Categories
Market Bubbles

Bitcoin is a Bubble: I Suggest Getting Out Now

After doing my research on cryptocurrencies I have concluded the following facts based on historical market data, general consensus of prominent investors, and common sense.

Bitcoin is not a currency

As Ray Dalio constantly says, two criteria are needed for something to be a currency: (1) it must be a medium of exchange, and (2) it must be a store of value. Bitcoin is not a medium of exchange because most merchants won’t accept it; neither can you pay federal taxes in Bitcoin because the government only takes dollars. Thus Bitcoin is extremely volatile, making it a far cry from a store of value compared to gold, which is a longstanding safe haven. Gold and silver preserve the quantity of wealth (i.e. purchasing power of U.S. dollars). Unlike gold and silver, which go up in value when fiat currencies weaken—Bitcoin does what it wants based on random market speculation.

Cryptocurrencies are a fleeting craze similar to tulips

The tulip bubble crashed based on the same principles that causes Bitcoin to behave the way it does. Jordan Belfort mentioned in a CNN interview that once futures were trading in the tulip mania, the bubble came to an abrupt holt. Thus he feels the same will happen to Bitcoin; derivatives introduced into the market will allow sophisticated investors to short it, causing traditional “squeezes” with accelerated prices due to scarcity (there are only 21 million Bitcoin). Consequently, Bitcoin will rise to such high levels in price, only to come crashing down in a horrific, dramatic fashion.

Don’t be fooled. In the coming months crypto prices might soar. People will buy in like they did in early 2017 when Bitcoin almost hit $20,000. During that period when prices bounced between fifteen and nineteen thousand, the “suckers” took equity off their homes and went into debt to buy Bitcoin—then it crashed down to almost $3,000! As the old saying in trading goes, “Bulls make money, bears make money; pigs get slaughtered.”

Unfortunately many young millennials will buy in to this rise in cryptocurrencies which will be broadcasted over the news as a hot trend. Average people will go all in as they did before. Then, it will come crashing down to an abrupt halt, leaving them dumbfounded to have lost so much. The cryptocurrency movement will be deemed as a bubble after all.

The entire cryptocurrency craze, which includes the thousands of copycat “alt coins” that have emerged, conveys all the characteristics of a market bubble: people buy in solely for the purpose of selling later at a higher price, absent from any interest in the asset as an inherent store of value. Those who own Bitcoin and other cryptocurrencies have organized themselves in a tight-knit community almost resembling a cult, with “us verses them” mentality as they often scold traditional stores of value such as gold.

No inherent store of value

Digital currencies are nothing more than a charge in a transistor. They have no inherent, tangible value beyond the fleeting hype that people impose. Though value is subjective, objective factors are also necessary for supply and demand. People need to collectively identify assets beyond their utility as a medium of exchange.

The merely trading mentality of cryptocurrencies make them no different than that of Las Vagus gambling casinos. There are no dividends in these “coins.” The assets are issued through companies that may be making a profit, but have no real need for the “cryptocurrency.” Many such business are built on venture capital money with no real offering to the market other than facilitating another alt coin for deceptive pump and dump schemes. I don’t want to sound negative but I am a realist, and this is what’s happening.

If an asset trades without objective measures of value to the marketplace (evidence of consumer needs, P/E ratio, dividends, etc.), then it is nothing but a gambling token. Bitcoin has attracted multitudes of young millennials who have no interest in investing otherwise, but got drawn to the crypto movement based on a pure speculation to make cheap, easy money.

My short-lived relationship with crypto

Over the past week of looking into Bitcoin and its nearly 3,000 alternative digital coins, I joined Coinbase.com and their professional trader platform, Coinbase Pro. I put some money in these accounts via the wallet system which isn’t hard to use. I funded the accounts with ACH and debit cards both directly and through the wallet transfer system of Bitcoin.com and Blockchain.com. Blockchain.com seems to be a better deal because Bitcoin.com uses the Simplex entity to purchase funds from your debit or credit card, only with a $20 dollar fee.

The past couple of weeks were spend reading and listening to cryptocurrency podcasts as well as trading in the crypto market on both Coinbase and Coinbase Pro. Their premium version gives a much better deal as commissions are roughly between .05% and .25% depending on the amount of capital you move a month, and whether you’re buying or selling. Coinbase on the other hand, charged me about $10 dollars just to sell a few hundred dollars of crypto. They obviously prey on the novice ones who are new to the platform and may have not discovered their pro version yet (not very ethical in my opinion).

Overall, I made some gains, and lost a little. Being the cautious trader that I am I pretty much broke even at the end upon pulling my money out. This short lived experience in the cryptocurrency market of trading penny stock-like coins, and learning how to convert the assets from Bitcoin to stable coin, or from USD to Bitcoin through the blockchain wallet system, was educational to say the least. It is a great technology, don’t get me wrong, but I don’t see much value in the whole market whether used as a transport vehicle between parties or investment pursuit.

