Is Bitcoin A Bubble?
Is Bitcoin a bubble? Possibly.
Could it be a zero one day, as some have predicted? Possibly.
Could it trade at $100,000 one day, as some have predicted? Possibly.
As a Systematic Trend Following trader, I grasped an extremely important key concept many years ago; Any outcome in markets is always possible.
Before 2007, did many predict that companies like Lehman Brothers, Washington Mutual and Countrywide Financial would very soon trade at zero? Sure, there are a few who famously got it right, but that is a very small group of people. Enron made it onto Fortune's Most Admired Companies in America List in 2000, before they went to zero. Netflix CEO Reed Hastings tried to sell his company to Blockbuster for $50 million in the year 2000. Blockbuster's CEO passed on the deal, and today Netflix has a market cap of over $77 billion. It is safe to say that neither of those industry executives anticipated Netflix's true potential value at the time. When Apple released the first iPod on October 23, 2001, Apple stock traded at a split adjusted price of $1.17. Apple closed today at $156.07. $10,000 of Apple stock on October 23, 2001 is now worth over $1.3 million. Most would have never envisioned Apple's future ascent at that time, as Apple had a few missteps along the way, and was trading at 50% lower in 2001 then it was in 1993.
The fact is that nobody really "knows" what the future holds for Bitcoin, or any other asset. On one hand, Blockchain is a truly disruptive technology. Worldwide liquid assets are almost infinite. If even 1/10th of 1% made it's way into Bitcoin, who knows what the value could be? On the other hand, the current mania over Crypto Currencies and public awareness absolutely "feels" like the internet stock craze of 1999/2000, which I traded through. Ray Dalio, whom I have immense respect for, is the founder of Bridgewater Associates, and one of the brightest and wealthiest people in the World. He has recently taken to the airwaves stating that Bitcoin is a Bubble. He is also selling a new book, and bold predictions are good for the talk show circuit. I have publicly stated that Bitcoin at zero one day would not surprise me. Neither would $100K. Am I hedging myself? No. It simply goes back to one of my core trading beliefs that any outcome is always possible.
My blog here is not to tell anyone what I "think" about Bitcoin, because as with any market, and as my longtime Twitter followers know, I pay no attention to perceived fundamentals or predictions and I have no opinion whatsoever. I trade price with a clear focus on payoff ratios, proper money management and risk management to guide my trading. As of this writing, Bitcoin currently trades at $3,901. A prudent trader tries to put a cap on their downside in a position, which conceivably maxes out at a 100% loss of capital in most, but not all scenarios, barring the use of leverage or derivatives. Assessing downside risk is always the most important aspect of a trade and an overall trading system. After downside is contained, the next question is, what is the potential upside under various scenarios? As we now know, any outcome is always possible. I have no opinion about Bitcoin and I have no position as of writing this. I know from a trading perspective, it is wise to assess risk and return potential, and then make an educated decision or in the case of systematic traders, our course of action is to follow our process. In either case, whether Bitcoin becomes a zero, trades to $100K, or anywhere in between, any outcome in markets is always possible.
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