“It’s clear by now that the entire crypto market is in
a massive retracement,” one analyst says.
People who have made money on bitcoin are now selling
out, while newer buyers are taking losses. The two factions are
essentially at war.
Volatility is a normal state of affairs for bitcoin,
which is not backed by an underlying asset.
Every day, senior market analyst Mati Greenspan of eToro sends
out a mass email summarising what he thinks is going on in the
cryptocurrency markets right now.
This morning the first line of that email said it all: “It’s
clear by now that the entire crypto market is in a massive
retracement,” he wrote. Bitcoin is seeing a “massive pullback.”
Bitcoin fell $3,000 overnight, moving down 17% to under
$13,000. It was at $20,000 a few days ago. That’s a loss of 35%
in just a few days. A lot of people — new entrants to the market
— have lost a lot of money.
And so people are asking, are we looking at a Christmas
Crypto Crash — the bursting of the bitcoin bubble that
bears have been expecting for weeks now?
Two factions of bitcoin investors are now at war
What you are looking at is a war between two factions inside the
crypto speculator community, who have completely opposite vested
interests to each other:
Faction 1: “Old holders”: A massive percentage
of all bitcoin is owned by a small number of investors who
bought in years ago.
Many of those people are now millionaires or even
billionaires, or just very, very rich. They have been
holding bitcoin since 2011, or they bought in prior to the
beginning of 2017. They have seen bitcoin go from close to
zero, through $100, $1,000, and all the way up to $20,000. And
now they have to sell at least some of their holdings into fiat
currency if they want to realise those gains, before the market
destabilises and makes them poor again. They don’t care if the
price falls a bit. They have made their money.
Faction 2: “Newcoiners”: This is everyone who
bought in this year. Many of them are undereducated on the
risks of alt-coins and have been attracted by media coverage
and the idea that they could get very rich, very quick, if they
ride this rollercoaster. They need the price to rise — and that
means that every seller is their enemy.
The newbies’ problem is that the old holders own vastly more
bitcoin than the newcoiners, and thus can control the market,
even though the newcoiners vastly outnumber the old holders. When
the oldies sell, the price goes down. (The Winkelvoss twins,
for instance, own 1% of all bitcoin, worth more than $1 billion,
although there is no indication that they are selling.)
Right now the newcoiners are being dragged along for a ride they
There is a thread satirising this phenomenon on the bitcoin
subreddit titled “Old
holders vs newcoiners.” It shows a clip from an old episode
of Mr Bean, in which Rowan Atkinson’s nerdy character sits
unmoved on a rollercoaster while the other passengers scream
Mr Bean / ITV
“It started with a bit of profit taking but it seems that the FUD
[fear, uncertainty and doubt] is now gripping the market.
Comments from enthusiasts like
Charlie Lee probably didn’t help either,” Greenspan wrote
this morning. Lee is the creator of Litecoin, who warned on
Monday night that
his currency is so unstable investors ought to be prepared to
lose 90% of their entire investment in it. ”
“Sorry to spoil the party, but I need to reign in the excitement
a bit…,” Lee wrote. “Buying LTC is
extremely risky. I expect us to have a multi-year bear market
like the one we just had where LTC dropped 90% in value ($48 to
$4). So if you can’t handle LTC dropping to $20, don’t
eToro’s Greenspan said he could easily see bitcoin sink to
$10,000 — a loss of half its value. “In fact, $10,000 was exactly
the level that bitcoin was trading at the beginning of this month
and so it would not be surprising to see it there again,” he
Greenspan thinks this is temporary. “Those who have been in this
market for a while are not nervous though. We’ve seen this type
of action many times before. In fact, the traders out there have
been expecting it,” he says. “You don’t get quadruple-digit gains
without a few double-digit pullbacks. For the true believers,
this is the time to consider buying the dip.”
There is reason to believe that buyers might outnumber sellers in
Goldman Sachs is reportedly building a crypto trading desk.
The investment bank also wants to clear bitcoin futures, and
those type of derivatives are also being provided by Cboe and
CME. All of those will likely bring new buyers into the market,
and more demand will bid up the price.
What kind of asset loses half its value in just a few days?
Eventually, drops like today’s will force all those investors to
question what bitcoin actually is. What kind of asset — or
currency — rises by 100% and then declines by 50% in just a few
The answer is that the price is so volatile precisely because it
is neither a currency nor an asset. A currency comes with an
interest rate and, crucially, can be used to pay taxes. Those two
underlying factors keep a currency’s value relatively steady. An
asset entitles the buyer to some underlying “thing” that may have
a value of its own aside from its mere price — a house, a stock
or a bond, for instance, which can give off rental income (or
simply provide you with shelter), dividends, or interest.
Bitcoin has none of these. Bitcoin represents nothing. It
entitles its holders to nothing more than its price. Its
price is set merely by supply and demand. On that measure,
volatility is bitcoin’s optimistic scenario. The worst-case?
That’s the day when holders realise they don’t own anything
except other people’s beliefs about the future. Bitcoin can go to
zero, on that basis (as Lee helpfully pointed out, in terms of
Right now, the old money appears to be bailing out of the market,
forcing losses onto the newbies. Whether they have enough belief
to stay in is anyone’s guess.