One of the hottest topics connected to cryptocurrencies is surrounding the concept of a bubble burst – Will it happen? How will it happen? There are all kinds of charts and theories floating around the forums attempting to be the one to crack the code.
Let me just quickly dispel the notion that this is happening now. These are normal January hiccups, especially since the cryptospace is heavily tied to Asian influence. More than half of Bitcoin trading performed on public exchanges is done with the Japanese Yen.
That being said, whether or not a bubble is forming really should not be the question. Cryptos are following a normal cycle of technology integration. Numerous asset bubbles have occurred by this point showing very similar characteristics to the structure of events being played out within the crypto space. Narrow this down to it being a technology bubble, which it is. This is about blockchain, not digital currencies – they just happen to be a perk. Every groundbreaking technology in the past had to go through a bubble – not just the internet, the railroad is another example.
Each bubble is initially about greed. Those fueled by the emotion and who possess the means will swoop in and take advantage while they can. The ‘burst’ should occur when we reach that level where mass adoption (supply) meets a point of demand where the fake, get rich quick schemes cannot keep up and they are weeded out. Bitconnect is an easy example illustrating a predictable chain of events of the scams being scraped away. That is the basic structure of each bubble up until now. I say up until now because there are unique elements at play.
While every other bubble was localized, including the Dotcom boom (primarily funded by U.S. investors), cryptocurrencies are a global phenomenon. This point right here makes this bubble unique and certainly warrants its own article, just not this one.
I lived through the Dotcom bubble and I find it odd that until the burst occurred, there was no discussion, no media mention of a bubble. Try scrolling for more than five minutes in any crypto forum without coming across a bubble article (I get the irony of me writing one – I’m sure that will be one of the first comments …). Numerous financial experts are now currently warning everyone to get out now. In fact, this is the only bubble that has people freaking out over a burst before its happened. No other bubble in our history had media attention about a potential burst before the burst occurred.
Why is there so much media hype over this bubble as opposed to every other previous bubble?
That is because blockchain technology is, probably for the first time in history, a legitimate threat to the centralized powers that have controlled the global economy for longer than can be imagined. They do not want this space growing in our favor. Sure one can theorize that if this technology really was that dangerous we would never have heard of it, however, as with every other form of power, they want it for themselves, they just need time to grow it. Anyone who has delved into researching the true powers that rule our planet know that they love to dangle the truth in front of our faces and mock us with it.
Central banks are the core investors behind nearly every blockchain project out there. They see its potential. They are hoping to evolve it in their favor before we realize what it is and what it can actually do. This space is bombarded with fake, negative media for a reason. How many of your friends and family knew what you were talking about when you brought up cryptocurrencies at the Christmas dinner table? If anyone knew anything, it revolved around Bitcoin, and even then, they were skeptical because of a possible bubble burst. This is how most people form beliefs. They hear things they never verify from a source they can never remember that somehow resonates with them.
Outside of the crypto space, financial experts have been screaming the same warnings about stocks and currencies like the dollar collapsing for years now, yet it hasn’t happened. Technically, it should have, so I understand why so many keep trying to warn everyone, however, it will not happen unless central banks allow it to happen.
The majority of trading within the stock market and crypto markets is now performed by algorithms, not humans known as quants.
Credit Suisse Group AG defines quants as funds that invest in thousands of equities and trade dynamics, rather than making stock-specific bets. Since they use different signals and time horizons, their combined impact mostly goes unnoticed.
They don’t read the news or analyze and evaluate companies in order to make buy/sell decisions. They simply respond to patterns in the data.
According to JP Morgan Chase & Co. estimates about 60% of all equity assets are now being traded by bots, while only about 10% are being traded by actual humans. These bots fake each other out in order to create buying opportunities. Sometimes we humans see this activity in what is called flash dips.
Remember that time Ethereum dropped from $319 down to 10 cents in under a second? It left numerous experts scratching their heads and many pointing the finger at GDAX for illegal activity since most of the sell orders came from their exchange.
Mystery solved, it was bots. Phew, that was a tough one. If you ever see a flash dip, it had something to do with algorithmic trading.
The exchanges have become neural junctions of quantitative machines that attempt to trick themselves and exploit each other’s weaknesses. Fundamentals no longer matter; only endless central bank-supplied liquidity does.
The entire economy is now rigged. Central bankers know how to tease the right bots with the right price points in order to herd other bots in their desired direction. This is why the stock market continues to inflate and the crash that everyone thinks is around the corner, stays around the corner.
If and when a crypto bubble burst occurs, it will be when central bankers decide they are ready to pull the plug, as they toss that juicy bit of data into the abyss with all of the ravenous bots chasing after it.
