Timing any market is near impossible, but when you see irrational exuberance and volatility together it is often an indicator that you are near a market top. I’ve had a pretty good run with cryptos in 2017 but over the last couple of weeks I’ve been unwinding my crypto investments to the point where I’ve pretty much sold anything that isn’t nailed down. I still firmly believe in the future of blockchain technology and its potential to transform our world, but I see a number of potential Black Swan events on the horizon that are giving me good reasons to sell now. Here are my top 5 :-
1. The Flippening Threat
Source
The Bitcoin war has been raging in earnest for some time now and we have already had one major scare with Bitcoin Cash threatening to topple the SegWit Bitcoin as the One True Bitcoin. We have seen conspiracy theories like Operation Dragonslayer come and go, but if you put politics aside and just look at the technical aspects of these two competing Bitcoins the threat of a Flippening is very real. All that is needed is a slight change in sentiment and it can create a shift of buying from BTC to BCH on the price front and that can cause BCH to become more profitable for miners. That in turn can cause a shift in the hash power which in turn can cause a slowdown in block times for BTC, a spike in transaction backlog and fees for BTC and before you know it you have a positive feedback loop. Confidence in BTC can quickly turn in what is commonly known as a hash rate Death Spiral. In isolation I don’t much care if BCH topples BTC as I do believe bigger blocks is a better scaling solution and I prefer to see Bitcoin try and stay true to the original Satoshi whitepaper as a crypto Currency rather than a Speculative Asset. The problem is that BTC is the main trading pair for just about every other alt-coin on the market, so if BTC tanks in favour of BCH then it will cause carnage across the entire crypto-sphere.
2. Tether Default Risk
On the 20th of November Tether (USDT) was hacked for a $31 million loss and since then Tether has come under a lot of scrutiny. Reading through the legal terms for usage of Tether it is clear that they do not actually guarantee redemption of Tethers for USD and there still does not appear to be a credible audit of the USD that they are supposedly backing this crypto currency with. Tether has become a very important trading pair on big alt-coin exchanges like Poloniex and Bittrex. In addition, new Tethers are continuously being issued in very large amounts and the timing is corresponding with downturns in BTC. There is legitimate concern that Tethers are just being printed at will and used to pump up the market in a way that reminds me of the Willy Bot in the lead up to the Mt Gox collapse. Bitfinex has already had some shady history and there is a risk here that if Tethers do turn out to be unredeemable then that will have devastating effect on the crypto market. According to coinmarketcap.com the market capitalisation of Tether is currently about $816 million USD so that will make a serious dent if it goes up in smoke and alt-coin exchanges like Poloniex and Bittrex could be crippled in the fallout.
3. BitConnect Ponzi Unsustainability
Another shady coin which has undergone a lot of scrutiny in recent times yet it still has investors pouring money into it. BitConnect makes the claim it guarantees 1% return on investment DAILY, which any sane person would be able to see straight away is an outrageous promise that can’t possibly be sustained. We saw here on Steemit recently what happens when someone promises unrealistic returns with even 45% per annum being too much for the Bellyrub Bank. When the going is good there is no problem, but when there is a bump in the road an exit scam is never too far away. BitConnect is putting investors money into BTC and has been riding the coat-tails of the 1000% return of BTC so far in 2017. But it’s not going to take much of a dip to trigger the inevitable collapse of this Ponzi so while it may not be the catalyst for a big crypto correction it is likely to be one of the first big dominos to fall when sentiment does finally turn and it’ll make the crash harder. According to coinmarketcap.com the market capitalisation of BitConnect is currently over $1 billion USD so that’s another ticking bomb that can blow a big hole in this crypto market rally.
4. Steem Dollar Pumping Insanely
Everyone here on Steemit should understand how the Steem Dollar works and that it was designed and programmed to always return to the value of $1 USD. It is not a hard peg like Tether but it typically fluctuates somewhere between 0.92 and 1.08 most of the time. Then on November 23rd all of a sudden it spiked up to over $2 for no apparent reason. It has continued to trade at a vastly over-inflated price ever since with several more spikes on high volume over the last couple of weeks. There are lots of very knowledgeable people on Steemit commenting on this but to date there has still been no credible reason for this sustained price spike. Considering the SBD is programmed to return to the value of $1 USD, whoever is buying up the SBD is likely going to cop a massive loss. It is nothing short of madness and while a Korean exchange did list SBD and STEEM on the 23rd even an extended pump of this magnitude cannot be explained with investor ignorance – especially since STEEM itself has not pumped anywhere near as hard as SBD. Is it a co-incidence that this SBD pumping started just 3 days after the Tether hack and serious questions have been asked about Tether redemptions? I wrote some months back about the use of both Tether and Steem Dollars as relatively stable cryptos to use when the market turns but they both have huge question marks over them right now and the SBD pumping (more than any other issue) is a giant red flag for me. I never EVER wanted to convert my crypto wealth back to fiat but these developments have me spooked. Something is going on and even the brightest minds on Steemit cannot explain it....but the market does not lie.
5. History and Technical Analysis Warnings
Bitcoin has been around since 2009 and has a history of major price pumps followed by massive crashes. You might hear people claiming that This time it is different and It’s a new paradigm. Well maybe it is, but that’s the same thing that gets said before every bubble bursts. We have had over a 1000% increase in the price of Bitcoin in 2017. Do people REALLY think this trajectory is sustainable? Are we REALLY getting massive mainstream adoption? I don’t think so. To me Bitcoin is still clunky, hard to use, slow and it’s becoming even more expensive to transact – to the point where it no longer has utility as a currency for me and I just won’t use it. Where I live people have started talking about it because it is making the news but still nobody is actually using it. It would be different if they were talking about DASH or Ethereum or one of the newer cryptos too, but this Bitcoin-centric exposure reeks of HYPE and FAD trending. If you have a look at the daily charts you’ll see an Evening Star occurred on November 30 with some solid volume and this is frequently a topping indicator. It has since gone on to make a slightly higher high but the price has been volatile and this can be another indicator we might be near the top. Sentiment is very strong right now but you have to ask if we can keep this up or is this enormous bull market running on fumes?
Now after saying all that I do re-iterate that it is nearly impossible to time the market and BTC is possibly going to go on and double its price in the next month but it’s going to do it without me on board. I do love crypto and Bitcoin will always have a special place in the history books but I am firmly of the opinion that the market has lost its collective mind and it needs to come back to earth to flush away the garbage in this market. If there is one thing I’ve learnt from investing over the years it is to not be greedy. I have done very well in the crypto markets over 2017 and it’s time to take a break to enjoy the festive season. It will be a very good Christmas for my family this year that is for sure.
Merry New Year! Stay SAFE and be HAPPY!
Images and Credits
https://www.projectsmart.co.uk
https://bitcoinwisdom.com
https://coinmarketcap.com
http://www.azquotes.com