If you are holder of bitcoin, 2018 has not been pretty. The cryptocurrency has plunged nearly 30 percent in the last month, and more than 50 percent this year. CBOE Bitcoin futures have fallen nearly 70 percent from their December high of $20,500. Despite the move, believers are standing by their 2018 year-end price target of $25,000 or higher. With the price at ~$6,500 as of this week, the cryptocurrency supporters are calling out a “screaming buy” on Bitcoin.

The problem with this call of “Buy” on Bitcoin now is that the historical record of Bitcoin has been purely due to speculation, rather than to any fundamental analysis or adoption. Bitcoin’s rise to over $20,000 from $6,500 was fueled by the belief that the cryptocurrency would become a viable alternative to hard cash and as such, is a worthy investment. Yet, there is no evidence of any increased adoption in the real world.

In essence, the trading of Bitcoin has come down to test the greater fool theory. Most institutional investors are staying away from buying and early retail investors have either cashed out or burned out. So, who is left to buy at these levels despite it being a “bargain” at the current price?

Future Wealth’s View

When Bitcoin was surging past $20,000 in Dec 2017, we had expressed caution and  concern (see article at https://futurewealthllc.com/knowing-when-to-stay-away/). Our fundamental problem remains how to value the currency. Bitcoin has no assets, no financials, nothing. The value is simply a figment of one’s imagination. Even gold, which we are no big believers of, has the advantage of being a hard asset. Earlier this week, SEC announced that it will not be regulating cryptocurrencies (Bitcoin and Ethereum) as they do not consider them securities. Usually, when regulatory bodies dismiss investments products, it is likely a questionable investment. But, both Bitcoin and Ethereum rallied and appreciated in value on this announcement.

But much like people who want to lose weight would rather buy shakes, drinks, pills, surgery, gadgets, etc. instead of just eating less and exercising more, rational people do irrational things all the time. And we need to no further than Bitcoin holders to find a host of people behaving irrationally. Rationality will return (and likely has to those who bought Bitcoin at $20,000) when their investments disappear into thin air and they find themselves to be one of chosen few in greatest fool club.