Unless you have head your head stuck under a rock for the last 12 months, you have heard of Bitcoin and how the price of the first crypto-currency has skyrocketed this year. After hearing about this 'once in a lifetime investment opportunity,' I am sure most of you have thought about buying some digital currency. Maybe some of you have even taken the next step and bought some. (Congratulations to those of you who did.)
But as the saying goes, 'Pigs get fat, hogs get slaughtered,' I hope for your sake you are a pig and get out while you can. Unless you got your hands on some Bitcoin's in the last week, you have made money.
A recent Bank of America Merrill Lynch survey found that the Bitcoin traded is one of the most crowded trades on Wall Street, which obviously explains some of its massive run-up. Bitcoin's amazing performance over the last year now appears to have attracted some very risk-averse investors.
We have seen the price of Bitcoin fall 30%, 40%, even 50% in just a years' time. But, investors keep running into the asset and pushing the price to new all-time-highs.
So what would actually cause a Bitcoin collapse?
Big name investor after big name investor has raised concerns about the crypto-currency. But even the well-respected JP Morgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon didn’t take the wind out of Bitcoin when he called it a "fraud" and said it will "blow up."
The people that have come out and publicly announced their bearish sentiment are not run of the mill investors; these people are in-tune with the markets. They have teams of people working for them that fully understand how Bitcoin and the other crypto-currencies work. Furthermore, guys like Peter Schiff, who predicted the financial crisis, believe Bitcoin is a bubble.
So it's clear that some investors don’t care what the 'smart' money on Wall Street think about Bitcoin and other crypto-currencies. But, they do care what governments think and say about them. Back in September reports arouse indicating the Chinese Government would soon start cracking down on Bitcoin exchanges. The price of Bitcoin fell from over $5,000 to around $3,000.
Since then though the price has climbed back above the original $5,000 and climbed all the way above $6,000, before pulling back to around the $5,500 range. This was not the first time the Chinese government caused the price of Bitcoin to tank. In 2016 the government made its first efforts to crack down on the currency in an attempt to slow the outflow of money in the country.
Each time China has attempted to slow Bitcoin, it has bounced back higher than before. This is because many Bitcoin investors don’t believe a government or any other entity will be able to control Bitcoin because of the block-chain technology. And I would have to agree with this thinking.
However, a government doesn’t necessarily need to be able to control the currency in order to slow Bitcoin down or even stop it; the government would just need to make it difficult for those trying to use Bitcoin for transactions. This was is what the U.S. government did with online poker, an industry which was booming and now has fallen back into the shadows. Of course, Bitcoin couldn’t be completely stopped in this manner, and either was online poker, but making it illegal and more difficult would definitely hurt the brand and the allure for the average investor.
While it is unknown how likely it is that a government will make Bitcoin illegal, it is easy to see how that scenario is likely due to the regulatory nature of Bitcoin. While China is concerned about its citizens moving money out of the country, perhaps the bigger issue is how governments use their central banks to affect economic growth, if their citizens are all using a currency such as Bitcoin.
In my opinion, it is hard to see how governments around the world allow Bitcoin to go unregulated in its current form in the coming years. When that regulation comes, Bitcoin will fall and most likely not bounce back because the true underlining allure of Bitcoin is its secrecy and block-chain technology, not it's invest-ability.
Bitcoin originally gained mainstream attention after a little 'black market' website called Silk Road was shut down in 2013. The currency was used by individuals buying and selling drugs and other illegal items because no one could track the flow of money. Bitcoin has only recently morphed into an 'investment' as it became more popular and mainstream.
Take the mainstream investors away from Bitcoin, and the hogs get slaughtered. As others have said, I believe Bitcoin and the other crypto-currencies are a time-bomb waiting to implode. I wish I could tell you when that will happen, but I can't see the clock. Just remember, be a pig, not a hog.
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.