Whatever is happening with this thing called cryptocurrencies is insane. It still feels like it’s not real. How much do you think bitcoins price was exactly a year ago — less than 7K dollars. Within a single year, the price skyrocketed to 60K dollars. It’s floating somewhere between 50 and 60K.
Just five years ago, in 2016, the price of the bitcoin was less than 450 dollars. These kinds of moments push you to think twice about whether you are investing in the right asset or not because a 10 or 20K investment in bitcoin would have turned you into a multi-millionaire today.
It’s very uncertain where crypto prices are headed now. Honestly, at this point, I wouldn’t be surprised if bitcoin crosses 100K dollars. I remember back in 2017, everyone was freaked out about how on earth bitcoin worth 15 or 18K dollars. Little did they knew what 2021 have prepared for us.
If you’re feeling bad for missing the opportunity to invest in bitcoin 5, 7, or eight years ago, then let me introduce you to James Howells.
He is a software developer who was one of the few early users of bitcoin. When mining bitcoin was super easy, he used to mine a lot from his bedroom using his personal computer.
Now you can’t since the network has grown so much that you need huge computer warehouses to mine even a single bitcoin. Back then, he mined over 7500 bitcoins from his little bedroom.
He believed in this idea but had no clue that his hard drive soon will worth a fortune. Back then, bitcoin wasn’t as exciting as today. It was only used on the dark web to exchange illegal goods.
So when he was cleaning up his house, he thought that he had taken out all the information from that hard drive, including his bitcoins, but he didn’t so he ended up throwing that hard disk with over 7500 bitcoins.
Somewhere in the world, there is a hard drive with access to a bitcoin wallet with 7500 bitcoins that worth over 427 million dollars. This guy was sitting on a pile of virtual gold. He threw away almost half a million dollars!
Just imagine for a moment how bad is the feeling!
He has spotted a lifetime opportunity. He did everything he could to take advantage out of it and then threw it away in the garbage with his own hands. He is only going to feel worst as the price of bitcoin keeps rising. But he is not the only one.
Stefan Thomas also has a wallet with over 7000 bitcoin, but he forgot his 12-word password. Back in 2011, he produced an animated video explaining how digital currency works.
For his efforts, a bitcoin enthusiast awarded him 7,002 bitcoins. And right now, he has a fortune of almost 400 million dollars that he cant access because he doesn’t remember his key.
Whenever you have a bad day, just remember these guys, I don’t think you can mess up more than what these guys did. However, not everything is sunshine and rainbows when it comes to cryptocurrency because everything that rises will eventually fall, whether it’s cryptocurrencies, the stock market, or real estate, or any other assets.
We have already experienced one Cryptocurrency crash at the end of 2017, and it seems like we might experience another one this year or in the foreseeable future.
Of course, it’s impossible to predict anything because the future is unknown and whoever claims to know the future is lying, but if we just take a look at the facts on the ground, we might be able to make a reasonable prediction based on the current circumstances so let’s take a look at whether we are at the bring of another crypto crash.
In March 2020, the price of the bitcoin was a little over 5K dollars. It already lost its momentum back, and experts predicted that it would slowly grow since then.
To change the financial industry is almost impossible unless the government is backing you. But something unexpected happened around that time.
Suddenly the future became uncertain, a global pandemic stopped the world from turning around, and we had absolutely no idea how on earth are we going to get out of it.
Investors panicked, sold their stocks, so the stock market dropped by over 30 percent in less than a month. They couldn’t even invest in real estate because most people lost their jobs due to the pandemic, and it seemed like they will not be able to pay their mortgages and the housing market will collapse.
That’s why they started buying gold because gold has always been the global currency of the world, and no matter what happens, gold will always hold its value, so gold prices rose instantly.
In a few months, they crossed a breaking record of almost 2100 dollars per ounce. But something different was happening around the same time.
Cryptocurrencies, especially bitcoin have already developed a reputation of being virtual gold. You might not be able to touch it, but there is a limited number of them, and it’s backed but this huge network across the globe.
So some investors turned to bitcoin to protect their wealth in such uncertain times, which led bitcoin price to rise, and finally, in a long time, the price crossed 11K dollars.
But it wasn’t just the price of the bitcoin that was rising so significantly but pretty much every other asset.
The stock market was shooting through the roof; real estate prices grew by double digits.
What do you think happened?
The fed understood that if they are not going to act fast. This pandemic could get much worst than the 2008 crash.
In 2008, it wasn’t just the real estate market that collapsed, but rather it took down the banks with it since banks provided mortgages to these homeowners.
On top of that, banks sold these mortgages in the form of securities to investors, so when everything collapsed, it took down with it banks, homeowners, and investors, and unfortunately, the entire global economy.
So the fed said: we are going to do whatever it takes in order to prevent such a recession as we had in 2008. And that meant printing money and buying corporate bonds.
At first glance, it seems like how is that related to bitcoin. It definitely helped the stock market to rise faster than ever, but the fed didn’t do anything to boost bitcoin.
You see when the government passed the stimulus bills and filled the economy with cash. A lot of people began to worry about inflation. More money in the economy means the real value of each dollar will decrease, which means holding cash was a bad idea.
So investors were buying all kind of assets to preserve their wealth, including bitcoin, so bitcoin prices instantly started rising, but they rose a bit too fast and attracted speculators who wanted to profit from the rise of an asset which is what usually happens when a certain asset start rising too fast.
So between September and January, the price increased from 10500 to almost 35K dollars. In less than 6 months, the price rose by over 220%.
Everyone expected bitcoin to crash, but then this is what happened. Tesla bought 1.5 billion dollars worth of bitcoin, which boosted the demand through the roof.
The news of Tesla investing in bitcoin sent shock waves across the world, pushing more investors to buy bitcoin. In a less than two month, doubled the price, and for the first time, ever bitcoin crossed 60K dollars.
To make things worst, Musk tweeted that you now buy Tesla with bitcoin. That gave a lot of legitimacy to bitcoin and made it even more popular. The real value of bitcoin is its network, the fact that millions of people use bitcoin and it makes the financial transaction easier.
But no one knows how much bitcoin really worth. It could be worth 1 dollar per bitcoin or 100K per bitcoin.
Everyone has his opinion. But the fact is, the recent bitcoin price spike is driven by people’s fear of inflation, a bunch of speculators, and some tweets by the king of memes (Elon Musk).
Of course, there are a lot of other factors that influenced the rise of bitcoin, but what happens when the fear of inflation will go away when interest rates will be raised.
There is a good chance that the demand for bitcoin and other cryptocurrencies will fall, which will driveway speculators which will further drive the price down, which will scare off simple retail investors who wanted to profit from this spike.
I personally believe that Tesla will sell its share of bitcoin once something like that is around the corner, but that’s my option which could be entirely wrong. That doesn’t mean that bitcoin will drop to 0 or it will drop its pre-pandemic levels but it will definitely drop!
How big is that crash going to be?
Well, only time will tell. But if you are a long-term investor, you shouldn’t care, because personally, I believe that cryptos have a future, despite all the challenges they have to go through, despite the fact they are not going to replace fiat money, at least in the coming few decades. They still have a future because the world needs a decentralized financial system.