By Bill Taylor/ Fintek Capital
It is certainly no secret that 2018 has not been a good year for Bitcoin (or cryptocurrencies overall) and that is especially true of the past few weeks. Or, to be real plain and simple, the past few weeks have been A DISASTER! But why? Everything was working so well. After hitting $20,000 just about exactly one year ago when “irrational exuberance” was in full force, it was only reasonable (yes, markets do go down) to have a huge decline. So, after finally seeming to have stabilized in the low to mid $6,000 area and strong institutional players (funds, exchanges, etc) beginning to gear up for a new prolonged move higher, Bitcoin (cryptos) plunged through the proverbial trap door (about $4,000 as of writing). Why……..oh why oh why?
There are a lot of theories and opinions around from some very smart people (if such a thing as ‘crypto experts’ exist after only ten years of crypto existence), some plausible, some good and some……..just plain dumb. Here are few and they make sense;
- Bitcoin cash just had a “hard fork” (split) and miners are selling Bitcoin to plow into Bitcoin Cash and gain market share
- Always the inevitable tax loss selling, or just plain selling to pay for taxes on equity gains (if they still have them)
- A general across the board global selling of all asset classes (bonds, equites, commodities)
- Technical factors
- Regulatory clamp down, or rather fear of regulators clamping down
- Price manipulation (oh please; see below)
But possibly many of these things aligned around he same time. As the $6,000 level in Bitcoin seemed to be solid support, a very large number of investors who had patiently waited for the long crypto slide to be over piled in. As the price of Bitcoin began slipping toward that $6,000 “floor” news of the Bitcoin Cash fork came out, Bitcoin dropped under $6,000 triggering sell stops which made the technical folks start selling, all of which came at the same time global markets began a hasty selloff. Coincidence? Sure, they happen and that’s why panic selling sets in.
Now, to throw a little gasoline on that fire, here come the regulators (yes SEC and your sidekick the Justice Department, we know who you are) claiming manipulation and fraudulent activity. That dark shadow appeared over the crypto selloff just as things were breaking down. Again coincidence? I think NOT! Lets be clear; the SEC hates Bitcoin, cryptocurrencies, ICOs and are out to stop the innovation and expansion of this new asset class. Why? First they don’t know exactly what it is; second they don’t know how to regulate it; third they are angry they didn’t step in earlier; and fourth they are looking really foolish and bureaucrats really hate to appear dumb.
So, are the regulators the ones to blame for the panic selling? Yes!! Markets have always had “bubbles” (hate that word) and panics but if left alone they “fix” themselves. Regulators “tinker” and things get worse. Consider their inherent bias toward cryptos; the SEC charged two (2) firms that had completed ICOs (initial coin offerings) with selling unregistered securities. They fined them a few hundred thousand dollars AND made them give back investor money (if thy wanted it). Not an opinion if it was a bad deal, not charged with fraud, not criminal activity but rather an unregistered security. Of course that sent chills through the ICO and venture capital community. Even overseas the charges had an effect since the “claw back” of inventors funds could reach foreign shores. Many banks around the globe stopped accepting dollars for fund investments. The SEC using scare tactics to force down Bitcoin and cryptos? (side note; all the losses in the dot.com era were with registered securities. Just saying)
The last can of gasoline on the fire comes from investigation of price manipulation in Bitcoin. The DOJ (Department of Justice) and regulators are looking into fraudulent trading activities that claim that’s how Bitcoin got to $20,000. My comment? ARE YOU KIDDING? The DOJ in the US is still looking for Russian collusion in the last election. Think they can find a “manipulator” on the whole planet? And, just like the elusive Russians, they are now blaming the use of Tether (a crypto linked to the dollar) as the “weapon” of choice to manipulate prices.
To further their case they have cited a study by an “expert” in fraudulent trading from the University of Texas who has ten years (!0 YEARS EXPERIENCE?) looking into this thesis. To save UT from embarrassment no name will be used, but one of his/her findings was that “some people” were actually buying Bitcoin when prices declined “in order to support the market and have it move higher”. That is called trading; buy low/sell high, buy dips/sell rallies. This is an example of a silly theory in manipulation.
So, who or what has caused (or causing) the Bitcoin (crypto) rout? Possibly all of the above coming into line at one time. The investigations and SEC charges could be “piling on” with the intent to crush the cryptocurrency sector (ah, manipulation?) and costing investors billions. In any event, the markets will survive (perhaps in offshore jurisdictions) and this Bitcoin rout will only be a blip on long term charts in the future.
Bill Taylor is Managing Partner at Fintek Capital & a frequent contributor