In my October 2021 article, Bitcoin: You Have Been Warned, I mentioned that some of the influencers of Bitcoin (BTC-USD) may not have been the gods being touted. Like money, another suffers crisis, two of the most important investors have fled. This is my updated perspective.
Trojan horses have escaped from the Bitcoin paddock
In October 2021, when Bitcoin was trading at $ 66,000, I felt for the second time that a dip was coming. The first time saw a 50% decline, but the second time is still down 65% despite the July rally and the outlook for BTC is rather bleak.
In my article during that frothy October, one of the problems I saw in BTC was the weight being placed on influencer celebrities. At the time, I doubted their true intentions in the world’s most valuable cryptocurrency and this was confirmed nine months later.
At the time of writing, I said:
Many of the professional investors who advertise Bitcoin as the future could also lead investors into this trap. Elon Musk has already shown this year that he can change his stance on accepting coins for Tesla vehicles (TSLA). That announcement helped fuel the early 2021 rally before Musk changed his mind about his energy use. He has since made it clear that they will likely accept it and that the company is up by $ 1 billion with a $ 1.5 billion stake in BTC, but it may change its mind again for a more energy efficient coin. ” .
The big news recently was that Musk’s electric vehicle company had now sold 75% of its holdings in the coin. The stated reason was that supply chain problems had increased the need for short-term cash. Tesla is certainly experiencing some headwinds, but it may just be the right time to get out of investing in BTC. Holding 25% tokens could be a speculative attempt to break even on the investment.
“We are certainly open to increasing our Bitcoin holdings in the future, so this shouldn’t be considered a verdict on Bitcoin. It’s just that we were concerned about the company’s overall liquidity,” Musk said in an earnings call.
Investors should decide whether the decision is a verdict on Bitcoin. Personally, I don’t see Tesla buying Bitcoin in 2022 and I would say the chances of doing so in 2023 are low.
The next famous Bitcoin influencer under pressure is Michael Saylor, CEO of MicroStrategy (MSTR). Saylor steps down as CEO of the software company after his BTC bets have lost $ 1 billion so far.
Saylor moves into the role of Executive Chairman and hands over the reins of the company to Phong Le.
“I believe dividing the roles of President and CEO will allow us to better pursue our two business strategies of acquiring and holding bitcoin and growing our business analytics software business. As Executive Chairman, I will be able to focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives, while Phong will have the power of CEO to manage overall business operations, “Saylor said in a statement.
This is the obvious end of the Bitcoin debacle in MicroStrategy, and investors were perhaps elated by the 2021 rally and thought they had a genius at the helm. Now that losses are mounting and corporate adoption is once again a distant dream, shareholders will get angry and it is very likely that they have forced this move. Ultimately, MicroStrategy is a software company, and the CEO spent all of his time rushing to roadshows to promote Bitcoin. If Bitcoin puts further pressure on the company down the road, there could also be potential lawsuits against the company and its former CEO.
The common theme with Tesla and MicroStrategy is that we have two charismatic CEOs making big speculative cryptocurrency bets with other people’s money. Unfortunately for many investors, they bought for $ 50-60,000 based on the wisdom of these “gurus”.
In Saylor’s case, I feel he has no choice but to hold on to the bullish theme. The abandonment of BTC’s balance sheet strategy would further destroy MSTR’s holdings and share price.
Saylor recently claimed to be “thrilled as ever” in an interview and is now comparing BTC to Manhattan property.
Do you need to move the good for it to have value? No, absolutely no. For example, property in Manhattan doesn’t have to move to have value. In fact, you’d prefer Manhattan to be built on granite or shale that don’t move for hundreds or millions of years. It makes the property more valuable. Bitcoin is that.
I recently wrote a book called The Stock Market is Easy, and it is heavily influenced by investment psychology and behavioral investing. There are so many comments related to this story in terms of prejudices and gurus. Here we have a CEO diversifying his company into a speculative balance sheet stock and doing it in such a large size that it threatens the entire business. In the book I said:
Don’t get married to a position and don’t get stuck in investing when the weather is changing around you. Complex thinking takes effort. Your brain will want to choose the easy path. By making the effort and bypassing the brain’s comfort path you can make the stock market easy.
Investors should be wary of gurus and pundits and consider their reasons for being bullish. As Warren Buffett once said: “Never ask a barber if you need a haircut.”
