There is a simple lesson in the bitcoin collapse, from a high of near $20,000 late in 2017 to its Feb. 5 price of $7,714.
Sometimes it’s not about you.
The bitcoin boom, and bust, was never about you. Most of the money that went into the cryptocurrency market during 2017 came from China, Korea or Japan.
So when China cracked down on bitcoin trading in September, then extended it to bitcoin mining in January, a collapse was inevitable.
Those who didn’t listen to the warnings assumed that, because the bitcoin technology has a lot in common with the internet, traders would simply route around it, as they route around internet blocks. They were thinking about what they would do, not what Chinese people would do.
China’s Effect on Bitcoin
The Chinese government has a strong grip over its population, which means that most Chinese people trust, or at least obey, their government.
Despite its treating of liberty as a precious commodity to be doled out with an eye dropper — members of the Central Committee can doubtlessly visit any website they want — China has delivered unprecedented power and wealth to its people since opening to the west in 1978, and people don’t want to screw that up.
The 1968 movie The Shoes of the Fisherman was built around the idea of China as North Korea, and 50 years ago, near the height of the Cultural Revolution, it seemed a natural plot line. Today, China is the world’s largest trading nation and its GDP is on its way to overtaking that of the U.S.
While few Chinese are rich, most now have homes, plenty of food to eat and have hope for their children. A country that once restricted families to one child per household now finds itself with a birthrate that’s too low to sustain its population.
So, when the government said, don’t trade bitcoin, a lot of people stopped trading bitcoin. When it said, don’t mine bitcoin, a lot of people stopped mining bitcoin. This has taken demand out of the market. The currency’s fall has mostly been taking place in the overnight hours, daylight in China, while small rallies have been taking place during the day, when U.S. traders have been hunting bargains.
The collapse of bitcoin prices has been matched in other cryptocurrencies, even in Dash and Monero, which claim to have enhanced “privacy” protection many governments fear is a cover for crime.
The value of the cryptocurrency market, once bigger than the market cap of Facebook Inc (NASDAQ:FB), was down to $382 billion on Feb. 5, which is closer to that of Johnson & Johnson (NYSE:JNJ).
This is hitting small plungers in the Far East much as the end of the dot-com bubble hit investors in the U.S. That bubble was primarily an American phenomenon, and it’s one reason why only half of Americans, even today, own any stocks, even through a retirement account.
It’s like the story of a cat jumping on a hot stove. She won’t jump on a hot stove again and won’t jump on a cold stove either.
Now that the bust is on, meanwhile, western institutions are racing to appear responsible, with banks in the U.S. and U.K. banning the use of credit cards to buy cryptocurrencies.
Is This the End?
Bitcoin bulls like John McAfee and Ran Neuner insist that everything is fine, that prices have only returned to their early December level.
But an important psychological point has been reached. A lot of people have been burned and won’t be burned again.
The bitcoin market is running out of suckers.
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 did not hold a position in any of the aforementioned securities. To follow the value of crypto currencies bookmark https://coinmarketcap.com/
