The bitcoin crisis

Bitcoin’s problems could be just starting. Having rapidly fallen 30% from its highs, leveraged bulls could become forced sellers, with wider implications for markets and gold.

Introduction

The concept behind bitcoin was that its quantity would become progressively harder to mine as it approached its hard stop of 21,000,000. It was promoted as a future private sector money compared with the endless expansion of government currency. Valued in continually debasing government currency, bitcoin’s value would increase and increase.

It succeeded in alerting generally complacent investors to the issue of currency debasement. And here was a new technology which allowed individuals to hedge against it. It seemed to hold greater promise than gold, which already had significant aboveground stocks and was frankly old hat not going anywhere at the time and whose supply would always expand. Surely, the argument went that a new technocratic solution could do better.

Enthusiasts promoted the idea that as a world currency you could compare bitcoin with the global fiat money supply. It offered the prospects of soaring towards infinity — and from time to time it appeared to be on its way. But in the last month the dream has become severely tested, with its dollar value crashing up to 30%.

But as the chart above shows, in real terms as opposed to arithmetic it appears to have lost momentum in successive bullish phases and appears likely to be heading for further declines, potentially testing a six-year uptrend currently below $50,000. Given that there are significant leveraged positions in bitcoin, a decline to this level could be swift as some major holders are foreclosed on by their lenders.

Chief among these is Michael Saylor’s Strategy Inc (MSTR). whose further buying into