The End of Bitcoin? (Or Just Another Day at the Office?)

An opinion piece from a long term investor, miner and analyst

While I regularly comment on up to the minute market activity when talking to representatives of the media, I rarely write “time sensitive” articles on Medium. Usually, I like to keep these “evergreen” so that they always remain relevant to people going forward.

However, it occurred to me that the current market bloodbath — this time no doubt sparked by Elon Musk’s flip-flopping on Bitcoin and an old Chinese position on crypto being widely, and incorrectly, interpreted as a new one — is not really the “news” some of us may think it is.

After all, those of us who have been in the industry a long time are completely used to these periodic corrections. It’s happened before, and we’re certain it’ll happen again. It’s only the source of the spark that changes.

In other words, to us this is just another day in the office.

If you’re relatively new to the space, however, then you may be feeling terrified. Perhaps you’re even thinking you should sell now while you still have most of your investment? What’s the right move? Is it over for crypto?

These are all good questions, but you can’t help feel the emotion contained therein. “Gut feel” decisions can often be good ones, but emotional ones, such as ones driven by fear, for example, can be extremely damaging.

This all comes down to understanding what your strategy is and what you believe the longevity of the asset (in this case bitcoin) is. You’ll find your level of comfort is directly proportional to how clear you are on what you’re doing, what your level of exposure is and, most importantly, what confidence you have in what you’re buying (or selling).

If you’re feeling stressed and worried, something in that mix is wrong.

Confidence is strength

Have you ever been asked to do an important presentation at work to people who are more senior than you and then realize, for whatever reason, you were not as prepared as you should be?

You're not in control. You know you can’t answer the difficult questions. Perhaps you can't quite look them in the eye. You are proceeding on hope rather than strategy — you still might get away with it, but you’ll be sweating all the while and praying for the best. And, worse, the audience will know.

Compare that with walking in the room knowing exactly what you’re going to say and knowing your subject so well that even the most difficult “I’m-going-to-try-and-catch-you-off-guard” question can be brushed aside with confidence, but without arrogance. You’ll be controlling the room. You’ll be unflappable.

I’m sure many of us have been in both situations, and the difference is simply “confidence.” Confidence, of course, comes from knowledge, and to get it all you have to do is learn, objectively and consistently.

There is nothing like clarity of purpose to give you direction, focus and confidence, in your career, in life and, of course, the markets.

So, as the bears feed on the selling frenzy that now unfolds, are you right to hold? Should you buy more and perhaps average down? Should you just capitulate, sell and write it off as a life lesson?

And where does knowledge sit in a market that doesn’t seem to make sense anyway?

You vs. the Markets

You can’t influence the markets, you can only take care of your own position. But bitcoin is still small enough — just — to be influenced by the comments of one of the world’s richest men, as we have seen recently.

Elon Musk’s commentary on this started (we assumed) as a lighthearted joke promoting an obviously useless cryptocurrency without a development team and self-stated objective of being no more than a funny meme token.

Despite that, it carved out a place for itself and was set for longevity because, well, the joke just kept being funny. It’s a joke on currency in a broad sense, a caricature of cryptocurrency as an asset and a joke on ourselves as we continue to indirectly endorse it by giving it a little value even when we know it’s not really supposed to have any.

But make no mistake, it’s a joke, and a really good one too. Kudos to the (now disbanded) development team! I am now convinced that Dogecoin will have as much longevity as Bitcoin, just for entirely different reasons.

We read it as a solid understanding of the crypto industry by Musk because only those in the industry fully understand the irony of promoting it. And, sure enough, he announced in due course that he’s bought $1.5 billion of bitcoin, the serious stuff. All was well — although the jokes about Dogecoin continued.

Suddenly, however, Tesla announced that it had stopped accepting bitcoin for payment, citing concerns over the power consumption of the Bitcoin mining network.

Apart from the fact that Musk must have known this at the time (it seems unlikely they would have made a $1.5 billion due diligence error), the power consumption issue is complex and ever-changing.

It is also, in my view, one of the most optimistic industries on the planet right now for driving positive change in terms of power generation, reducing carbon emissions and fueling adoption of new technology. Not for altruistic reasons you understand — they’re purely commercial — but we, and Mother Nature, will happily take that.

Of course, it’s also true that there’s still a very long way to go on this issue, but Musk’s involvement could only be seen as a positive in the long run. Suddenly, we’ve gone backwards. The markets didn’t like that and began to wobble.

Worse, Musk then appeared to be genuinely promoting Doge, ie NOT as a joke. With 55 million followers, many of whom are likely to have a crossover between tech and cryptocurrency, and only around 110 million users worldwide, that’s a pretty significant base that can be influenced. It’s inevitable that some rotation from bitcoin to dogecoin was to follow, increasing selling pressure.

Then, while the markets were weak, “news” came of China banning cryptocurrency.

It seemed the fate of bitcoin, and other assets, was sealed.

But is that really true?

Analysis of a market overreaction

In some ways, I find it reassuring that someone as brilliant as Musk is making the same mistakes we all make with cryptocurrency when we first encounter it.

We buy Bitcoin, then discover what we think are “better” assets and move to those. In Musk’s case, he then announced that he would make Doge better by fiddling with block sizes and transaction rates, apparently oblivious to the centralization and figurehead issues this then creates or the fact that block sizes have been fought about and decided on long ago. This, of course, goes against everything cryptocurrency is about, especially Bitcoin.

But it did show quite plainly to those in the industry that although Musk is a genius in many fields, he has a very long way to go when it comes to fundamentally understanding Bitcoin.

It’ll almost certainly play out the same way it does for all of us, that is naturally gravitating back to the Bitcoin narrative when we understand what we’re actually dealing with.

It’s just that Musk is going through this process publicly and taking some of his followers with him in a move that is, at best, irresponsible and, at worst, borderline criminal. This level of uncertainty is never welcomed by any market, let alone something as radically different as bitcoin.

At the same time, the Chinese “news” is actually anything but that, no more than a restatement of already known positions. When you’re down, however, the slightest bit of negativity can be massively amplified.

The markets, quite simply, overreacted and currently lack clarity or direction. An asset is only ever worth what the markets say it is worth and, right now, that figure is far lower than it was a few days ago.

The bigger question is what the markets think it will be worth in the long-run.

So what’s actually changed?

In simple terms, nothing.

Bitcoin’s fundamentals, network and objectives remain entirely intact. Musk’s musings are, ultimately, irrelevant to any of these factors. He can influence the markets temporarily in terms of value, but he can’t change any other factors.

Bitcoin is bigger than any single individual, even Musk. And, as for China, well, even if they did manage to ban Bitcoin, they’d only be removing themselves from the network on behalf of their people, not stopping Bitcoin itself. No country has yet succeeded in doing that and those that have tried have seen the opposite effect. Arguably, it’s already too late anyway.

So, for me, as someone who has now lived through several cycles but has been able to calmly observe the bigger, long-term picture, today’s activities are nothing more than an another interesting sideshow on the journey to greater things.

The recovery, in my view, is (in Musk’s own now famous words) “inevitable”

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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics and consultant for Luno wallet and Exchange.

Disclaimer: This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. If you found this content interesting, and have an interest in commissioning content of your own, check out Quantum Economics’ Analysis on Demand Service.