Bitcoin Market Crashing: Is this the end of Bitcoin or a pause before the next Bull Run?

Whenever the masses fully embrace a market, trouble is usually close at hand, and that’s what occurred with bitcoin; the masses were completely enamoured with Bitcoin. The masses were euphoric and were expecting bitcoin to soar to the next galaxy. Wild targets of $100,000 were being issued that sounded more like the ravings of a lunatic than of an expert. In an article published on the 4^th of December 2017 we made the following comments:

Bitcoin, on the other hand, is now in the feeding frenzy stage, so this market is ripe for a correction.  Tactical Investor

The problem with Bitcoin is that it’s not the only cryptocurrency; every Tom, Dick and Harry can issue a cryptocurrency, and to date, that is is what is occurring as we speak. There are so many cryptocurrencies out there that it in our opinion the better way to score a home run would be to issue your own cryptocurrency.

What caught our attention was that the masses were jumping up in joy and embracing bitcoin, but for over nine years they refused to embrace the equities bull market.  Mass psychology states that when the masses are euphoric (not to be confused with bullish); the outlook is going to take a turn for the worse. And more or less that’s what transpired with bitcoin.

Clear Psychological signals that all was not well

• Long Island Ice tea; a company that has nothing to with the Bitcoin market decided to change its name to Long Block Chain Corp. Mind you the name change had not taken effect yet, but the effect on the stock price was immediate; it tacked on almost 200%.

The CEO of Long Island Ice tea had this to say about the upcoming name change:

“We view advances in blockchain technology as a once-in-a-generation opportunity, and have made the decision to pivot our business strategy in order to pursue opportunities in this evolving industry,”

What a load of rubbish as no one in the company has a clue as to how blockchain operates. It’s interesting to note that other than the intended name change, this company has no viable block chain product (as of the date of the above announcement). It just thinks it would be a good idea to get into this market. The company makes beverages for crying out loud. Before the name change, its stock was down roughly 40% for the year.  It is a tiny company with sales of just $1.6 million, and viola all it had to do was change its name, and its stock surged.

• Riot Block Chain was known as Bioptyx, and its price soared after it changed its name. LongFin (LFIN), a financial company saw its price skyrocket after it announced it would be buying a blockchain microlender.  And most recently Kodak decided to take a similar route, and its stock price jumped.

At this rate, even companies that specialise in garbage might decide that it’s a good time to add the words blockchain to their names.  Hey, why not right? It’s like share buybacks on steroids; here you don’t even need to borrow money to buy back your shares, just change your name and voila, your stock soars in value.

• The creator of Litecoin Charlie Lee sold his entire stake before bitcoin crashed; he claims it was due to conflict of interest. Strange he waited till now to sell it. Maybe it took a few hundred million for him to figure out that there was a conflict of interest issue? http://bit.ly/2leWumd
• People were taking out mortgages or cash advances on their credit cards to invest in Bitcoin. Taking money you don’t have to buy something you can’t afford in the hopes you score a home run; what could go wrong with such a brilliant plan?

The last Psychological Straw?

When two experts, James Altucher and John MacAfee stated that bitcoin was destined to soar to $1 million, it was almost a given that the outlook would change for the worse. We sent out the following warning to our subscribers:

Bitcoin is now in a full-blown mania stage; people are taking mortgages to speculate on bitcoin. Insane price targets of $1 million are being tossed into the air, and the masses are lapping it.  That is how the market works, it gives and gives but then it strikes and takes everything back ten times faster. Market Update Dec 17, 2017

Bitcoin futures; the perfect vehicle to manipulate Bitcoin

Bitcoin futures provides a great venue for the big sharks to swallow up the silly sardines hoping to strike it rich.  The big players can now manipulate the bitcoin market via the futures market. They can use Fiat money (worthless paper) to push it up or down, much the same way they did and are still doing with the precious metals markets. Which illustrates the lie behind the “Bitcoin is different nonsense”;   Bitcoin is nothing but digital fiat; in some ways, its worse as anyone can issue their own cryptocurrency.

