"Bitcoin is a bubble worse than the tulips one "
Just a few words from JP Morgan Ceo, Jamie Dimon, and the bicoin price – originally at 5000 dollars- starts to decrease and violently drops down to 2.980 dollars after the chinese exchanges’ announcement to go out of business.
It looked like a normal September day until the boom of messages and phone calls. Everybody asking about the collapse; not only Italian media, but even friends in a panic with no idea of what to do.
We need to observe the price chart and to meditate about the situation: the only certain answer was that bitcoin was not dead. Some big fish was buying an enormous amount of bitcoins regardless the low liquidity of the market. Lots of traders followed it and the Bitcoin price increased by the 8%. Few hours later, Bitcoin’s worth was about $1000 more.
It's not easy to be a trader. According to the statistics, more than 95% of traders are losing money, without even knowing it. For sure it's a difficult task. A day as September the 14th, will be fixed not only into the charts, but also into the minds of traders and algotraders. A loss of 20% and a gain of more than 20% in just a few hours - without any important news - has never happened.
But the market reflects the trader's psychology, and waves between euphoria and depression.
Algotrading is different. Artificial intelligence works without any emotion. But it still has a limit: it can not build itself. Nevertheless, both a trader and an algotrader, on September the 14th, would have lost money due to the fact that the main exchanges were not working.
The Rock trading was under DDOS attack: sellers could not buy back.
On Kraken any purchase order was not working.
Bitfinex had access issues and the stop losses were not executed.
Only Bitstamp was working, but with no opportunity to use leverage.
When the price was dropping down, it was very easy to think about big players or exchanges manipulating the market. So, why some systems are earning despite anything? How do they forecast these manipulations?
Artificial intelligence, together with complex structures, can "understand" the traders’ psychology.
Highly likely other manipulations were fixed in the price chart and AI, with a sort of magnifying glass, studied and committed them to memory. As a result, manipulations themselfs became a part of the market’s psicology.
What does it all mean? Some events are not predictable.. but not for everyone. It seems, infact, that JP Morgan has used the Swedish ETN to sell bitcoins before the collapse and to buy them again when the price was rising.
Did the algos know it?
Of course not. But some algos could have thought about it. And it's not a consequence of the law of large numbers, but rather a deep study of physics and numbers, because news always follow facts.
What happened on September the 14th has definitely drawn a line between amateour and professional traders. Not because the latter gained money but because they lost less.
As seen before, exchanges can be banned or controlled by governments and banks. They can not be insured and they can go bankrupt. Their clients can lose everything, because they have no warranty. No authorities guarantee their working principles, so they could take a position opposite to the one taken by the majority of they clinets without having any legal consequences.
Is it possible to get rich with bitcoin? Maybe it's not possible anymore. We still have the ICO, they say. But these are the real bubbles. Maybe they are just little bubbles, but they will weigh mainly on little investors. Even Vitalik Buterin, the Ethereum's founder, agrees on this, so we can trust it. Ethereum infact, is the most used cryprocurrency to finance an ICO.
Why shouldn't bitcoin reach $100.000 worth?
It has the right stuff: it is limited, like gold, and it is more effecient than gold, moreover everybody talks about it. A lot of hedge funds are entering the market and probably, with a regulated ET, we will see some pretty ones. Bitcoin supply is fixed. If the demand grows, it’s a done deal.
If we had a decentralized exchange ( How to do it? ) - there are meny people who are working on it - the bitcoin value could even overcome $100.000.
However, let’s think about Spain in 1532. It had conquered Inca’s lands, accumulating about 45.000 tons of silver, later converted into coins. It believed to be able to overpower the whole western world, using these resources to conquer other countries.
Spain mined so much silver to make its worth collapse and, at the end of the story, it was poorer than before; spanish, infact, realized that the worth of a currency is not absolutebut but it denpens on what others are willing to offer in return.
We need to keep in mind that Bitcoin is not fragile at all. On the contrary, it is actually antifragile.. It is the favourite financial tool of millennials. But in the whole ecosystem, exchanges - in this case - reflect an important human weakness: greed.
Nowadays, exchanges are the only weak point of bitcoin and its perspectives. How can people trust it while holding this risk from exchanges? Why should they do so?
Code is law. It is still a utopia, but it will not be a utopia forever. Víctor Hugo said that we might resist an army, but we will not be able to resist an idea whose time has come.
We are almost there.
Antonio Simeone
simeonea@luiss.it