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Where to invest for #GFC2

#BostonCoin *pup*date, Sept-Oct 2019

Remember: the world of crypto exists inside the world of global finance

It has been an interesting month in Cryptopia, as we feel the effects of what is happening in the outside world, as well as in our own little corner of the globe.

Bitcoin prices dropped hard in September, possibly due to price manipulation by nasty Bulls*, and then reached a new floor before starting a climb again. It is interesting to see the new higher floor around US$8000, a significant increase from the previous floor of around US$3000 earlier in 2019.

After hitting US$19 000 just before Christmas 2017, bitcoin dropped to around $6000 by Feb 2018. We then tested $11k, back to $6k in April 2018, up again in May and then back to $6k in July. With a few sparse spikes, bitcoin sat around $6k for the rest of 2018… right up until that week before Christmas, when it plummeted to around US$3000.

Those who have been in crypto for a few years (or those who have been reading old #BostonCoin newsletters) will know that “baby” bitcoin has not been around long enough to have many traditions, but it does seem to have an annual pattern.

BTC: Back To Christmas

We have noticed the pattern, and you will too: Bitcoin tends to head south around Christmas and then rises again around Easter. This has happened almost every year since bitcoin started, and (aside from the halvening**) is the only long-term price trend we have seen so far. This annual pattern is less to do with any Christian festivities (or their pagan origins), and far more to do with Chinese New Year.

Asian investors who purchased BTC earlier in the year for a low price, and watched the price go up by sometimes 300% to 1000%, will sell down in December so they have money for the festive season in Asia. Chinese New Year is similar to Christmas, Thanksgiving and New Year’s Eve all rolled into one, and is a big deal in Asian countries. Most people will travel to be with family, and some businesses will close completely for up to two weeks.

This business downtime and family time obviously costs a lot of money, so Asian investors need to “cash in” towards the end of the year. Those in the west who watch bitcoin prices drop by 50% to 70% in December may feel terrified, but the wise investors #HODL fast and wait for the Easter emergence to repeat.

Dancing on the ceiling, falling to the floor, and magic*

As bitcoin tends to rise to new heights more often than annually, it can be tempting to “dance on the ceiling” during the highs. When crypto prices went 1000% bananas in 2017 we had an influx of generosity and people gifting crypto to friends and family (which was great to see). We also had an increase in theft, ransom demands, scams, greed, ponzi schemes and outright $100 000 Tamagotchi nonsense (does anyone want to buy my crypto kitties, anyone? Anyone?)

When crypto crashes to the floor, it can be a sobering event for many people. Fortunes can be lost, and some people may feel regret for investing on pure speculation, or purchasing silly things and bits of bling whilst they are feeling rich. The thing to remember is that there is a magic phrase which prevents bitcoin from going any lower. That magic phrase is not the levitation spell from Harry Potter (“wingardium leviosa”), the magical phrase is “the halvening”.

**The Halvening

Creator of bitcoin, Satoshi Nakamoto knew that computing power is always increasing. Whilst the first bitcoins were mined using $1800 1Gig laptops, Moore’s Law would suggest that anyone with a $99 smartphone could now be mining BTC more than twice as fast as a large 2009-spec computer.

Satoshi built into bitcoin a factor known as the ‘halvening’, which means that the number of bitcoin rewards for mining will halve every four years. This makes bitcoin harder and harder to mine, even as computer processing power increases.

As of late 2019, it takes around $3000 worth of electricity to mine a single bitcoin. This is not even counting the cost of internet access, nor the cost of the hardware required. This is an obvious indicator of why, when bitcoin crashed down from its $20k highs to its lowest lows, it never went below $3000.

Anyone who was mining bitcoin was not going to sell BTC for less than the bare cost of production; that would be crazy. Even if the price briefly nudged $2999, savvy investors would be stockpiling BTC at ‘below cost’ and drive the price back up again.

With the next halvening event scheduled around Easter 2020, the cost of mining a single bitcoin may exceed $6000, just in electricity costs. Without crystal balls, we cannot fathom the next bitcoin ceiling, but we are confident that the new floor will be $6000 for the next four years, and a minimum of $12 000 thereafter.

Bitcoin newbies may get caught up in the hype as they see the price increase by 300%, 500% or 1000% and media coverage increase. Newbies may buy in at a peak and then suffer on the way down. Veterans will know about the halvening, and the annual festive reckoning, and may fare a lot better over time.

Cryllionaires, *Bulls & Bears

It is important to remember that the crypto universe is a small subset which exists inside of the larger global financial world. Events which occur in the broader world can, and will, affect crypto prices (subject to psychological cost floors, as above).

Stock market pundits often speak of “bull” or “bear” markets, depending on price movements and overall sentiment. It’s easy to remember that a bull attacks by thrusting its horns upwards, and a bear attacks by thrashings its claws downwards. When the markets move up, bulls (or buyers) are said to be in control, when the market moves down, it is the domain of the bears (or sellers).

Occasionally we do see some nasty bulls who pretend to be bears, selling out for a loss in order to drive market sentiment down, and then buying up big at the bottom. It truly is a jungle out there, so be aware, and watch the broader markets, not just the crypto news.

What’s going on in the big bad world?

Negative interest means you pay the banks to hold your money

With several countries in zero or negative interest rate environments (Japan, Bulgaria, Cypress, Switzerland, Sweden), and several more countries likely to follow, this makes people seek deflationary assets, such as gold, silver and finite cryptocurrencies. Like gold and silver, bitcoin is finite in that there will only ever be 21 million coins. Supply is capped, so theoretically demand will always tend to increase.

(Fortunately, you don’t have to own an entire bitcoin, in the same way you don’t have to own an entire kilogram of gold: each asset is divisible so you can purchase $1 worth or $100 worth, and still benefit from the percentage price gains.)