Investment GuideNote (opinion)

Why is the fall of the digital currency market not really a fall?

The rise and fall of prices in the digital currency market, the constant fluctuations, the worry of capital devaluation, the momentary control of price changes and the attempt to buy and sell on the floor, are all familiar feelings and experiences for users of these currencies.

The world of digital currencies is a complex world, and not everyone can afford a thorough analysis of what is happening there. Many factors are involved in what is happening in this world; Factors that are sometimes hidden from the public eye and we are not aware of them.

A simple drop in price can indicate the beginning of a stronger downtrend, the start of an uptrend or just a simple fluctuation. In the meantime, those who make the most profits can make the most accurate predictions of others and move ahead of the market.

Lou Kerner, founder of The Social Internet Fund and co-author of the Medium website, recently Note It explains that many of the trends we know as “price falls” are not really falls. You can read the rest of the article in the language of this author.

Does any price reduction mean a fall?

I have written more than 250 articles about digital currencies since June 29, 2017. one of My notes “Seven Tips on the Chinese Bloc, Digital Currencies, and Decentralization After Three Months of Exploration” has been read more than anything else. The fifth point I made about digital currencies is, “This is a bubble, so what?” I have explained in the same article below:

That’s why I say, “Well, what?” I believe in Amara’s Law. The law states that we usually exaggerate the effects of a technology early in its emergence; But after a while we find it insignificant. That’s why we eat bubbles. We get too excited about a new technology and raise prices beyond any reasonable valuation. These bubbles can last for years; Like the Internet bubble that lasted more than five years.

It seems to be still in the early stages of a period Cambrian explosion We are in the digital currency industry. During the Cambrian period, which is one of the geological periods, a multitude of new species of life emerged.

The advent of the Blockchain, digital currencies, and decentralization have also paved the way for a wide range of previously unavailable markets, as well as new ways of competing with traditional entrenched institutions. Undoubtedly, most of the institutions that are emerging in the field of digital currencies today will disappear; But many of those who remain change the game.

With that in mind, I think the charts below will open up new perspectives on the current debate over the digital currency market crash in recent months.

1. Amazon Stock Price Chart from 1997 to 1999

The chart below shows the astronomical increase in Amazon stock prices from 1997 to 1999. Shares of Amazon were listed in its initial public offering in May 1997 at $ 1.50 per share and peaked at more than $ 105 in April 1999. This means that Amazon’s stock price has increased 70 times in less than two years. Such growth was truly epic! But is this bubble growth?

Why is the fall of the digital currency market not really a fall?
Amazon Stock Price Chart from 1997 to 1999

The letter “S” in the chart above indicates times when Amazon’s stock price has changed trend.

2. Amazon Stock Price Chart from 1997 to 2001

In this chart, we have added two years to the horizontal axis of the chart above. As you can see, the chart below shows both the epic rise of Amazon shares and their 95% drop from the $ 105 peak in December 1999. In this fall, Amazon stock fell below $ 6 in September 2001; That means a 95% reduction is really scary! But is this a fall?

Why is the fall of the digital currency market not really a fall?
Amazon Stock Price Chart from 1997 to 2001

3. Amazon stock prices from 1997 to 2021

Shares of Amazon have risen nearly 540-fold since it fell in September 2001 to its last price at the time of writing; That means prices below $ 6 at the time are now above $ 3,200.

Why is the fall of the digital currency market not really a fall?
Amazon Stock Price Chart from 1997 to 2021

In other words, Amazon is now worth more than 2,130 times its initial price ($ 1.50). On this account, this share has had an annual compound interest of 36% for the last 24 years.

When we take a broader time perspective and look at Amazon’s stock price chart from 1997 to 2021, things turn out differently. We see that the leap (bubble?) From 1997 to 1999 and the steep slope (fall?) From 1999 to 2001 are not what we thought they were then.

It is as if when we look at the stock price of Amazon from 1997 to 2001 in the current context of these stocks, we realize that what we might have thought was a fall was nothing more than a small “crash” sound.

Fear and greed; A repetitive story

Now back to our discussion; The rise and fall of the digital currency market. First, look at the chart of changes in the fear and greed index in the market. As you can see, the situation is not good at all, and this indicator shows the highest level of fear in the past year.

Why is the fall of the digital currency market not really a fall?
Changes in the fear and greed index from 2018 to 2021

Have you ever noticed that when the market situation deteriorates, do you find more logical reasons for it to be a bubble? Or when the slope of the chart slowly turns upwards, you calmly convince yourself that “digital currencies are not going to be destroyed now” and when the market peaks again: “I knew! “The world of the future is one of those digital currencies, and this is just the beginning!”

Yes; Philosophical analyzes often affect our emotions just as much. I suggest you write this famous quote from Warren Buffet somewhere and put it in front of your eyes:

Fear when others are greedy, and be greedy when others are afraid.

Warren Buffett is one of the greatest investors of all time, even if he does not understand bitcoin.

Also read: What is the secret to Warren Buffett getting rich?

The problem of market fluctuations is related to the psychology of investors

I do not intend to predict the price of Bitcoin in the next day, week or month; My goal is to provide a long-term vision of this digital currency.

I still believe that bitcoin is an exceptional bet in which the probability of winning is much higher than the probability of losing. Of course, the price may decrease by 95%, but it may increase up to 25 times. I have already written in an article that I believe that the value of Bitcoin will reach one million dollars in 2031.

I use the dollar cost averaging method to invest in bitcoin. This method neutralizes the effect of investor psychology and market timing on my bitcoins.

In this way, on certain days of each month, I buy only a certain amount of bitcoin dollars and set it aside; Or I actually forget. When the market declines, I buy bitcoins at a lower price. The same thing happened during the fall in the price of bitcoin in the last few months, and I bought bitcoin at a lower price than before.

If my prediction is correct, in the next 10 years, when the digital currency industry has experienced many ups and downs and produced more value than the Internet, we will look at price fluctuations to this day and in the years to come and see that they are waves in the long run. They were nothing but small.

That’s really the case, and these peaks and peaks are small waves in the face of the enormous value that digital currencies generate (write this down somewhere, and look at it again 10 years later if you remember).

Most importantly, these waves will really have no value or significance in the face of a better or, in other words, more decentralized world in which we are to live in the future.


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