Perhaps if I want to transfer money to my relative in Europe by converting my dollars into euros, I could use one of the “stable coins” for the process to avoid risk in price fluctuations. For example, let’s say I send $1,000 dollars to my nephew in Boston by converting my U.S. dollars to Bitcoin, and sending him a deposit into his wallet that he could transfer back to USD upon receipt—Bitcoin’s price might go up or down by $500 in a minute! Therefore, the transfer options via stable coins have some utility because I don’t have to spend $20 or $40 dollars on a wire fee through a bank.

There is no third-party handling my money or taking commissions in the process. However, the aspect of “trading” and (God forbid) “investing” in cryptocurrencies with an alleged diversified portfolio of coin assets is utterly foolish and ill-advised. Take this not as financial advise but as my personal opinion of what I have chosen to do with my money in 2019: I am buying gold and silver, and their respective mining stocks.

A highly speculative asset

Bitcoin and cryptocurrencies in general are highly speculative assets—nothing more, nothing less. This means for the disciplined trader you can make money for a time, assuming it will all come to an end some day. Unless I’m wrong and cryptocurrencies endure as a medium of exchange and store of value, if you want to trade cryptos during these times, have at it. In other words, there is nothing morally or ethically wrong with buying a lottery ticket once in a while or going to the casino with a small portion of your money set aside for fun; I personally don’t do it, and neither do most self-made wealthy people.

The majority of high net worth individuals scoff at the idea of playing the lottery or gambling, even within conservative bounds for fun. It’s the principle of it that matters. Making money through bringing products and services to others is the truly rewarding exchange. Making it through “luck” (which does not exist) has no character or spiritual promoting value.

Buying and selling crypto is like gambling: trading the U.S. stock market is not

If you want to trade crypto during these times when it’s performing well, then go ahead. Realize what you are doing is unlike the value that traders provide to the traditional equity markets. Unlike cryptocurrencies, which are not tied to companies in the same ways that stocks, ETFs and mutual funds are, buying and selling securities on the NASDAQ and NYSE benefit the whole economy. Let me explain.

NASDAQ and NYSE would not function effective without short-term traders

Day traders provide liquidity to the market because large buy-and-hold investors (e.g. institutional managers) would be unable to get-in or get-out of target positions but for day traders and swing traders. For example, a professional day trader might have $100,000 dollars in his account plus margin. He has roughly $200,000 dollars worth of buying power. He likely moves a million dollars worth of shares in securities among the market per day!

This is greatly beneficial to large scale investors because more liquidity is available for entry and exit positions. Without each type of investor and trader in the marketplace, its ecosystem would not operate effectively. The diversity among investors both individually and corporately bring the system as a whole to run smoother.

Nevertheless, the cryptocurrency market brings little value to our societies. It’s a gambling game, and like all bubbles, it will come to an end.

Categories
Behavioral Economics

Wait Until Big Money Moves Into Gold and Silver

If you think the current spikes in precious metals are great, wait until institutional investors and hedge fund managers lay siege to the commodities market. Gold and silver will likely outperform this ever-weakening economy in the coming months.

By 0800 the Dow Jones Industrial Average plunged 333 points as trade tensions escalated, because tariffs took effect between China and the United States on September 1st. The market is long overdue for a recession. It’s been ten years now since the recovery in June of 2009. All analysts who are honest predict this recession to be far worse than what we saw in 2008.

Meanwhile, gold and silver prove to be the standard safe haven for preserving the store of value amidst a waning currency. Over the past few weeks gold hit all time highs in foreign markets. In the United States we are approaching the six-year highs we had during the QE inflationary period under President Obama.

President Donald Trump continues to brag about his “greatest economy,” but the August Manufacturing Index plummeted to 49.1, “unexpectedly,” making U.S. manufacturing the worse it’s been in 10 years since under Obama. Peter Schiff, CEO of Euro Pacific Capital weighed in this morning on Twitter.

Open Your Goldmoney Holding

Peter Schiff: The Aug. ISM Mfg. Index “unexpectedly” plunged to 49.1, indicating contraction. U.S. manufacturing is now the weakest in 10 years. It’s weaker than it was when Obama was president. The Trump economy is all government and consumers spending borrowed money as industry collapses!

Amid this constant barrage of negative market statistics, along with a president spending trillions of government money by raising the deficit, I am very optimistic about gold and silver in the coming months, to include physical assets, ETFs, and mining stocks.

This morning on CNBC, some talking heads finally admitted that certain parts of the U.S. economy are already in recession, such as industrial sectors.

CNBC Pundit discusses the topic of recession in the U.S. economy.
CNBC Pundit discusses the topic of recession in the U.S. economy.

It’s only a matter of time until this phony economy built on debt will come crashing down. Markets will adjust to their true prices.

See Also:

Learn about opening a Goldmoney© Holding.

Image credit: CoinInvest GmbH [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]

Categories
Behavioral Economics

September is Often Favorable for Gold and Silver

From September and into early October, gold and silver usually rise in price. However the stock market often recedes. There are obvious reasons for this, which underlie basic human psychology. Behavioral economics account for the real reasons behind market moves because people’s innate motives override statistical speculations.

