Blockchain. Distributed ledger. Crypto.
These have become the new sexy words for the past year. They promise outsized gains so long as you’re willing to HODL, which either means “hold on for dear life” or was a typo in a crypto online forum turned into an industry-wide meme — a joke essentially.
But that a joke meme has become a seriously taken investment philosophy is a sign of just how absurd things have become.
A more accurate description for HODL is “hold, and don’t think.” The promise is you’ll get rich by ignoring downside risk and closing your mind off to anything that might refute the bull case. This worked in the past, but back then, investors were taking real risks — the mainstream public hadn’t yet jumped in, and most were skeptical. And investors tended to understand what they were investing in.
THE NUMBERS TELL THE STORY
Today, most people don’t — they have little real technological understanding of what they’re buying. Cryptos have become lottery tickets, and most holders seem to believe that the historic gains of the past can be repeated, even after Bitcoin went from less than a penny well into the thousands.
They think, or secretly hope, cryptos will go to the moon, when they don’t understand that cryptos already are on the moon. Bitcoin is the largest bubble in history, and despite the crash since December, Bitcoin hasn’t even dropped to its November prices, one month before the top in December at $20,000.
It’s important to understand that cryptos are financial assets, and however much you may believe in distributed ledger technology (DLT), there is more to price movements than however bright the future of DLT may be.
The internet promised to change everything, and it did. But the financial assets associated with it, like the companies in the Nasdaq, crashed by over 90 percent in 2000, forcing most of them to close up entirely. As this happened, internet usage didn’t decline at all, and even increased.
However highly you may think of the future of DLT, it’s important to separate cryptos, the financial assets like internet stocks, from DLT itself, and understand that this same thing can happen again, and is already starting to happen now.
Before going into why, it is important to dispel the notion that “this time it’s different.” No, it’s never different, because regardless of the asset, it’s always humans who are doing the buying and selling, and human nature doesn’t change. Even HODL isn’t new.
In the 1920s, Americans believed the US was entering a “permanent plateau of prosperity,” in which American goods would be exported all over the world, so stocks couldn’t crash. In the 1960s/70s, people were told to buy and hold the “Nifty 50,” a major stock index that would rise for the rest of their lives, only for it to crash by two-thirds.
The 1990s were a “new age” in which everyone could get rich buying and holding tech stocks. In the 2000s, it was real estate, the false belief that “real estate doesn’t go down.” All these are various forms of HODL, and we are at the point in the Bitcoin cycle of large bull runs followed by large corrections, that the current “correction” will prove not to be a correction at all but a complete market meltdown.
CHARTS SEE THE FUTURE
On the chart displayed here you’ll see Ethereum has broken through the trendline that supported its rise from May 2017 to July 2018.
This alone is bearish, because it shows buying dried up at the point where buying should have been strongest, but if you look at the drawn pattern, you’ll see a head-and-shoulders reversal pattern that’s completely broken down.
It forecasts a downside target below $0, so the only way to get a target above $0 is to view the chart on a logarithmic scale, which still projects a target well below $100.
Compounding this is that nearly every major crypto across the board has similarly bearish breakdowns. It’s important to understand that charts show the buying and selling behavior of everyone, not just technical traders, but fundamental investors, moms and pops, and institutions.
This means that regardless of your beliefs about DLT, the market is not interested in taking Bitcoin from the moon to Mars at this time. TJ
For those who have held Bitcoin and cryptos, it can be hard to consider that the party is over. But it’s important to be as objective as possible, and understand that the greed and fear of missing out that vaulted cryptos up in 2017 have begun to turn back to panic and fear, and given Bitcoin is still well over its November prices, the crypto meltdown that started in December likely still has a ways to go.