Welcome to the wonderful world of bitcoin volatility! This week cryptocurrency's endured huge losses based on a number of simultaneous news headlines. Absolutely incredible short-term fluctuations.
I am hesitant to buy assets that have violent price swings (particularly when movements can occur overnight for no apparent tangible reason) besides a news headline. While I do believe block chain technology has a future in the world, bitcoin and other cryptocurrency assets are still new on the block in terms of acceptance. The lack of transparency is concerning.
Blockchain technology is an important technical advancement that we will highlight in next week's update. In the meantime, Ars Technica posted an interesting article on volatility in cryptocurrencies this week. In an interview on KCBS today, I also commented on several of these headlines that dramatically moved the price of bitcoin and other crypto's.
I am asked from time to time if we expect to be buying bitcoin or other cryptocurrencies in the near future. The simple answer is no. When there is more predictability and transparency, we may have interest in the future but, for now, the risk is simply too high.
An excerpt from the Ars Technica article is highlighted below.
Bitcoin bubble bursts overnight, dragging down stocks
TIM DE CHANT - 5/19/2021, 8:24 AM
"After a stunning run-up over the past year, cryptocurrencies are tanking.
Overnight, a broad selloff of prominent cryptocurrencies has vaporized billions of dollars in value. Bitcoin, the largest cryptocurrency affected, is off more than 18 percent in the last 24 hours. Currently, it's worth just over half what it was in mid-April. Over the past week, more than $600 billion has been wiped out of a wide range of more than 7,000 cryptocurrencies, including bitcoin, ether, and meme coins like dogecoin, according to CoinGecko.
The causes for the selloff are myriad. The first shot across the bow came last week when Tesla CEO Elon Musk declared that his company would no longer be accepting bitcoin for car purchases. The change happened less than two months after he said that Tesla would accept bitcoin, and the about-face came as Musk said he is concerned about the environmental damages being wrought by the energy-intensive cryptocurrency. (His thinking on the matter may have been influenced by an Ars article about a private equity firm that revived a zombie power plant just to mine bitcoin.)
The next jolt to crypto markets came this past Sunday when Musk suggested that Tesla either had sold or would be selling its bitcoin holdings, which amounted to $1.5 billion when they were disclosed back in early February. Musk's market-moving tweet was a cryptic “Indeed” posted in reply to @CryptoWhale, who had said, “Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings.” That single word sent bitcoin tumbling. On Monday, Musk clarified that “Tesla has not sold any Bitcoin.” After that, the cryptocurrency regained some of its value.
The rally was short-lived, though. On Tuesday, China issued a warning that financial institutions in the country shouldn’t process or participate in crypto-transactions or offer related services. “Prices of cryptocurrency have skyrocketed and plummeted recently, and speculative trading has bounced back. This seriously harms the safety of people's property and disturbs normal economic and financial orders,” the regulators said in a statement."