Some days ago I was talking to a friend about the bitcoin bubble and both were wondering where all that money was going, the money of the bitcoinmania.
We are talking about a lot of money which is entering that market in an exponential way, multiplying it by 10 every year.
At that rhythm bitcoin will surpass the stock and bond markets in less than 10 years.
Although, that is not what worries people who participate in the bitcoin market. The investors only care about buying cheap and selling at a higher price.
Let us be real.
The ponzi character of the bitcoin market
People do not buy bitcoin because they do not trust the governments or because they believe that it has a lot of value per se.
The fundamental reason they buy bitcoin is to make short-term money.
In the forex markets, for example, the majority of transactions are of a real character, in the sense that the companies buy currency to export or to do business, the same as people.
In the stock markets, people buy assets that give them the right to own property which gives them profit or losses in the future, in form of dividends.
When people buy sugar is to use it for their coffees and pastries.
The bitcoin and criptocurrency market is a bit different.
Therefore, we have a gigantic market with people exchanging money between them in which the asset price grows exponentially because the number of people entering it grows as well. That is a ponzy market.
This is what is happening in bitcoin nowadays.
Forget about blockchain, mining and things like that.
We are talking about speculation.
The future world currency will be virtual and electronic, that is almost a fact, but it is also truth that when that happens it will be mandatory, imposed by a future world government. But that is another story.
Bitcoin is not an imposed market, but a voluntary one.
For now, it is a free trade market, in which, as I said, there are great numbers of new participants who are increasing in exponential numbers in quantity and quality.
In quality I mean because there are not only more traders but also more money being poured in the market with increasingly strong bets.
When the money goes to the bond or commodity markets, there are some consequences.
For instance, if the real money goes to the commodities, there will be some pressure for interest rates to rise as well as inflation, similar to the 70s.
When people buy oil and related stocks, the money flows to those projects.
On the contrary, when people buy bonds, like bund or treasuries, the money goes to the credit market, where it sits, without being spent in the commodity market, provoking a sort of deflationary pressure, so to speak.
The bitcoin market is similar to the latter one, the bond market, although a bit different.
It is as if a huge amount of money was being lost in the virtual spaces, being gambled by various speculators, in sells in which some sell at even higher prices to the ones who enter the last.
Bitcoin destiny and speculators
In this frenetic game of asymmetric markets we have the dealers and commissioners, who are the ones that make it possible for us to bet.
To put it in another way, they are “the house” of the casino, where the croupier handles the gaming chips so the players can bet in the wheel of fortune.
The bitcoin would be something similar to a gigantic wheel of fortune game where everybody is betting even bigger amounts and in which the house (the 0) gets its commission.
It is true that many players withdraw the money to convert it to dollars, euros or pounds and spend it in the economy but the trend if for more money to be put into that market, especially in medium and long-term bets, sucking ever increasing amounts of money.
This is where the deflationary character comes into play, in a sense that makes it similar to the bond market.
That flow of money does not help that the money goes to the commodity markets which are completely depressed since six years ago.
Therefore, the world credit market, with its never ending bull market in bonds has the criptocurrency bubble as an ally, sucking the entire world’s liquidity.
Bitcoin, the deflationary monster
Well, it seems that the criptocurrency bubble is here to stay for a while.
If this happens to be the case, even more money will eventually be poured in that fire, in those asymmetric markets. In other words, with everybody in the same side of the bet.
Those long bets have an speculative component, obviously, of an asymmetric character.
In those circumstances, Bitcoin is a weapon of mass destruction and could very well be included in the Exter inverted Pyramid, with a huge deflationary bias, capable of sucking huge amounts of money and put it to sleep, especially in the most dramatic stages of the bubble, which are probably yet to come.
Eventually, there will be a moment when that party ends, and we could have these outcomes:
- One, that the market completely goes bust in a sort of black swan, in which the value of bitcoin disappear in a matter of hours, and with a lot of people seeing their life savings disappear. In this case the last ones to sell and to withdraw the money would be the winners.
- Two, which the market collapses in a gradual way, so the carnage is not that big.
In an hypothetical crash of the bitcoin market, I bet that we would see other markets rising in a spectacular way. Markets such as the gold market and some other commodities, where the liquidity would go back after people realized they were scammed.
What happens is that, bitcoin will have taken away a great deal of the world’s liquidity, especially of the retail savers. In this process, brokers and dealers will have made a killing. Because we have to consider that those parties make 0.5, 1 or even more in each transaction. Hence we can see clearly who are the net winners of all this gigantic virtual market: the fortune’s wheel master, the 0, the one who takes everything eventually.
Regards and good trading.
Original article: ¿A dónde va el dinero de bitcoin?