On Black Friday, 23 November 2018, the three crypto amigos, BTC - ETH - XRP, took a bad, back-street alley beating and are still in intensive care.
Bitcoin actually dropped a massive 7.68% to below the $4,300 support, and in tandem, Ethereum losing 11.74% to less than $120 well as XRP sliding down 8.47% to $0.4093.
Over the weekend, Bitcoin even plunged to around $3.500 and Ethereum to less than $100, but both quickly rebounded to the previous levels and are now back to levels, that many believe, is the bottom of crypto and the beginning of a slow crawl back to sanity.
Bitcoin held steady around the $6400 mark for many weeks and Ethereum as well at the $220 level, fooling most crypto devouts that these levels were the bottom of both cryptos.
This dramatic downfall on Black Friday of the three major “household” cryptos just spooked the whole crypto world, and by extension, the entire financial world.
After all, is this beginning of the end for crypto ? Is Dr. Doom right ? Is Crypto done ?
Many argue yes and even more say no, believing a rebound is around the corner. How far forward that corner is, is anyone’s guess, and it’s definitely not certain that a recovery may ever materialise.
The crypto nosedive started on the 14th of November, on the eve of the planned Bitcoin Cash hard-fork, effectively splitting it into two crypto currencies. The renamed original - Bitcoin ABC - that lives on by the original Bitcoin Cash protocol - and Bitcoin SV, short for “Satoshi’s Vision”, a reference to the elusive founder of Bitcoin and his vision of a decentralised, borderless and peer-to-peer currency devoid of Central Bank control.
While this may seem to be the apparent reason of the crypto downfall, there are many more theories as to the actual reason of the crypto downfall in recent months.
Most experts will agree that the current market turmoil is attributable to many factors, including global economic factors as well as the on-going and escalating trade war between the US and EU, China, Mexico and Canada.
Add to that an uncertain Brexit, that has caused nervousness across the EU and the UK.
Others are speaking of “profit cycles” where profits are purposely taken to coincide with end-of-the-year accounting to enhance balance sheets before publication.
And of course there are the conspiracists that are convinced that the financial markets are rigged and that rampant manipulation is driving the value of cryptos down, some claiming that the ultimate target is zero or even prophesying a total crash in an “orchestrated” crypto bubble burst.
Probably, there’s a little bit of everything, a convergence of negative sentiment and unforeseen market conditions that is driving a temporary crypto bear market to the end of 2018 on a down note. Let’s assume that the doomsayers are wrong, totally wrong.
The 10 year bull market, gives every reason that a major correction is long overdue, however this has not yet materialised and all indicators point in the opposite direction.
This is mainly due to the strength of the US economy and the historically low unemployment figures that makes Trump look like a “hero” for American blue-collar workers. And as much as the world may disagree with the “America First” policy of Trump, the “battle cry” at President Trump’s inaugural address in Washington DC on January 20th 2017 apparently worked. The Chinese, as well as the rest of the industrial world, are feeling the effects of bilateral trade wars as well as American populism and nationalism - with a marked tendency to the right - all by unfairly and undeservedly blaming illegal immigrants for America’s economic problems of late. Singled-out by Trump are the Mexicans that have had to endure a Mexican-style piñata bashing, ever since his debut on the political world stage, from the beginning of the US Presidential elections, and continuing in his ongoing term as President of the United States.
In all challenging economic times, there has always been a scapegoat or someone to blame, this time it’s the unfair Chinese trade practices and illegal immigrants entering the United States. And by President Trump always blaming other countries, it erroneously justifies America’s inconsiderate - and lonely - stance on the world scene against the rest of the world. After all, America rules the world through US dollar hegemony, backed by supreme military power, and now economic sanctions have been added to the arsenal of weapons that are used against the rest of the industrial world in the form of trade wars and protectionism.
In between all of this, are cryptos and the decentralised, a micro dot on the global economic scene and at present, insignificant to the balance of power.
Dr Doom and the “Told You So”
Only a few weeks ago, there were heated panel discussions and a flurry of Twitter posts sent out by Dr. Doom, better known as Nouriel Roubini, the world renowned economist and NYU Stern’s School of Business Professor predicting the impending downfall of all crypto currencies and in particular, Bitcoin. The public rebuttals on social media by crypto experts and fanatics alike was comical, to say the least, however with good argumentation in most cases.
The issue with heated discussions on panels or in public via social media, is that it is always two-sided, with both sides arguing for factual relevance, correctness and “debate dominance”, whereas in most cases, the reasons and facts are usually found somewhere in between, with both sides giving forth valid arguments, supported by facts. Crypto is no exception.
“What we need to understand is, one, that there are market failures; and two, that there are things like asset bubbles and irrational exuberance. There are periods of booms, bubbles, and manias. These things, if left to themselves, can lead to crashes, to bursts, to panics“
Source: quote by Nuriel Roubini
According to a relevant online article “The Makings of a 2020 Recession and Financial Crisis”, co-authored by Nuriel Roubini and Brunello Rosa, recently published on the website of “Project Syndicate”, the co-authors are predicting that there will be another severe and prolonged global financial crisis and economic recession as soon as 2020.
Some of the arguments presented carry weight and have validity, and this recession is - according to many experts - long overdue.
