A Thought on Bitcoin and Crypto-currencies

I hear so many people talking about Bitcoin and all the offshoot crypto-currencies. It is a massive bubble. I won’t call the top, although I think it is close. What people don’t realize is that everything seems like a great investment while it goes up. It’s only when it goes down, do people start to really examine what they actually bought.

There is no way to evaluate a crypto-currency. People are hoarding the coins, so it is not a real currency. It is a speculative investment, which they want to gain value and then sell to somebody else for a profit. We all heard about the guy who bought a pizza for like 1000 bitcoin a few years ago. He is resoundingly thought of as an idiot, for having spent those coins. But if it’s a currency then don’t you want people to spend it on transactions? It’s not a currency, because anybody who has it does not want to spend it. They might want to hoard it or sell it in the future for profit or use it to transfer money, but nobody would buy stuff with it unless they thought it would go down in value.


In any case, it provides no dividends and has no earnings (other than the appreciation, but this is not earnings). It has no history and if it’s so rare, then why do we have thousands of these different coins, all going up at the same time?


When it starts to fall, people will start to ask these questions.. They will start to wonder where the value is. There will be ups and downs, but once the confidence is lost, it will be a downward path, just as fast as it went up (or faster).


Another thing to note is that let’s say you bought 1 bitcoin at $500. You got lucky and held until now, and it is worth $16 000. You made 32 times your money. Great. If you want to sell that coin, you now have to find somebody with $16 000 who wants to buy it. And nothing has fundamentally changed with the original coin. It’s the same exact thing that you bought for $500. And now you need to find somebody willing to give you 32 times the capital in order to get your money out. It would be safe to assume that this will be considerably harder to do (32 times harder???) than when you bought the coin. And if there are many people looking to cash out, all with a low cost basis, and fewer people looking to buy in in those high prices, then the value drops, super fast. The sellers will come out and just hit all the bids until it goes to their cost basis. This will happen once confidence is lost. And confidence will be lost fast, once it starts.


In my opinion, this will be a mess of epic, once in a lifetime proportions. We might never see this calamity again.


One idea might be to short or buy put options on Nvidia Corp, which has been shooting up because it makes the graphics cards for the miners. I have not done this, but am considering buying 1 put option, just to say that I got in on the fall.


I’m pretty sure I will be correct about this.


Just wanted to share my thoughts,


Mario Rizzi


December 13, 2017

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