A 16% Bitcoin Fall, and Feeling Fine…

How would you feel if you woke up to find that your investment had fallen more than 16% overnight?

My guess is, not great.

That was the reality Friday morning for Australian bitcoin investors. Personally, I can’t decide which would have been worse. Watching it happen live in the US, or waking up here with it already done.

And it’s not like this fall came out of the blue. Bitcoin had been struggling since Monday, before the massive drop Thursday. Take a look at this chart from Coindesk:

Source: Coindesk

Click to enlarge

It doesn’t paint a very pretty picture. But then again, as our own technology expert Sam Volkering always says, cryptocurrencies are the ‘Wild West’. Risky, volatile, unpredictable. All of those terms certainly apply to what we see above.

But Sam argues that the risk and volatility of bitcoin and other cryptocurrencies come hand in hand with the massive opportunities. So let’s zoom out a little, and take a look at a longer period chart.

Source: Coindesk

Click to enlarge

And here you can see Sam’s point.

For every precipitous drop, there’s an epic climb. And the explosive moves upward have happened even more suddenly than the falls. That drop at the end is still pretty ugly. And it could keep heading downward from here. But held up against the longer term, it doesn’t look quite so scary.

Yes, bitcoin is unpredictable. Chaotic. Extraordinarily volatile. But that’s because it’s so new. Almost no one fully understands it, including many of the people hopping onto the bandwagon. Inevitably, with gains like these, many people are jumping onboard not because they believe in cryptocurrency, but just hoping for easy profits.

Those same people will be the first to panic and leave when prices fall.

But bitcoin, and the technology it’s built on, have the potential to revolutionise finance worldwide. They could completely change the way that businesses and individuals control and spend their wealth. And go a long way to freeing them from the manipulations of central banks and governments.

The people who see that potential aren’t going to be shaken out, even by a 16% fall. They’ve seen falls like that before. And they’ve seen the falls reversed even more quickly.

No, you shouldn’t bet the house on bitcoin. You shouldn’t be putting any money you can’t afford to lose into something this new and unproven. But if the cryptocurrency revolution achieves even a part of its potential, you wouldn’t want to be left behind.

You can discover precisely what that potential is here.

This week in Money Morning

With the public holiday Monday, the Port Phillip Publishing office was closed. But that didn’t stop Phil Anderson. He wrote about a unique economic indicator that’s ignored by most economists. Phil argues that this unmissable sign will tell you exactly where you are in the real estate cycle. Right now it’s pointing to a likely ‘mid-cycle slowdown’ coming soon in the grand real estate cycle. What’s a mid-cycle slowdown? When will the real crash come, and what are the warning signs we’ll see when it is near? You can learn more in Monday’s Money Morning, here.

On Tuesday, Greg looked at the impressive growth in tech stocks, and the warnings from some in the mainstream that tech stocks are in a bubble. Is this dot com all over again? Greg argues that tech stocks will usually trade on higher multiples of their earnings. That’s simply because investors look to them for more potential, and less for what the companies already have.

That kind of investing comes with added risk, of course. And Greg thinks it does seem likely that tech stocks have overshot to the upside with their recent gains. But that doesn’t mean that a correction has to turn into a collapse. Greg says that low interest rates should continue to cushion stock market falls, and prevent them from turning into a rout. You can read why here.

The discussion of technology, how it affects stock markets and what’s happening to the tech sector of the market all continued on Wednesday. Greg looked at the industries being cannibalised by new technology. And he explained how technological advancements are a key reason for the lack of wage and consumer price inflation, even as asset inflation has boomed. Innovation has destroyed a lot of jobs and industries, as well as creating some new ones. For Greg’s insights on which sector could be hit next in Australia, you can read Wednesday’s Money Morning here.

Speaking of disruptive technology, Sam has been focused on cryptocurrencies this week. Bitcoin has come a long way since it first burst into public consciousness — and even farther since it was born in a quiet, untamed corner of the internet. There have been plenty of voices in the mainstream calling for its imminent death, but it just keeps on clawing its way higher, year after year.

Sam has been there for most of bitcoin’s journey, writing about its potential and cornering significant gains for his readers. On Thursday he looked back at some of the bumps along the way, in this still volatile and chaotic alternative currency. Read more in Thursday’s Money Morning, here.

And if you’re worried that you’ve missed out on the huge gains from the early days of bitcoin and other cryptocurrencies, don’t be. As Sam writes in a recent special report, he believes the biggest days for cryptocurrencies are still ahead. Find out why here.

Bitcoin saw massive volatility Thursday night Australia time. By Friday morning, it had fallen 16%. Once again, commenters are scrambling to publish obituaries for bitcoin, and cryptocurrencies in general. After a 16% fall in a day, it’s tempting to join them. But just how unusual is this kind of fall?

As Sam wrote Friday, not very.

It’s important to remember that cryptocurrency is still developing. Volatility spikes can be huge. We’ve seen massive single day losses — and massive single day gains — plenty of times before. That hasn’t stopped bitcoin from continuing to drive upwards. From nothing to over US$2,400 at time of writing, in less than eight years. And if Sam’s right, what we’ve seen so far is just the beginning. You can read more in Friday’s Money Morning, here.

That’s it from us. Next week I’m sure we’ll have more on the cryptocurrency revolution, as bitcoin believers tune in to see whether the young alternative currency can recover from here. Until then, enjoy your weekend!


Tyler Jefferson,
Editor, Money Weekend

Tyler Jefferson joined Fat Tail Investment Research in 2012. With a background in publishing, he started out as part of the team working behind the scenes with your Editors to bring you Money Morning each day.

When he joined, Tyler was Fat Tail Investment Research’s 12th employee. Today that number has grown to over 50, as more and more readers turn to Money Morning as their source for independent financial analysis and ideas.

Today as Managing Editor, Tyler still edits the articles you read each day. Along with that, he occasionally contributes to Money Morning with his own irreverent take on the most interesting news and opportunities for you.

Money Morning Australia