If you haven’t experienced an asset bubble before, it’s easy to dismiss all of the bears who say that the skyrocketing price of the asset du jour is going to come right back down to that at some point. In my investing lifetime alone, which spans back to 1995, I’ve seen countless parabolic spikes and every single time the price of that asset crashes. The current bubble is Bitcoin.
Mind you, I’m not talking about any particular asset that goes significantly higher over a good period of time. The market is littered with 10-baggers, 20-baggers, 50-baggers and so on. I’m talking about an asset that just gets way ahead of itself.
In many cases, that asset itself has no underlying value. Psychology just takes over, momentum joins the party, the ability to trade instantly facilitates the buy, the media whoops the narrative into a frenzy, fear of missing out is injected and the next thing you know, we have Bitcoin.
Just look at this chart. Especially look at the long-term chart on the bottom of the page. This is classic parabolic asset behavior.
Here’s a chart that compares Bitcoin to the dot-com bubble of 2000, which it most closely resembles.
At least the NASDAQ index had many stocks that were actually worth something, which is why the index eventually recovered. Mind you it took 17 years for it to get back to its previous high. That should tell you something, especially considering Bitcoin’s intrinsic value is zero.
Does Bitcoin Have a Chance?
I’ve said it before and I’ll say it again. It is called “cryptocurrency” for a reason. “Crypto” means “secret” or “hidden”. The name itself is telling you that the entire thing is a scam. There is nothing supporting this “currency”. It is literally vapor.
Now we are seeing the beginnings of substantial opposition to Bitcoin. We’ve already seen its value peak and plummet, and it will continue to fall.
As of December, more than $15 billion in Bitcoin has been hacked. So much for the myth of “safety”. South Korea is now restricting trading and are considering an outright ban. How long before other countries join in? This is particularly worrisome because Bitcoin is not only subject to excessive speculation but also to tax evasion, fraud and money laundering.
Some credit card companies will no longer permit the purchase of Bitcoin. How stupid is it that people purchase bitcoin on a credit card, not because they’re making an investment, but because they are obviously speculating. This is no different than what happened in the housing crisis. People levered up on easy money to speculate on houses, and when the bubble burst, that fantastic asset they just poured all their borrowed money into was suddenly worth far less. And then the lender came calling.
Now we have the news that Google, the search engine of Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) is going to ban cryptocurrency ads. That news alone sent Bitcoin down 9%. This came on the heels of Facebook Inc (NASDAQ:FB), which is the second-largest online ad provider, announcing that it also instituted a ban.
Not to be dismissed is the disappearance of daily media reports on how much Bitcoin is surging. If you’ve been around as long as I have, this is just a pattern repeating itself. Every day for weeks or months, the news media is covering the incredible rising price of some asset. Then it starts to fall. Then it starts to fall more. Suddenly, the excitement over these daily moves goes away. That sucks the momentum out of the market, and the most aggressive speculators vanish along with it.
Then we start to see news like this pile up. There is more downside to come. Much more downside. If you haven’t sold already, get out.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.