The Bitcoin Plunge is not a Market Correction

It drives me batty to read respected people in national publications talk about the nosedive of Bitcoin and other crypto as a “market correction.”

A market correction happens when the price of a security or a general market of securities overruns any sort of historical baseline for value. When you talk about stocks, there are the simple metrics of how much money a company makes or the value of that company’s assets. There are metrics like that for real estate, municipal bonds, and even manufacturing.

A correction comes when the market realizes that the price has been bid up far past what the underlying value of the asset is. This happens fairly often: people buy stock based on what they expect the performance of the company to be. Sometimes people get excited.

When people say that crypto is no different than the stock market, they are either lying to you or to themselves. There is no P/E report on Bitcoin. No debt-to-asset report on Etherium. Because there is nothing there. There is nothing, absolutely nothing, supporting the value of those tokens.

The price is based on blind faith, sell-shaming, and billionaires spinning a story that ends with them having your money.

The tower is crumbling now; we have been on a roughly monthly cadence hearing about the failure of some sham company that banked everything on crypto always going up. The market plunges, then holds steady for a while, cryptobros in their executive suites sweating as the scam crumbles until they rush for the doors calling back over their shoulders “#HODL!” and another crypto company based on the “always-up” model craters, unable to even tolerate the market that is merely steady.

A true market correction would reduce Bitcoin to just a little bit over zero. I will grant the little bit because Bitcoin is just a little bit useful for things besides being a store of value. Oligarchs have to shift their cash, after all.

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The Cult of Crypto

The price of Bitcoin is about 30% of what it was a few months ago. The other cryptocurrencies (note: they are not currencies) have been similarly battered. Crypto-based businesses are starting to fail. But if you read what the people still clinging to their vapor-money are saying, you will see #HODL, over and over again.

It is simply a typo for “hold”, that feels more insider-y. Like a secret handshake. The purpose of #HODL is simple: to prevent people from selling their crypto stakes. In itself, this could just be construed as financial advice. “This is a volatile asset, and if you panic you will lose.” And that’s good advice for all investors!

But #HODL and the community behind it use the phrase differently. Consider the company MicroStrategies. They have bought into Bitcoin in a big way, and are now using every resource they have to evangelize — to bring new, naïve money into the market. They know that the price of Bitcoin will only go up if they can convince more people to buy it.

Over the last couple of years, companies like MicroStrategies have succeeded in convincing the business press and the impatient segment of the investment population that Here be Riches.

Step 1: get the suckers to buy, to drive up the value of your holdings.

Step 2: prevent the suckers from selling even when it’s in their best interest to do so.

Consider kraken.com. They are a crypto exchange, meaning they make money when people sell or buy tokens through their service*. They recently declared, in the aftermath of the latest crypto price plunge (I’m paraphrasing): Bear markets weed out the weak. The strong will #HODL. We will also spend the money we take from you to lobby the government on behalf of our singular devotion to our mission, even if that means hurting others. And yay guns.” I cannot find articulated on their Web site what the mission is, but it must be important!

There is, from corporate communications right down to reddit, a culture of sell-shaming. The faithful shall come through adversity and inherit the wealth they deserve. Any so timid as to sell shall die in poverty and shame. This intimidation was necessary to keep the crypto bulge alive. In fact, the believers honestly thought that if they could keep people from selling, the price of their favorite crypto token would go up forever.

They believed, simply, that buying Bitcoin was buying into a sacred trust. That anyone who bought crypto was implicitly obligated to #HODL. For the common good.

But the buyers (I will not call them investors) those crypto-pushers needed to inflate the value of their coins diluted their cult. The new wave of buyers saw the historic rise of crypto, and didn’t understand their own role in causing it. But they weren’t part of #HODL; they bought at the worst time and sold at the worst time (until tomorrow), and broke the damn cult.

#HODL! #HODL! #HODL! the cultists cry as the crypto market spirals down. #HODL! These are the true believers, the ones who will #HODL into the ground, but I wonder how the ranks are holding up as airship Bitcoin plunges toward the 20,000 level after being at 69,000 a few months ago. How many people are crying #HODL as they strap on their own parachutes?

* One of the key features of cryptocurrencies is that theoretically there is no central authority. Yet almost everyone buys and sells their tokens through a trusted central exchange.

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