The rollercoaster that is bitcoin

As I said on Wednesday, I do not advocate people use bitcoin as an investment.

Now I am not pumping bitcoin as an investment, I am using this as a new economic index to assess currency markets. I stress bitcoin is not an investment, since I do not think there is enough liquidity in the marketplace to make it safe for your future needs, due to volatility and perhaps hacking of bitcoin wallets.

It’s way too volatile as witnessed by yesterday’s $200 a bit drop over a few hours. And since it trades 24-7, you may not even know about the crash until you wake up.

The reasons behind the massive sell off has a few options. One is that the gains the last three coindesk-bpi-chartweeks have been huge and there needed to be a sell off to move higher. This is the old trading adage that no chart goes straight up.

Secondly, like the bitcoin crash of 2013, a Chinese government crack down is feared since the country accounts for a majority block of the trading as a means to move money out of the country, while also preserving wealth against a weakening yuan against the dollar. Nevermind that the yuan has a loose peg to the dollar, Beijing has been clamping down on both the exchange rate and the availability of yuan liquidity of the same time period of the last month.

At 5am EST on Thursday bitcoin was trading at $1,149, a mere 24 hours later it is at $940 level. The downside can be harsh, but the crypto-currency is still positive for 2017. That’s how fast it can move.

So caution to all and if you choose to get involved use capital you can stand to lose and wait for a bottom to be formed before jumping in.

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