If cryptocurrencies have any
intrinsic value, no one has been able to explain to me what it might be so far,
not that it really matters in cases like these. Certainly, the Beany Babies
were never worth more than a few cents worth of fabric and filling, plus the
labor to design them, name them, make them, ship them, inventory them, and sell
them. Every time one of these artificial markets finally pops – generally because
somebody finally asks “Why are we paying $10,000 for a stuffed animal worth
$9.99 retail?” – the people who end up losing the most were the last ones to
buy whatever commodities were involved. It is understandable that anyone with
items still in their possession would want to keep the market going, at least
until they could unload whatever they had left; where the situation becomes
completely revolting is when someone is manipulating the market to drive the
spot price higher…
Unfortunately, it seems as
though that is exactly what happened during 2017’s Bitcoin boom. According to a
CNBC story posted yesterday, Dr. John Griffin at the University of Texas
investigated the rise of Bitcoin and discovered that some party or parties
(currently unidentified) were using other cryptocurrencies to stabilize the
Bitcoin market during the boom, in much the same way that fraudsters have
artificially inflated stock prices by placing artificial buy orders – the classic
“pump and dump” scheme. The difference in this case is that since
cryptocurrencies are not connected to any real-world property, there’s no way
to prove that they are over-valued the way there would be with a stock issue –
and since they aren’t regulated by anybody, there is no authority you could
complain to if somebody was manipulating the market…
The CNBC article goes on to
say that the price of Bitcoin has been plummeting over the last few months,
losing around three-quarters of the value it had at the peak – which means that
someone who bought a Bitcoin at $20,000 has now lost close to $14,000 on the
deal, assuming they can sell it now. Of course, the more people dump these
things onto the market the more the price will drop, and the cycle will
continue. We’ve all seen cases of stocks dropping from hundreds of dollars per
share to a few cents per share, and people who held onto them for just a few
hours too long and lost everything; this is the same idea, except that in this
case there is no SEC you can complain to. Or, more accurately, there is – but they
can’t do anything about it…
The lack of regulation and
oversight was one of the original selling points behind cryptocurrencies – the government
can’t tell you what to do with them, the Federal Reserve can’t interfere with
their interest rates, and there were no issues with national economies
imploding or currency conversion rates. But even if cryptocurrencies themselves
really are foolproof and incorruptible (which still remains to be seen), the
market for them would of necessity respond to the laws of supply and demand,
just like any other free market – and that means it is susceptible to
manipulation, just like any other commodity, equity, debt or currency…
I’m not saying that any of
the people you may know who made money on Bitcoin during its rise and fall are
crooks, even if they made very large amounts of money, and even if they aren’t
able to explain to you how the whole thing works or how they did it. I’m just
pointing out that, unless evidence to the contrary surfaces, it would appear
that this latest form of get-rich-quick scheme has turned out the way most of
them do…
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