The halt to what had seemed to be an endless rise in the price of Bitcoin, which occurred in the early days of 2018 may have caused alarm and upset to some who had invested in this, the oldest and most famous of the cryptocurrencies. 2017 had, after all, seen the virtual currency make tremendous increases in value against a background of high levels of publicity and announcements that seemed to assure the currency’s continued success in the future. Indeed, people had spoken of the inevitability of its future triumph. If this was the case, then how could the continuous price hike come to an end? What had happened to make such a thing in any way possible?
More experienced bitcoin investors were perhaps less alarmed by this, as over the years they had become used to the volatility of this cryptocurrency; indeed, some investors had chosen to use bitcoin as a factor in their portfolios exactly because of its atypical behavior. Such investors used bitcoin in the way that others use gold, as a balancing factor, relying on its volatility to weigh against the behavior of more conventional equities. These investors were probably less troubled by the end of the price hike. The same may well have been true for a percentage of those believers in the ethos behind bitcoin and the other cryptocurrencies, who see it as a currency that transcends national boundaries and behests to no governmental financial policy; such bitcoin investors use the currency to purchase goods and services. In fact, some of these bitcoin believers may have been relieved to see the price hike come to an end. Also, less concerned were those who had simply become used to bitcoin’s natural volatility.
The people likely most affected by the end of the price hike were those new to bitcoin who had ceased upon the cryptocurrency as the latest hot investment. Paradoxically it was these investors who, in their eagerness to be a part of the bitcoin phenomenon, had driven the price rises seen throughout 2017. With less experience of the way bitcoin has behaved in the past, they were more likely to become disheartened when the hike ended and thus dispose of their holdings, helping the downward pressure on the price of the cryptocurrency.
With such fashionable products, emotional confidence is an all-important factor and many analysts saw the events of early 2018 as being an example of the normal rule of ‘financial gravity’, a matter of what goes up must come down. Indeed, there was the talk of bubble markets and comparisons drawn to such historic examples of the tulip mania seen in Holland in the 1630s, when the price of the bulb rose by 100% in a month before the inevitable crash. Cynics might have remarked that at least the tulips were real and not virtual! Others speculated that another factor common in bubble markets, the ‘bigger fool theory’ which states that you can buy high and make a profit as long as there is a bigger fool available to buy, at an even higher price. Perhaps the fools had wised up, at least for the moment.
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