“Everybody’s talking at me,” songwriter Fred Neil wrote in 1966. “I don’t hear a word they’re saying. Only the echoes of my mind.”
That sums up the week in bitcoin. The cryptocurrency’s price raced to $11,000-plus then fell to $9,021.85 on Nov. 30 (it’s now sitting at $10,469 as of this writing), and everyone suddenly had a take on its future.
Bitcoin’s price action was exaggerated in the action on other coins, most of which had bigger drops once the panic set in. The price of Ethereum dropped 18% from its high Wednesday, Bitcoin Cash dropped 24% and Ripple gave back around 20% as well.
The Bitcoin Action
But few were talking about that. Instead, they were arguing about the capacity-limited, original cryptocurrency blockchain bitcoin, the mining of which now consumes more electricity than used by most countries.
Nobel Prize winner Joseph Stiglitz wants it outlawed. Wall Street strategist Tom Lee calls it “digital gold for millennials” and predicted it would hit $100,000. The Nasdaq said it would write a futures contract on bitcoin that would begin trading in 2018.
At the heart of the mania was Coindesk’s Consensus Invest event in New York, where traders and hoarders literally partied like it was 1999.
What drove the market higher was demand-driven trading volume, which has increased by 10 times this year at exchanges like Coinbase. The fall happened when these exchanges were overloaded with orders, causing a sudden panic. This was partying like it was 1929.
Behind the Action
Bitcoin’s rise and fall is an exaggerated version of what is happening in real asset markets, which are all having their own manias.
The Nasdaq average hit 6,900 on Nov. 28, then dropped by over 1% in a morning. A single diamond sold in Hong Kong for the equivalent of $35 million. The vice president of the European Central Bank called U.S. equity values “overstretched” and said that could create a global correction in stock markets.
Every type of hard investment asset is rising in price. Real estate, gold, and prices for high art are all skyrocketing while investment in real goods and services continues to dry up.
There is simply a shortage of good investment vehicles and an overabundance of cash lying around, around the world.
Alphabet Inc (NASDAQ:GOOGL) can’t find enough things to invest in and has $100 billion in cash. Apple Inc. (NASDAQ:AAPL) has over $250 billion. A U.S. tax bill that takes money out of the real economy and puts it into the hands of capital markets won’t change that equation. It simply adds fuel to the fire.
When this has happened in the past, it has led to booms, then busts, that destroyed much of the cash. When money is lost in a market, as in the 2008 economic collapse, it disappears, and the only way to whip the deflation is to print more money. But if that money can’t be put to real work it will, like an idle teenager, just get into trouble.
That’s what is happening with assets right now, and bitcoin is merely a reflection of that.
The Meaning of Dash
Only Dash, with its features of instant transactions, private transactions and completely decentralized organization, resisted the bitcoin price action, rising 10.45% on Nov. 29 to $790 per coin. As of this writing, Dash sits at a perch of $805.25.
This may be because Dash was not created to be hoarded or traded, but used to represent goods and services. Whether those goods and services are legal is a private matter. It seems the underground economy has its currency of the moment and, while it may be illegal, at least it’s doing some work.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story. To follow the value of crypto currencies bookmark https://coinmarketcap.com.