Courtesy of https://finance.yahoo.com

If you look at the above chart, it puts into perspective how fast the situation went from excellent to unpleasant/painful. While the crowd is anxious, they are still not in panic mode.  The bloodletting will continue until the trend of lower highs that started after Dec 14, 2017, comes to an end.  On the conservative side, we think Bitcoin could drop down to the 8,800-9,200 ranges, but this market is far from your typical market, and there is a good chance that Bitcoin could drop down to the $5000-$5600 ranges before the dust settles.   The masses are notorious for selling at or close to the bottom, so while $5000 might appear implausible now, just remember that panic has a way of distorting reality. When a person panics, they forget what they are doing, their objective is to get out of the game as fast as possible regardless of the cost.

Bitcoin will trend upwards again, but the trending upwards does not mean it has to surge to new highs.  A bottom will be close at hand when experts stop issuing lofty targets and turn on this market.  Compared to the wild bubble like action the bitcoin/blockchain sector has experienced, the equities markets appear almost timid. One could argue that if these markets follow a similar path, then the Dow and SPX could trade a lot higher before experiencing a strong correction. And that lofty targets of Dow 30K might not be that lofty after all.  We will discuss this in a follow-up article, which we hope to publish with the next 1-2 day.

For those who want to play the bitcoin market,  a somewhat safer alternative would be via Bitcoin Investment Trust (GBTC). Its quite liquid and you can jump in and out with the click of a mouse.   Consider waiting until the sentiment turns decidedly negative or bitcoin is trading at least in the $8000 ranges before deploying some of your funds and don’t bet the house on this market.

On a final note, the outlook for Gold right now is far brighter than that for Bitcoin.

Kodak surges at it becomes latest ‘cryptocurrency’ convert

NEW YORK (AP) — Kodak, which traces its roots to the early days of film-based photography, is getting into the digital licensing and cryptocurrency market as part of a partnership with WENN Digital. The companies are launching blockchain technology with KodakOne and KodakCoin. Blockchain is a ledger where transactions of digital currencies, like bitcoin, are recorded.

Rochester, New York-based Kodak, founded in 1880, is the latest company to enter the cryptocurrency market as Bitcoin makes gains. Bitcoin has surged from less than $1,000 a year ago to more than $14,000.

Recently, Long Island Iced Tea Corp. said it plans to change its name to Long Blockchain Corp., as it wants to focus more on blockchain technology while continuing to make beverages.

The Kodak systems will allow photographers to register work that they can license and then receive payment. The initial coin offering will open Jan. 31. Full Story

A clear indication that Bitcoin will probably trade below 10K and possibly as low as 5K before rallying to new highs; more and more companies will follow this path. Eventually, a garbage collection company might decide to join the pack.

Bitcoin headed to $100,000 in 2018, says analyst who predicted last year’s price rise

Bitcoin (Exchange: BTC=) could hit $100,000 in 2018, an analyst who correctly predicted the cryptocurrency’s rally at the start of last year told CNBC on Tuesday. Kay Van-Petersen, an analyst at Saxo Bank, added that other rival digital coins could also outperform. Van-Petersen forecast in December 2016 that bitcoin would reach $2,000 in 2017 . At the time, bitcoin was trading below $900, according to CoinDesk, a website that tracks the price of digital currencies on a number of different exchanges. Bitcoin blew past the $2,000 figure in May. Van-Petersen said Tuesday that bitcoin could hit between $50,000 and $100,000 in 2018. “First off, you could argue we have had a proper correction in bitcoin, it has had a 50 percent pull back at one point, which is healthy. But we have still not seen the full effect of the futures contracts,” Van-Petersen said. The CME and Cboe both launched bitcoin futures trading contracts last year.  Full Story

This eerily similar to some of the articles the Gold camp was pumping out in 2011 and early 2012 after Gold topped out.  Their  take at the time was that Gold was just building momentum and getting ready to soar to the next galaxy. Instead, the spacecraft blew up before it even achieved escape velocity. Individuals that pen such articles are nothing but shills looking for a way to push the markets up so they can bail and leave the masses holding a rusty can.

