The Great Purge

2018 may look like a really bad year for Bitcoin to the layman’s eye. The price has plunged from a high of around 19000 USD last December to around 5000 USD here in November this year. What’s going on? First of all, it is important to remember that there’s nothing new about the price of Bitcoin behaving in this way. Bitcoin’s path to mass adoption is through hype cycles that occur, on average, every two years or so. If we zoom in on the price chart we can see a pattern repeating itself over and over again. The price increases tenfold rapidly and then loses about three thirds of that increase the following year. This two steps forward one step back pattern rewards patience and patience is not a very common personality trait among those who got into cryptocurrencies to get rich quickly.

The last hype got a lot of fortune seekers hooked through the introduction of Initial Coin Offerings, or ICOs, offering new tokens for very specific use cases. The validity of these tokens were to be ensured by the Ethereum blockchain which (supposedly) is a technology that allows the creation of new cryptocurrencies. Many of those who bought into these ideas got themselves some Bitcoin too in order to “diversify their portfolios”. What they all failed to see is that Ethereum is a house of cards. The Ethereum community hasn’t even decided what their monetary policy should be. It is a centralized scam and its blockchain doesn’t do the things it claims to do. The blockchain, the Bitcoin blockchain that is, does one thing. It ensures that Bitcoin stays decentralized so that no third party can interfere with its monetary policy. This is scarcity on the internet and it could only be invented once. Copying the code and the ideas is trivial, duplicating the experiment is impossible. During the last hype cycle, when the price peaked at around a thousand dollars, altcoins boomed as well. They just had different names. When was the last time you heard about Peercoin, Primecoin or Maidsafe coin? They were scams then and they’re scams now. Before investing in an altcoin ask yourself this — how do I know that this is not a scheme constructed to funnel Bitcoin into the pockets of its creators? Spoiler alert — you can’t.

What we’re witnessing right now is the other part of the hype cycle, the purge. It is a brutal thing to watch. As people slowly realize that they’ve been played, the altcoin charts bleed red as the sell offs create even more fear, uncertainty and doubt. Unfortunately, some of this fear spreads to Bitcoin investors as well as many of them are new to the space and they do not have sufficient knowledge about the underlying Austrian economics that make Bitcoin so unique. Absolute scarcity. That’s it. The current purge phase might take a while, there’s a lot of dreamers that have to be awoken. The Bitcoin Cash people for instance, some of which truly believed that bigger blocks was the only viable solution to the scaling debate, must be truly heartbroken by the forkicide that is currently destroying their world view. Some of them will return to Bitcoin, most will likely leave, at least for now.

It is impossible to predict market behavior and those who try to often put themselves in positions where they have a lot to answer for in the future. Bitcoin is a difficult beast to understand but its fundamentals are still there and the protocol itself is more powerful than ever. A big player in the space recently moved 600 Million USD worth of Bitcoin for the price of 7 dollars in fees. No other financial technology in the world is even close to being capable of such things. Wallet providers are focusing more on privacy features than ever before and the Lightning Network allows for instant, free and anonymous transactions. The technology is still amazing and the need for something that holds its value over time is greater than ever. Let’s stick to our guns, admit our mistakes and hold on for dear life. The revolution will not be centralized.

Tags