But like most predictions, if a particular prediction turns out to be correct, the pertinent doomsayer gets all the credit and in case not, which is the majority of times, that prediction is simply forgotten and never mentioned again. If however, the outcome of a prediction, happens a bit later, one can always argue “told you so”. But there are just too many doomsayers out there to give everyone credibility and the necessary attention.
Although the global economy has been undergoing a sustained period of synchronized growth, it will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it.”
Source: Nuriel Roubini and Brunello Rosa
Nuriel Roubini however, a summa-cum-laude graduate of the prestigious Italian business university Bocconi combined with the ultimate achievement of a Harvard PhD economics degree, is of a different kind and caliber. A very intelligent individual, outspoken, direct and argumentative to the point of combativeness - just read his Twitter posts - and one wonders if this may actually be a true and correct prediction or just a part of slew PR and calculated public exposure of the musings of an economist in mainstream media. To borrow from an expression by former President George W. Bush during the 2003 invasion and bombardment of Saddam Hussein’s Iraq, using the similar “Shock and Awe” tactic of an upcoming global financial collapse is something that sells very well in mainstream media, along with sex and scandal.
The prediction of another major economic and financial crash in 2020, a more severe and prolonged version of the 2008 crash, gets everyone’s attention, even those that don’t really care about the financial markets and the world economy in general.
As the saying goes, a picture speaks a thousand words.
Gold, known in the financial world as a “safe haven” in times of market turmoil and uncertainty, has pretty much stabilised at the $1200 level, range trading in a relatively small band above or below. Even with the recent rapid decline of oil, crypto and tech stocks, there has not been a noticeable flight of capital to gold and the capital markets have actually been trading within range, even that the swings have been distinctively large.
With gold as a commonly used indicator of market stability and nervousness, this “barometer” of financial stability doesn’t mean that there are no storm clouds or that there’s nothing underneath the surface affecting the global financial markets, but it’s very difficult to pinpoint the exact cause.
The fact that the value of gold has not shot up in the past few months, and more importantly, in the past few weeks, gives a fairly safe indication that crypto has not affected the financial markets and there’s no impending market correction or a possible global recession in the short term.
A couple of days after Black Friday, and crypto has rebounded significantly. Perhaps by now, the panic selling has subsided and speculators are buying up crypto again at bargain prices.
Whatever the reasons may be, crypto remains volatile as ever and for that reason, will always be a highly speculative financial instrument, controlled by crypto miners and whales, the estimated 1000 (or so) owners of significant amounts Bitcoin and other crypto currencies, controlling about 40% of the crypto market. At present, the most famous crypto whales are the Winklevoss twin brothers - the crypto billionaires (and of lingering Facebook fame) that are the holders of probably the largest quantity of Bitcoin in the world. It is estimated that each of the twin brothers has an estimated net worth of $1.1 billion, of which the majority is Bitcoin and which asset may now have reduced their net worth significantly in the past few months as a result of the downward slide of Bitcoin.
In an interesting article by Bloomberg, there’s speculation that a certain unknown crypto HODL-er (“Hold-On-for-Dear-Life” in crypto parlance) may be the reason for the mysterious, but massive Bitcoin sell-off, unloading 111,114 Bitcoins within a very short period of time which until recently had a market value of over $2 billion, most probably to cash out at an opportune time and perhaps, stock up cheaply after the crypto clearance sale in recent weeks.
The Black Friday crypto crash had all the classic elements of a major crypto dump, a vicious cycle of speculation reinforcing a massive sell-off by the usual suspects, that is, the crypto whales.
In addition to crypto-bashing, Nouriel Roubini has singled out Bitcoin as “crypto-evil” and of being a digital currency that has no value whatsoever. Add to that the recent wave of ICOs (Initial Coin Offering) and the many publicised ICO scams and failures, headlined by the recent court-ordered shut-down and ensuing bankruptcy of the Swiss Envion scam which raised an estimated $110 million and defrauded more than 30.000 crowd investors in the process, and the argument by Nuriel Roubini comes full circle.
Lack of investor protection and clear evidence of price manipulation. And selling to non-accredited investors - ie clueless retail investors and BagHolders - was reckless. Millions of them were totally shafted by conflicted insiders, scammers, con men, criminals, crooks, whales.
Source: Twitter post by Nuriel Roubini
Even that his arguments may be valid to a certain point, the fact that many Central Banks and governments world-wide, as well as major banks and financial institutions such as Goldman Sachs, JP Morgan and Bank of America are exploring crypto currencies and patenting blockchain protocols for future use in their financial products offering, says a lot about the future of Bitcoin and crypto currencies.
Whatever the future may hold for crypto, there’s no denying that digital currencies have disrupted the centralised control of money significantly. The only matter to be considered by governments around the world is, who will ultimately be in control of money, Central Banks or the decentralised ? Because this dilemma will have serious implications for the global economy and the balance of power in the world, regardless of any upcoming financial crash or global economic recession.
Global regulation, institutional participation and mainstream adoption of decentralised cryptos as well as centralised “sovereign digital currencies” will surely become the new money in the near future, it’s only a matter of time.
Jerry is the CEO of MoneyDrome, a hybrid investment & trading platform enhanced by analytics, machine learning and artificial intelligence. He is also an entrepreneur, writer and speaker with a 30 year diversified background in finance, engineering and maritime. His main areas of interest are FinTech and digital disruptions, which profoundly impact the global economy as well as our personal lives. Mr Floros graduated from the University of Oxford and the Wharton School of the University of Pennsylvania.