Bitcoin cryptocurrency is part of blockchain technology, and while the outlook generally appears good for blockchain, some technology experts are already warning that quantum computers could blow a hole through blockchain. We feel that several significant discoveries will be suddenly announced in the field of quantum computing.

Bitcoin could still trend higher, but when people keep pushing ridiculous targets, it indicates that the market in question is more likely to pullback then rally to new highs. At this point, the odds are far better for bitcoin to trade to 5K then 100K. Bitcoin is not something we would invest for the very long term, it is going to go through a brutal correction at some point, but this market is still indicating the superbubble pattern we spoke of last year is still intact. For this to play out, the market would need to experience a very strong correction and shed at least 60% of its value, but we would prefer a pullback of 70%.

The story below discusses the quantum computer threat

Could Quantum Computing Kill Blockchain and destabilize cryptocurrency?

Quantum computing gives us extraordinary computational power, making mince meat out of problems classical computers struggle to solve. The world’s most pressing issues, like that of climate change, can only be overcome with machines like quantum computers. Yet, as with all new technologies, it has the power to render features of other technologies obsolete. These technologies must mutate to survive and thrive, or else be left in the junkyard of one-hit wonder technologies.

With blockchain, that predator is quantum computing. Blockchain’s security comes from its enhanced encryption standards, but the power of quantum computing leaves experts worried that the encryption employed by blockchain will be overcome too easily by quantum computing.

Recently, researchers from the University of South Wales constructed a new architecture, similar to the ones used in today’s processors, to perform quantum calculations. This has significant implications for the average person. It means that the same technology used to run the devices you use today could be used to run quantum computing calculations.

Quantum computing, even pocket quantum computing, is inevitable. However, it has always been seen as a distant dream – 10 to 15 years in the future has been the industry opinion on the arrival of commercial quantum computing. This discovery by UNSW researchers discredits that prediction. It could now arrive much faster and that may not bode well for cryptography and blockchain as a whole.

It is technically possible for a classical computer to break through the asymmetric encryption that coins like Bitcoin use, using sheer brute force (running through all possible solutions); it would just take a very long time. Quantum computers operate at a magnitude many times quicker than classical computers though, and it is easier for it to defeat asymmetric encryption.

That puts cryptocurrency and blockchain in a tight spot. Cryptocurrency and blockchain could be forced to evolve, to mutate so as to possess new characteristics, or else the much-loved security and privacy that enthusiasts sing praises about might be a thing of the past.

If quantum computing research continues at its current pace, then it will have no problem breaking the encryption used by blockchain. The economic system of cryptocurrencies would become all but useless since it would be possible for hackers to steal your coins, commit fraud and control the blockchain. If someone could easily steal your bitcoins, it wouldn’t be good for Bitcoin’s reputation.

You may have heard of the term “51% attack”. This is when miners control over 50% of the network, allowing them to double spend. In layman’s terms, this means they can spend money twice by deleting transactions from the blockchain.

Quantum computers could give malicious miners the power they need to break this 50% threshold. This particular security worry is not an immediate concern. The projection is that it will be at least 10 years before quantum computers are capable of doing this. However, with the recently revealed engineering architecture for quantum computers, that timeline may be shortened.

There is a far bigger concern which, as we mentioned, is the ease with which quantum computing can break public key encryption. Quantum computing is expected to reach this level of power by 2027. In other words, if today’s encryption standards and by extension, blockchain security, doesn’t evolve new security techniques or encryption standards, it will be practically useless.

The good news is that long-term thinking developers of cryptocurrencies are in fact preparing for this eventuality and they’ve got a few tricks up their sleeve. https://goo.gl/df4ykZ

China has opened the world’s largest Quantum Computer research centre at the cost of $10 billion. Russia with the world’s best hackers has several covert programs dedicated to quantum computing.  It is just a matter of time before they figure out a way to use quantum computers to not only hack the bitcoin market (very easily) but to hack many other encrypted systems. We have already witnessed the many heists hackers have performed on the bitcoin market using non-quantum computers.

