This article was originally published on PERC360.
This is the follow-up article to my previous, poorly titled article, “The simple fact for why Bitcoin and other cryptocurrencies are about to experience chaos.” I recommend you read that before continuing on, but if you’re lazy, the article can be boiled down to pretty much one sentence – The vast majority of people that invest in cryptocurrency have no idea how to price/value the coins; therefore, we should expect some type of “awakening” in the near future in regards to price.
Now, outside of the massive backlash from some immature early adopters and crypto fanatics – who seem to have found it most productive to curse and call the article “fake news” rather than actually refute any of my points – there were a few valid rebuttals. The one that gets addressed in this article is the following:
Many people invest in the stock market without knowing how to properly value stocks but since there are big players in the stock market, most stocks are very close to fairly valued; therefore, the casual investor isn’t at a huge disadvantage.
To make this simple, let’s assume there are two possibilities within the Bitcoin market right now. Possibility A is that the Bitcoin market follows the efficient market hypothesis and all information is constantly being priced in. Possibility B is that massive FOMO, market hype, and general financial ignorance has led to the massive over-buying of BTC, leading to incredible price inflation.
If you don’t think humans are capable of detrimental group-think, here is a picture of the NASDAQ from 1998 to 2002:
And here is the traded commodity rhodium from 2005 to present:
In this simple thought experiment, there is a probability associated with both scenario A and B that sum up to 1. Based on the thousands of conversations I have engaged in with crypto investors and enthusiasts, I would say it’s about a 50/50 coin flip as to which scenario we are in.
This article is about the 50% chance we are living in scenario B. All the big banks and retail crypto players know Bitcoin is way overvalued. They also know that all the other big players know that Bitcoin is overpriced. So, the obvious move is to short Bitcoin now around $9,000 right?
Well, the Bitcoin movement is just starting to really gain mainstream attention. People over the age over 40 are now learning about Bitcoin, decentralization, and blockchain technology. What if these banks could short Bitcoin in a few weeks at $10,000 or in a few months at $20,000? What about in a year from now at $50,000? They would be missing out on an incredible portion of their maximum profit by coming in with the short too early – and that’s where it gets interesting.
Related Article: Wall St. controls Bitcoin and Bitcoin Cash, we are being played
With Bitcoin currently trading at $9,000, now is probably not the game theory optimal time for the big players to short BTC since the market cap is far from its potential. But how far away are we from this major trigger event in Bitcoin and the greater crypto world?
Related Article: Breaking down the CME’s plan for Bitcoin futures
