcoin during the last month as its price has fallen by a whopping 50%?! The problem with writing about cryptos is that superlatives are wasted when one describes the price fluctuations!
A ‘normal’ ‘asset’ falling 50% in the space of a month would give commentators huge concerns about its prospects.
A 30% rally in the space of 24 hours of a ‘normal’ ‘asset’ would be hailed as an extreme dead cat bounce by traditional stock market traders, who would expect the sell-off to continue. There really does seem to be nothing normal about Bitcoin!
No ‘normal’ ‘asset’ would rise from $900 to $19,500 in 11 months like Bitcoin managed from the end of January 2017 to 15th December 2017. That is a profit of over 2,000%.
The only other possible return of that magnitude that I wrote about last year actually also occurred on 15th December 2017. This was the day that the December Dow Options expiry occurred.
At the very start of Q4, I mentioned that with the VIX at multi-decade lows and the Dow at life-time highs of 22,400, there was a particular option strategy which would produce cracking returns should we have another Santa Rally in the USA of 10% like in 2013 and 2016. Well, if you had followed my advice and bought out-the-money call options with Strikes around 5% higher, your return would have actually been over 4,000%. I hope that several readers took advantage of that suggestion! What I certainly didn’t foresee was that the Dow would pick up in 2018 where it left off 2017. In the space of 3.5 months, the US benchmark index has risen by 1/6!
You would think that with all the negative price action of Bitcoin in the last month, the Dow might have actually outperformed Bitcoin over the same period.
Well, you’d be wrong..!
Bitcoin rallied by over 300% from the start of October to its nigh-on $20,000 peak before Christmas. And despite a 50% sell off, it has still outperformed a very bullish stock market by 9 times!
Fortunes will have been made on the way up, but very few will have profited from the big drop down. Certainly anyone taking the view that the bubble was bursting would struggle to find a means of making money in traditional brokerages or on any crypto exchange. Rather a Spread Betting / CFD brokerage is about the only place where one can go short / sell the major cryptos. In this instance, you would sell to open and then buy to close. If your buy price was lower than your initial sell price when you close the position, you will have made a profit. And out of all the Spread Betting / CFD providers, why not trade the likes of Bitcoin and Ethereum with Pelican?
After all, only within Pelican, can you chat about, copy, oppose the trades of others in your private or public networks. Pelican enables you both to trade and discuss the markets within one dedicated mobile app. Before Pelican, traders would chat on a forum / chat-room and then execute their trades on a different platform. Pelican is the natural evolution for traders who wish to discuss the markets with friends or experts and trade in one location, with the added bonuses of seeing truly transparent trading performance of others and being able to copy or oppose others’ trades, all within one powerful and intuitive mobile app.
To that end, there are now several Bitcoin-themed public networks now appearing within Pelican. Unsurprisingly, Bitcoin and Ether are two of the most commonly typed words within the Pelican community. Remember that a Pelican user can create his or her own private network, as well as having the option to make it a public group, so anyone can participate in the debate. A couple of examples would be Crypto Trading Hub, which is a paid-for subscription group focussing on prospects for 1st and 2nd generation crypto-currencies or Beacryptotrader, which is a free-to-participate group run by Ian Foster, a seasoned mentor.
Six months ago, I mentioned that I had overheard some heavily tattooed graphic designer from Shoreditch stating to a similarly heavily tattooed graphic designer from Hoxton that Ethereum was going to hit $2,000 within a year, when it was sitting at $200. When I heard him use the phrase ‘free money’ to her, I immediately thought that the bubble was close at hand. Six months later, Ethereum sits above $1,000 and I have just received a text from my nephew who is in his second year of university in Scotland stating that 4 of his mates and he have clubbed together and bought 1 Ethereum at $900 yesterday, with the expectation that it will reach at least $2,000 by Easter. I replied back along the lines of, “I wish you luck in seeing it rally another 120% in Q1. By the way, do you know that it has rallied by over 1,200,000% in the last three years, or the equivalent of 100,000% per quarter!!! Yet, I expect the next 120% will be one of its toughest to ascend! Good luck.”
The volatility of these cryptos, that are increasingly becoming household names, seems certain to last in 2018. If and when the bubble bursts, it will be traders with short positions who will be sitting pretty. The conundrum remains about its timing…
Will governments putting the kibosh on them be the catalysts for dramatic declines or will any sell-offs in the months ahead be greeted with feverish purchasing activity?
Who knows? But one thing is for certain. You will soon be able to identify who are the best traders of cryptos within the Pelican community and then chose to copy or oppose them in their future trades, as well as have the option to converse within the app with these top traders.
Whatever your view on Bitcoin or Ethereum, only within the Pelican network can you build your own discussion groups or seek out other groups where you can chat, see others’ positions, copy or even oppose trades, all within a unique FCA-regulated environment.
So, start your own debates today about any of our thousands of markets, whether amongst your friends, like-minded investors you discover within the Pelican network or with professional traders!
Only with Pelican can you discuss, copy or even oppose the trades of your friends, see the positions of professional traders and follow them, as well as seek out a selection of Britain’s top mentors, all within one app.
It is the first truly social trading platform. If you haven’t yet done so, join today!
Spread betting and CFD trading are leveraged products and as such carry a high level of risk to your capital which can result in losses greater than your initial deposit. These products may not be suitable for all investors. CFDs are not suitable for pension building and income. Ensure you fully understand all risks involved and seek independent advice if necessary.
