Dumping Prices and Trash-Talkers - SUNDAY THOUGHTS


Dear DEFI TIMES community,

Who would have thought that Bitcoin prices would dump after increasing by $6000 in less than four weeks?

Well, almost anyone who thinks straight! We all know that the crypto sector is volatile!

After a heavy pump, there usually is a dump just around the next corner.

However, some newcomers were overacting just because of losing a few hundred dollars, and some crypto-veterans were calling themselves oracles of crypto just because they predicted the predictable! This industry is crazy but also toxic!

In today's SUNDAY THOUGHTS episode, I want to show you why I am grateful for the dump! Also, I will tell you why it is ridiculous to be proud of something that should be normal for a somehow intelligent person! Let’s stay calm and focus on the basics again!


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Quick Recap

Before going more into detail, let’s have a quick recap of this week.

Bitcoin, Ethereum, and Co. were pumping like crazy at the beginning of the week; however, prices dumped just before the weekend.

Therefore, many investors were looking for reasons why this happened. Of course, many whales were taking out profits after these extreme price increases; just as in August 2020.

However, some people believe that Brian Armstrong’s tweet was the reason for the dump. He posted a few tweets, in which he shared some rumors with his community. These rumors were about upcoming crypto regulations in order to identify each identity behind every self-hosted crypto wallet. This would significantly impact the crypto space because these regulations would restrict every crypto holder's freedom!

However, those kinds of tweets are nothing more than rumors in the first place. Also, we have to ask ourselves whether this is realistic. Many countries have already tried to ban and restrict Bitcoin; nevertheless, Bitcoin is still alive - not every rumor necessarily turns out to be true. Furthermore, this news refers to the US. Since the crypto industry is also taking place outside of the US, we should not overinterpret this news.

So, the dump of this week was probably just because of the crypto market’s volatility. When prices increase in an extreme way, they also fall in an extreme way - that’s how the crypto industry works! 

This is the reason why I am entirely calm right now because the dump was quite predictable, and therefore, very healthy!

Moreover, I am very thankful for this dump. Why? Because of the bounce level. Honestly, I am not a fan of all these metrics and "trading-philosophies" because Bitcoin does what it wants! No matter what technical analysis might say. Besides, we are living in very intense times due to the Corona pandemic. So every event can change the whole situation rapidly. However, traders have a massive impact on the crypto market, especially on Bitcoin. And those people use technical analysis for trading. So, it is important to understand how traders view the market. Right now, Bitcoin's bounce level is at around $18 000, which is very good.

This bounce level confirms the past breakout because Bitcoin is establishing itself at this price level. If Bitcoin can hold this level, the next bullish breakout would go above the all-time high. Even if we fall below $18 000, f.e. to $15 000, this would not be a problem. This is because establishing above the price level of $14 000 would be a step forward. Of course, this is all theory; Even this could be a bullish indicator.

Trash-Talkers

Nevertheless, there were many trash talkers during the last days. People who recently said: "Bitcoin will fall soon! I will take out some profits! And if you don’t do so, you are stupid!". This theory was confirmed, and those people felt like Einstein or Elon Musk just because of predicting something very logical. There is not one single asset in the world that increases parabolically all the time. Pumps and dumps - This is how finance and the economy work. Predicting a Bitcoin dump for an indefinite time is not brilliant but proves that you understand economics's first lesson - Congratulations!

Please don’t get me wrong! I am not arguing against risk management! On the contrary, I do it as well. This is just how the market works. However, in the case of the crypto market, these cycles are just more extreme! A massive pump leads to a massive dump - that's it! I just don't like it when some people begin to feel very special and declare other people stupid because they have not taken out any profits. Please remember, we are just at the beginning of the bull market!

A friend of mine just bought his first ETH and BTC a few weeks ago. 

Question: Would it make sense to put out a few profits? Not necessarily because you also have to consider taxes. For smaller amounts of cryptocurrencies, it makes more sense to hold them for at least one year and then sell them.

Nevertheless, please note that many people have different investment strategies and circumstances. I bet that if you put $100 into Bitcoin today without doing anything for the next 15 years, you will probably make a nice profit as well!

A dump was just a logical consequence. Predicting a dump in this scenario is like filling your car with gasoline and telling your passenger that you will have to stop at a gas station sooner or later! And managing risk when your bags are big is like washing your hands after going to the toilet - most people do that! You are not a genius if you do so.

I managed risk as well, so I am not jealous or salty at all.

But do we have to be toxic all the time? Let’s enjoy ourselves! We live in exciting times, and most of us will win; sooner or later.

We do not have to show off our basic trading knowledge and wealth; otherwise, we are not better than all the bankers! And I don’t like most of them!

Now, let's spread some positive Sunday vibes! 

Hard Money wins

Good (news) for all of you who are new to this sector: Hard money always beats soft money. Bitcoin is hard money because it cannot be created out of thin air. Also, it takes a lot of energy to mine. Over and all: Bitcoin's supply is limited, and it is hard to increase the supply before reaching the limit. These are all indicators of hard money. The USD or the Euro is soft money. So, it is very easy to increase its supply just by turning on the printing machines. No matter if we are talking about USD, Euro, Yen, or the British Pound - this is all soft money or so-called fiat money. 

If we take a look at history, we will see that hard money always wins. The perfect example for this is World War I. Hard money won this war; I am not joking. All European nations were printing money like crazy at this time to fund their weapons and troops. So, they were creating money out of thin air. The war became more brutal year by year. However, the USA joined the war by 1917. At this time, the USD was the only currency that was still backed by gold. Their money was hard and they started to fund their troops and weapons with hard money. Long story short: the war ended one year later!

The following example is even more dramatic: the richest person of all time was Mansa Musa, a king in West Africa who died in 1332 or 1337 (historical sources are not precise enough). In today’s terms, his total net worth would be 400 Billion Dollars. When he made a pilgrimage to Mecca in 1324, he stayed in Egypt for some time. In the meantime of his stay, he spent so much gold that the local currency, the Egyptian Dinar, was hyperinflated overnight. There was a conflict between hard money (gold) and soft money (Dinar). Holding Bitcoin means that you put trust in hard money!

So don’t panic when prices go down! Bitcoin is still an excellent store of value! No matter what charts tell us. We just have to stay calm and zoom out. Stick to your own investment strategy, and don’t annoy other people with your wisdom. 

You are not an oracle, and no one has a crystal ball!

Cheers! 


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All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.

Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.