Bitter end to Bitcoin craziness

WHAT does the future hold for Bitcoin speculators?

Investors will eventually wake up to the reality that crypto-currencies won’t be rising as they have in the past, and it is unlikely they will do again in the near future. The Bitcoin bubble has burst.

So, the outlook, particularly for those who entered last year, is grim. If you’ve mortgaged your home, racked up a debt on your credit card or worse, used your superannuation to invest, you need to treat this as a lesson, not wait in hope that the price will rise to justify a bad decision.

Last year, there wasn’t a week that went by without uneducated investors or traders calling to ask for information, who shared their cryptocurrency stories.

In each case, they focused on what they could make, not what they might lose. Put simply, they had little clue about risk management, which is the biggest investment you could make.

Looking back at how the bubble unfolded; Bitcoin climbed to around US$3000 mid-2017, before the masses jumped in and drove it to almost US$20,000 in December 2017.

The highest levels of borrowing occurred just prior to the peak, as investors scrambled to gather cash to invest in the hope of making a killing, completely unaware of what is unfolding, and with no trading plan. Bitcoin fell by more than 50 per cent from December to February.

The reality is that, when a bubble bursts, prices fall to between 50 and 90 per cent from the highest price. If an investment falls below 50 per cent the probability of a further fall to between 75 and 90 per cent significantly increases. The worst thing you can do if you got caught up in the craze is to assume that a ‘buy and hold’ strategy works, when history indicates otherwise.