The underground world is usually always two steps ahead of the corporate world, and that’s generally because the corporate world does not want to spend large amounts of money to update their systems to new threats. They rely on an uninformed consumer believing their pathetic excuses that something unprecedented happened that was beyond their control and now that it has happened they are implementing top-notch technology to protect their systems. When hacked again, they will mouth the same excuse, which is what they have been doing for the past 30 years. Full Story

Is the Bitcoin Bull Market dead?

Despite the heavy beating Bitcoin has taken, the sentiment has not turned bearish, and there are still have too many articles being published on a weekly basis claiming that Bitcoin is going to surge to 100K and beyond.Do these experts ever bother to look at the charts before issuing such targets or do they do so after ingesting some toxic substance? We will never know the answer to that question, but what we do know is that in most cases they have no idea of how high or low the market is going to go.

They issue lofty targets that have a very low probability of being hit because if the market trades to these levels, they become instant heroes if they miss they can push some convoluted theory, for example, market manipulation to justify the bad call.  The fact that Bitcoin is trading over 50% below its highs does not seem to faze these experts; they are quite resilient and continue to push for targets that border on the fantastic.

We warned our readers that the bitcoin Bull was going to run into trouble

We published two articles on bitcoin since Dec of 2017, one on the 4^th of December, and in that article, we made the following claim

Bitcoin, on the other hand, is now in the feeding frenzy stage, so this market is ripe for a correction

The second article on the 24^th of January, and in that article, we issued price targets

The bloodletting will continue until the trend of lower highs that started after Dec 14, 2017, comes to an end.  On the conservative side, we think Bitcoin could drop down to the 8,800-9,200 ranges, but this market is far from your typical market, and there is a good chance that Bitcoin could drop down to the $5000-$5600 ranges before the dust settles. 

On the 4^th of February, Bitcoin prices dropped down to $6, 627, that’s within striking distance of the low-end targets ($5000-$5600) we issued.  So is the correction over and is this market ready to trend higher.

Bitcoin has violated the Main Trend Line

The first thing that stands out is that Bitcoin is trading below the main uptrend line and until that obstacle is cleared the path of least resistance is down.  Based on this one observation we can state that the probability of it testing the $5000 ranges is significantly higher than of it surging to new highs.  It could trade lower, but that will depend on how it behaves when it tests that level, so there is no point in discussing targets below that mark.  Experts expecting Bitcoin to surge to new highs could be in for a shock this year.

There are still too many bullish articles on bitcoin

Here is a small sampling of the articles published over the past four weeks

• Bitcoin price: Cryptocurrency to soar above $30,000 in 2018
• Bitcoin price to ‘double’ in 2018 cryptocurrency boom
• Struggling bitcoin will double by mid-year, Wall Street’s Tom Lee says
• Bitcoin Bull Tom Lee Goes Hyperbolic on Latest Price Forecast
• Cryptocurrencies Forecast to Resume Surge According to Expert
• Bitcoin Price Will Double by End of 2018
• Bitcoin Will Stabilize, Hit $50K by 2019: Neu-Ner
• Bitcoin price ‘to double’ in 2018 – so what about Ethereum and Ripple

Lower Highs Trend is a negative factor

The trend of lower highs shows no sign of abating. A series of lower highs is usually a bearish signal and signifies lower prices.  The first positive sign would be for Bitcoin prices to surge above its downtrend line.

Lastly, if you look at the above image, you can see that the Bitcoin camp is still not in disarray.  One of the things we pay very close to attention is investor sentiment, and until the Bitcoin camp is in disarray, we feel that it’s unlikely to surge to new highs until this gauge is in the hysteria zone.

Conclusion

Bitcoin had a fantastic run; in fact, the run-up was so spectacular that it makes dot.com mania of the 90’s seem sane in comparison.  Any market that has experienced such a spectacular run must also experience a back-breaking correction. While it appears that the drop from $20K to $6600 ranges might qualify as backbreaking, one has to remember that Bitcoin surged over 11,000%, so the current pullback is only backbreaking for the latecomers.  Usually, when a market experiences such a strong move, the 1^st few breakout attempts tend to fail.

The prudent course of action would be to wait until there is a surge in the number of articles calling for the demise of bitcoin and investor sentiment sours, before committing new capital.