The Bitcoin Crash (What is Bitcoin? - Part 3 Finale)

So here comes the last part of my Bitcoin trilogy! Part 3 is without doubt the most important part of this trilogy, hence please make sure that you read this article before you decide to put your hard-earned cash into Bitcoin! 

For those who are new here, do check out my Part 1 and Part 2 of 'What is Bitcoin?'!




At USD 4000 per Bitcoin, is there a Bitcoin bubble?

Short answer: Yes! Most definitely! To prove this, I will use a very simple Bitcoin’s Price-Volume chart to explain. The graph below indicates Bitcoin’s Price-Volume chart from Mid-2015 till August 2017. Do focus on the year 2016 where price of Bitcoin was around USD 500-ish at the start of 2016 to nearly USD 1000 at the end of 2016.

Then, observe carefully at the volume in 2016, in comparison to 2015 and 2017. Big difference, yes?

What does all this mean? In short, a high volume indicates that there are many transaction activities in the Bitcoin market - people are rushing into the Bitcoin herd, and this was what exactly happened in 2016.

Bitcoin Price-Volume Chart - The Bitcoin Bubble

Yes…and the volume has gone down significantly in 2017, what does that mean?

A significant drop in volume in 2017 does make me put up my thinking hat. The only thing that make sense is that Bitcoin’s price is too expensive for retail investors to enter the market and more importantly the speculators, especially the big guns are now holding onto their Bitcoins to profit from the exponential growth of Bitcoin – until they feel that it is enough and sell them off in the market. Puff! Bubble burst!

So When Will the Bitcoin Bubble Burst?

To be honest, I cannot tell. But it is just a matter of time before it goes off, depending on how greedy those big guns are!

2 Kinds of People that are Suitable to Invest in Bitcoin

1. Short term traders: Traders are the ones that monitor the market day-in and day-out, and hence can profit from the volatile Bitcoin market with the right skill and knowledge.

2. Long term investors: Long term investors are the ones that believe in the fundamentals of Bitcoin – their increasing adoption rate and the technology behind Bitcoin. Also, they do not care about the short term volatility of the Bitcoin market. After all, Bitcoin’s price has risen by more than 70,000% since 2012!

Bitcoin price has risen for more than 70,000% since 2012

If you are not in both of these categories, my advice is: DO NOT invest your hard-earned cash into Bitcoin, or even the cryptocurrency market! This is simply because the volatility in Bitcoin price will cause you to have emotional imbalance (and even heart attack!). Just look at the graph below and you will know what I mean.

High intra-day volatility of Bitcoin's price is not for those who are weakhearted 

The Future of Bitcoin

From all the explanations above, I believe that it is just a matter of time before the price of Bitcoin drops significantly due to profit taking from the big guns that would lead to panic selling in the market. This will drive many speculators off the Bitcoin market, and a major price correction will happen in the cryptocurrency market.

As for me, I believe in the fundamentals behind Bitcoin that creates a decentralized payment ecosystem, without depending on centralized too-big-to-fail banks (remember Lehman Brothers?). Unfortunately, Bitcoin has gone for a bad start, with its reputation constantly linked to scam and its price driven by speculation.

For now, I will keep an eye on the cryptocurrency market, while waiting for the crash to happen before deciding my next move. In short, stay away from Bitcoin for now, there’s definitely a better timing if you believe in its fundamentals!

Verdict:

Finally! I am done with my last part of the Bitcoin trilogy (yay!). Covering Bitcoin has been a delightful experience so far, as I have always been hoping to write to educate people on personal finance/investment related issues, especially after seeing so many people close to me rushing into the Bitcoin herd and losing money to money games and Ponzi schemes.

To all my awesome friends and readers that have been following my stories, thank you so much for your support, and do share these articles with your friends and family if you find them useful! Till next time!

For those who have missed out the early part of my Bitcoin trilogy, check 'em out below!

Part 1: What is Bitcoin?, Who uses Bitcoin?, Tech behind Bitcoin.

Part 2: How safe is Bitcoin? How to get Bitcoin? Other cryptocurrencies. 

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