Silver is entering its “sweet spot” of the year. This September, silverhas another special reason for rising – rising industrial demand.  Since 1975, silver has gained an average of 4.1% every September, making September far and away the best month for silver.(Second place is January, at +2.9%.)September is also the #1 month for gold, due to the beginning of the jewelry fabrication season for the gold gift-giving holidays in India (Diwali, followed by the wedding season), America (Christmas, followed by Valentine’s Day) and China’s New Year. Silver often follows gold’s lead – as silver often acts like “gold on steroids.”

Silver Typically Soars in September

Volatility usually surges during the months around August and September, which explains the obvious. Investors—from hedge fund managers to individual traders—instinctively find refuge placing their assets in the longstanding safe havens of value. Precious metals and bonds are fundamentally deemed ‘secure’ when market uncertainty persists. Because gold and silver often do the inverse of the equities market, as retail and other industries sell-off, precious metals rise.

September, of course, has a bad reputation for stock returns. Since 1950, it has been the worst month for the S&P 500, which has fallen an average of 0.5% during the month, Ryan Detrick, senior market strategist for LPL Financial, noted in a blog post. September’s record has been a bit better recently: Over the past 10 years, the S&P 500 has averaged a 0.9% gain in September.

History Says September Will Be Rough for Stocks. How to Invest for an October Turnaround.

Gold and silver preserve the purchasing power of the dollar as it loses value. After all, the U.S. dollar is fiat, meaning it’s backed by nothing. Before 1971 United States currency was allocated at 40% in physical gold and silver. When President Nixon took us off the gold standard on August 15th, 1971, the government’s promise was that it was “temporary”—the perfect statement that means the total opposite when coming from the state.

Nonetheless, upon the fall period from October through December, retail and other sectors usually outperform. These are often the best three months out of the year for stocks since the holidays bring buyers to stores and the season heads into winter. It’s the harvest time for rest and rejuvenation. People become more internal toward materialism, thus causing them to spend more. It’s only behavioral psychology.

I will be watching gold, silver, platinum and palladium closely for the next three months. Now is by far the most important time to be vigilant concerning precious metals—the classic safe-haven for people’s assets. Thus in the midst of a trade war with China, a president that violently moves markets with a single tweet, and an economy that is hang by the threads due to overconsumption, consumer debt, and a Federal Reserve that is heading back to zero interest rates—only the foolhardy will not pay attention to gold and silver.

See Also:

Image credit: Andrzej Barabasz (Chepry) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]

Categories
Behavioral Economics

CNBC Interview with Ray Dalio on Great Recession

CNBC: Ray Dalio, Bridgewater Associates founder, co-chair and co-chief investment officer, discusses his new book, “A Template for Understanding Big Debt Crises,” which looks back on the lessons learned from the financial crisis.

I hear a slight argument among the pundits in this interview. There’s talk about the bottom class and the rise of populism as a result of wealth inequality. The truth is, many of these people in mainstram news are too afraid to ‘tell it like it is’ concerning capitalism.

Free market laissez-faire economics is based on merit. It rewards the producing of value and punishes theft, trickery and laziness. There is a natural order to economic stability, and people who don’t want to work—shall not eat either. The government should not take care of them, and the natural cycle of economic highs and downturns is the result of human nature.

We are in control of our lives in a free market economy such as the United States. If you have the ability to start of a business or hold a job, then it is your responsibility to save your money, invest, and live below your means. Perhaps, when things go awry in the economy, the austere conditions are blamed upon those who squandered their wealth, while the government taxed the middle class into oblivion.

Categories
Behavioral Economics

Behavioral Psychology and Economic Activity

I created Bridgeviking Capital as an informative resource to teach people to think for themselves about money, market activity, and investing. This is a place for people to learn and research the historical and current trends in the market. I focus on both U.S. and international economies because they affect each other to a lesser or greater extent. I have many visions for implementation on this site.

Among these include a blog to not only discuss recent economic events and statistical data on companies and Wall Street as a whole, but also to expose the lies and deceptions circulating among CNBC pundits, crypto-bugs, government politicians, and all those engorged in the realm of U.S. economic trust—that is, reliance on the fiat dollar. I am an advocate for a free market based on pure capitalist principles. I view gold and silver precious metals as hedges against inflation, and quite frankly—sound money. My mentor is Peter Schiff, CEO of Euro Pacific Capital. I also value the wisdom of Jim Rickards, Ron Paul, and Lew Rockwell, among others.

They have been for the past 5,000 years, and gold has a proven track record of being resistant to price fluctuations in “nothing-backed” fiat currency.

I will enjoy writing articles here on sound economic theory, relying heavily on the philosophy of Austrian economics. Nevertheless, sound economic theory is just common sense. Capitalism is the phenomenon of natural human behavior based on supply and demand. People have lives, and they make decisions based on their desires. Behavioral psychology can thus be used to determine reasons for why the market acts the way it does based on the circumstances.

*Please don’t confuse my occasional rhetoric as a mirror of a Fed chair during a press conference (pun intended).