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“Do you think it’s a good time to buy Bitcoin?”   –   Jason

 

Things have been pretty quiet on the Bitcoin front lately.  I don’t hear nearly as much chatter about it on Twitter or in financial blogs but I do get asked my opinion on it quite often.  To be honest my opinion hasn’t changed regardless of what the price is doing, I’m still fairly neutral.

In general I would say I’m bullish on the blockchain itself and it’s potential for new and interesting spinoff technologies and applications, but I’m neutral to bearish on the actual Bitcoins themselves.  I see no reason why Bitcoin has to exist at all for the blockchain to continue to grow and adapt and I feel it might be a mistake to equate the two.

I will admit though it’s something that I could be wildly wrong about because I really don’t spend much time looking at the crypto world.  I just find it interesting and every now and then I check out a few charts to see if anything is changing.  Long story short, they haven’t.  It’s still just a very interesting speculative price battle without a whole lot of adoption, but let’s go over a few charts just for fun.

 

1)  How many cryptocurrencies are there?

As of now, 1835.  Bitcoin is by far the largest and like I said, I don’t see a reason why Bitcoin has to exist for blockchain technology to succeed so I am certainly baffled by why we need 1834 others.  Honestly, how many of you have even heard of more than 5 or 6 of those in the top 10?

I’ve often talked about how passive investing and the ETF market has made valuation less important.  With a growing number of people just buying the whole index, it’s a case of “all boats rise with the tide.”  Perhaps a little of that is going on in the crypto world as well?  People just buying a little of as many as possible just hitching a ride with the whole segment?  That’s not a positive trait for long term sustainability.  Excitement and speculation can only carry things so far, but eventually the fundamentals have to be there or the rug gets pulled out from underneath.

 

2)  Is it being used more?  Higher adoption rate?

Actually the number of transactions are down below 2017 levels when the price was much lower than now.  If it was being adopted on a broader scale I would expect that to be more upward sloping in the long-run.  Now granted we are in a little bit of a media lull because when the price is down, it doesn’t get eyeballs on the page to talk about it so I would imagine there’s a correlation between transaction volume and media attention.  But still, for Bitcoin bulls it must be frustrating to see this flatlining.

 

3)  Is the concentration of holdings diversifying?

In the last few years it’s been widely discussed that most of the volume is coming from less than 100 big players.  However when the price started to go parabolic in late 2017 the number of new entrants to the market grew with it and that’s exactly what the Bitcoin bulls would want to see.  As the feeding frenzy has worn off though, so has the interest.

 

I’m no crypto expert but it does seem to me that this is more about price action and speculation than a belief in the fundamentals.  I’m not seeing too many “value investors” in the space.  Mostly just people who ride the short term waves up in hopes of turning their Honda Civic into a Lamborghini Aventador overnight.

 

So to answer your question Jason, in my humble  (and amateur)  cryptocurrency opinion, no it’s not a good time to buy.  And that’s not me saying the price won’t go up.  Perhaps it will.  Maybe it’ll be at 50,000 before the end of the year and everybody can come back and leave nasty comments on this article, who knows.  But then that’s the point, who knows?  Is there any reliable way to fundamentally value a cryptocurrency?

A lot of analysis and probability calculations go into each and every trade I make.  I’m not sure how I could do any of that on a cryptocurrency so my quant based investing nature has to remain on the sidelines of the Bitcoin market.  I don’t think there’s anything wrong with speculating and dipping a toe though, as long as it’s a very small portion of your total investment fund.  I’ve messed around with a few futures trades myself just for fun, but that’s all it is, fun.  I don’t consider anything to do with cryptocurrencies “investing.”

 

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