Bitcoin has seen a weak rally from the lows
The recent rally has caused more damage to the cryptocurrency market than investors realize. Institutions were starting to get their feet in the water and consider copying the moves of Tesla and MicroStrategy, but it is likely that no CEO at the moment will risk following that strategy.
On a monthly basis, the price of BTC-USD tumbled to find support at the previous key resistance level from the late November highs of $ 20,000. The coin rose to $ 25,000 but found some resistance there on a weekly basis. A $ 20 break will point to $ 12.5,000.
BTC investors should be aware that the coin is a trading vehicle that follows the usual rules of technical analysis. Many think it’s a mythical creature that could “lunar” at any moment, but that’s not what we’re seeing in the price action. Retail money is now very long and many are losing positions above the $ 50,000 mark. This period reminds me of the 2018-2020 phase in which a collapse in prices scared institutional money.
The decentralized financial market has also sucked the wind out of Bitcoin’s sail after the failure of DeFi darlings such as LUNA (LUNA-USD). The current Total Value Locked (TVL) in cryptocurrencies is $ 87.7 billion, according to DefiLlama and which is down from around $ 260 billion at the end of 2021.
Aside from cryptocurrency developers, there is no real incentive to deposit with these projects when interest rates skyrocket on government bonds and there are good dividends available from the recent market sell-off. Once again, institutions cannot invest in these projects due to Terra Luna problems and it will be an uphill battle to build real trust again.
Adding to that sadness this week was the International Monetary Fund which warned that other projects could fail.
“We may see further sales, both in cryptocurrencies and risky asset markets, such as stocks. There may be further failures of some of the coin offerings, in particular, some of the algorithmic stablecoins that have been hit hardest, and there are others. that could fail, “the group said.
The current outlook for cryptocurrency regulation
Ironically, the outlook for the cryptocurrency could be improved by further regulation. With more oversight of the coins and projects in the market, there may be a greater chance for professional investors to get involved. There are currently 20,000 crypto projects listed on CoinMarketCap and there would be a need for an industry cleanup by regulators. This goes against the purpose of decentralized finance, but the current industry is like the Wild West, as SEC President Gary Gensler once said.
We saw further evidence of this this week with the news that the Securities and Exchange Commission had arrested 11 people for a huge $ 300 million Ponzi scheme. Forsage promoters have convinced millions of investors around the world to get involved and recruit others.
“Forsage is a large-scale and aggressively marketed fraudulent pyramid scheme among investors,” said Carolyn Welshhans of the SEC. “Scammers cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchains.”
According to the FT:
The SEC accused Forsage operators of raising $ 300 million since at least January 2020 through a offering of unregistered securities. “
This is an interesting choice of words when we consider that Binance exchange Ripple’s XRP (XRP-USD) and BNB (BNB-USD) tokens have both been under the microscope of the SEC to be stocks and we may see a crackdown on the way. . As I said in previous posts, this lack of confidence in cryptocurrencies and upcoming regulation only brings us closer to central bank digital currencies, or a digital dollar issued by the Treasury, and most crypto projects will likely vanish.
A recent Institutional Investor article on CBDCs found Janet Yellen wants clear rules on cryptocurrency by the end of the year. On the recent turbulence in the cryptocurrency market they said:
“According to the Fed, a CBDC would offer refuge from this chaotic state of affairs by providing a form of digital money that is a direct responsibility of the Fed, firmly tied to the US dollar and the government, as opposed to an offshore flash-in. of pan that could lie, cheat, steal, implode or drag a midnight runner. “
This type of offering would appeal to institutional investors, and current banking heavyweights might even offer products with higher interest rates that would render DeFi projects useless. Ultimately, money is all about trust and I feel that Bitcoin and the cryptocurrency market are now climbing to regain what was once solid.
I conclude by saying that I have been an advocate of cryptocurrency since 2018. I advised subscribers to my Marketplace newsletter to buy for $ 8-9K in 2020, before the strong upside rang the bells of speculative excess. I believe there is a future for cryptocurrency projects to operate alongside the next CBDCs, but I don’t think Bitcoin will be a winner. Regardless of whether it does, investors should take advantage of this opportunity in BTC to learn a real lesson from the experts and gurus in this field. Many of them are bullish with other people’s money, while others are now so deep that the only path to take is through further optimistic calls.