It’s hard to ignore the financial news from yesterday: cryptocurrencies with another double-digit percentage drop, stock markets dropping about 5%, volatility up 100%.
With regards to the stock market, it’s too early to say whether the bubble is in the process of bursting. We still await the powers that be, namely the central banks, to weigh in on their short-term decisions. They can send the markets back up and hyper-inflate both the bubble and the dollar by artificially suppressing interest rates some more. The outcome of that Keynesian tactic is debatable now, as it is probable that both the markets and the dollar can go down simultaneously. Positive sentiment may have peaked and the fundamental debt pressure may overwhelm whatever monetary “stimulus” is offered. Another round of quantitative easing thus may have a reverse psychological effect, signalling that the market is too weak to maintain current valuations on its own.
Alternatively, the powers that be can actually let real interest rates curb the irrational exuberance, in which case most of the western world will have to make up for 50+ years of borrowed future earnings in a great depression until they yell “uncle”, only to restart the dangerous debt-fueled cycle over again.
If they choose the former Keynesian option of more stimulus, we’ll eventually get that depression, only we’ll have to come up with a name greater than “The Great Depression” to describe it. Choosing the former option usually involves a black swan event to trigger the massive correction, a device the central banks and governments have at their fingertips to deflect the blame away from their intentionally bad financial policy.
With regards to cryptocurrencies, that bubble is most definitely in the process of bursting, dropping 70% in less than two months. Despite that drop, at its current valuation ($6,000 per BTC, e.g.) it is still grossly overvalued. I feel I’ve written enough about why BitCoin or any cryptocurrency lacks the fundamentals required for it to retain any semblance of value over the long run.
For cryptocurrencies, the one thing maintaining its value, and I use the words “maintain” and “value” very loosely here, is psychology. In other words, we are still in the short-term phase of my financial motto: “psychology in the short-term, fundamentals in the long”.
The zealotry you see cultivated by social media manifests itself in the #HODLers. Social media group-think is not just reserved for postmodern neo-Marxist ideologues. Cryptocurrencies in their current form are an ideology. It relies on mob mentality and group-think rather than proof and derivations from first principles to support its claims. As long as there remains a segment of brainwashed users, there will be suckers #HODLing until the Titanic is fully under water.
They may say “do your research” and “you don’t understand blockchain”, just like others will mindlessly say “diversity is our strength”. The buzzwords and neologisms meant to obfuscate and mislead are the hallmarks of the ideologues. Reasoned arguments are few, whereas peer pressure tactics, instances of name calling, condescension and smugness are many. The cult-like behaviour is not hard to spot when the platitudes come at you in mob numbers.
I’ve been saying for a while, but in order for the world to be restored to a saner place where people can start thinking for themselves again, people will need to wake up to the dangers of social media and realize it for what it is — psychological poison. It is producing social bubbles that in the case of cryptocurrencies, have the capacity to translate to financial bubbles.
Whether it’s neo-Marxist ideology or financial ideology, irrationality is making its rounds through social media and is creating dire consequences for those that lie in its path.
* * *
Are you HODLing? Think I don’t understand cryptocurrencies? Leave your best argument in the comments as to why you think any one cryptocurrency has a fundamental value higher than the current market rate. You may want to look at all the other articles I’ve written first.
Agree or disagree, be sure to share and subscribe to the RSS feed to stay up to date.