Bitcoin made a new record high yesterday. The constant chatter related to this Ponzi scheme is so ever-present that it's impossible not to be informed of such events. This should be of no concern to me since I have no intention of ever buying Bitcoin, but the fact remains that I find it unbearably painful to listen to. There's always the nagging feeling that I might have overlooked something. There's also the irritation of seeing something stupid take off in a big way.
There are two main strategies that I employ for myself when dealing with the lure of bubble mania. First and foremost, I stay away from the chatter as much as possible. I remind myself of all the reasons why this is a trap. However, I hate to keep my eyes off of developments for too long at a time, so I make predictions based on my objections and spend some time every now and again to see how my predictions match reality as it unfolds. I bring up my technical indicators. Charts of various kinds are studied for clues as to the likely near term trajectory of things.
This morning, I spent a short half hour comparing a three month chart of Bitcoin prices with a one year chart of Bitcoin searches from Google trends, and what I found was quite interesting.
The search interest for buying Bitcoin peaked on January 9, the precise date that Bitcoin prices made their first all time high peak of the year. The search interest peaked again in mid February, about a week before the next all time high. Interest for buying Bitcoin was lower in February than in January, and this latest all time high now in mid March has come with interest in Bitcoin barely higher than interest in gold.
Taking a longer term look at search interests for Bitcoin, we see that recent interest is far below the manic interest back in 2017.
Not only is interest in Bitcoin fading into this year from its peak in January, interest is also down from its all time peak. The price of Bitcoin is going up while search interest is fading.
From the Bitcoin price chart, we also see trading volumes trending downwards into this year. This indicates reduced commitment from traders. There's a growing sense that Bitcoin's price is wrong. Buyers and sellers are finding it harder to agree on a price. While this may mean that the price is too low, it is more likely to mean that the price is too high, especially considering the fading interest on Google trends. Adding to this that there is a constant need to sell Bitcoin in order to pay for energy and equipment, things look rather precarious.
Bitcoin might not technically be a Ponzi scheme, but it shares the essential characteristics of such a scheme, namely the constant need for new participants in order to pay its bills. The Bitcoin community as a whole has to dish out millions of dollars every month in order to pay for electricity and equipment, with no goods or services produced in the process. There's only Bitcoin for which there is no real use beyond speculation. Without an inflow of new speculators, present speculators will have to pay the bills themselves, and the only thing they have to sell is Bitcoin, unless they are prepared to go into debt or draw on personal savings.
It appears that the day is rapidly approaching when forced selling by cash strapped Bitcoin miners will overwhelm a diminishing pool of new speculators. If no new enthusiasm can be generated, Bitcoin will go into the sort of free fall that Ponzi schemes experience when everybody suddenly realize that the scheme is unsustainable and doomed.
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