Wednesday, November 29, 2017

Bitcoins Roars Past $10,000



With Bitcoin (BTC) continuing its amazing run past $10,000, many will be wondering if the chaos will ever stop. In less than a month, BTC's value grew from around $6,000 to touch $11,000 on November 29th, 2017 to fall back below $10,000 in the same day. The gain has BTC's market capitalization rapidly approaching $200 billion, greater than most companies listed on the NYSE. In the span of a year, the cryptocurrency has established itself as one of the major financial markets in the world unifying interested investors behind a decentralized currency that has seen both support and opposition. Nevertheless, the media attention and allure of huge short-term capital gains has surely done its job in attracting new players.Volume over the past day is almost $6.5 billion on the massive BTC gains; this is up almost 10,000 percent from a year which saw a volume of just $65 million. With a volume of this magnitude fueling BTC market growth, one might wonder if the trend can continue when the crowd thins out.

"Even if you believe in bitcoin, the velocity of the move is a sign that it is parabolic. And parabolic moves don't last," Cramer from CNBC weighed in early Wednesday morning. It's completely rational to assume the inevitable, that the rally will eventually taper off and end in consolidation or worse. However, the key is to sense the timing in the market which could be short-term or long-term. One chart that provides an interesting view of the extreme growth in BTC is the logarithmic view of the price.


The logarithmic chart suggests that investors became increasingly attracted by the increase in the growth rate of an investment in BTC. This phenomenon is mostly seen in securities like new small-cap companies in an industry with prospects for major expansion, think semiconductors over the past two years. These investment opportunities typically break down when the growth of the rate of returns normalize and start to drop. Investors then rotate their capital into investment opportunities that they see as more profitable. This will no doubt occur in BTC markets as the currency surpasses its speculative pricing period. In 2014, BTC had a noticeably bad year pushing a lot of investors out of the market to find better investments. Volume dropped -56.6 percent and market cap dropped -52.4 percent based on weekly averages at the beginning and the end of the year. If a similar trend develops in the current BTC market, the losses would be devastating and could be an impetus for systemic weakness in other financial markets. The chaos continues. Investor be wary.

1 comment:

  1. Saw an article saying the Winklevoss twins have around 100,000 bitcoins. I find it interesting that you can have ~$1 billion dollars of digital data.

    ReplyDelete