The internet is alive with Bitcoin offers. Everyone is jumping in. Everyone is talking about it. The price has skyrocketed. "This is the next big thing" they say. "It will change the world". "New world order". Excited? Don't be.
So when I look at the advise being thrown around I see a plethora of people espousing the virtues of investing. Somehow they are now both investment and technology experts. So I feel compelled to speak after seeing so much crap on social media lately about Bitcoin. I fear some of my friends, family or colleagues may get caught up in the hype.
For those who have no idea what I am talking about then you can stop reading now, you are not at risk.
For anyone who is curious about Bitcoin, here is what you need to know now:
Fact #1) Blockchain is not Bitcoin. Blockchain is a technology used to create cryptocurrencies of which Bitcoin is now one of many albeit the most widely traded so far
Fact #2) The reason Bitcoin and other Cryptocurrencies are filling up your Facebook feeds is because people are now running Multi-Level Marketing schemes to convince you to buy Bitcoins. So the people marketing it to you have a financial interest in getting you on-board. Think Amway for Bitcoins.
Fact #3) Human behaviour is now at its all time worst where Greed and "Fear of Missing Out" is driving otherwise sane people to rush in and buy Bitcoins or other Crytocurrencies at the height of the mania, even though they truly have no idea what they are doing.
Fact #4) When taxi drivers and people on the street start giving investment advice then it's time to get out. The price is being driven up by mum and dad investors getting in fast due to MLM schemes giving them access to buy Bitcoins.
Fact #5) The rate of trade far exceeds the rate of mining, so if you are buying now then someone who currently holds Bitcoin is taking your money. You are now valuing it more than the people who already have it. Hello !!!!
Fact #6) Market dynamics work. There are no exceptions. Once all the suckers are in and they realise that the meteoric rises where a thing of the past then they will look to get out. The logarithmic rise to the top is mirrored on the way back down. Every argument that "this is different and it will change the world" has been heard before. It's not different.
Fact #7) I am not saying Bitcoin will disappear. It will just normalise after all the hype dies down and a lot of people will lose a a lot of money.
Fact #8) Yes you can make money while there is still someone behind you wanting to get in. Ultimately the ride will stop and normal market dynamics will come in to play.
Fact #9) Greed drives irrational behaviour and it works the same on the way up as on the way down.
Fact #10) Where there is money there is theft. The more money and the less sophisticated the users, the more there will be. Bitcoin is a big target right now. Bitcoin theft, scams and ponzi schemes are rife. Even Bitcoins exchanges have been hacked with Bitfinex recently lost 120,000 Bitcoins. At todays Bitcoin price that's a US$1.3Billion loss direct from an exchange.
So where are we? Check the "Phase of a Bubble" chart attached which was publish by Dr Jean-Paul Rodrigue of Hofstra University. We are in the "Greed" stage of the "Mania Phase" of this chart. Human Psychology is driving it, not some new miracle currency.....that's where the "Delusion" stage kicks in. Watch this space folks, the tipping point comes when the market is "all-in". Depending on how delusional people are will determine how long it takes for this to happen.
My advice is to run a mile. If you have FOMO then deal with it, you have already missed out. This is purely a high risk bet and you should never bet more than you are prepared to lose.