My theory was that crypto whale traders swooped in late last year not merely because of the 85% decline in BTC but because of a key technical trading factor – and nothing more.
Willy Woo confirms that the recent price rise was driven more by whales buying and trying to manufacture a short squeeze.
This is both good news and bad news for bulls.
The good news is that bitcoin will behave like most low-float illiquid stocks.
With low-float illiquid stocks, the limitation on share count means that the stock will always be subject to high levels of volatility and large spreads on the bid-ask.
It also means that any attempt to short the stock down comes with inordinate risk considering a sudden surge in buying will crush the short-sellers.
With bitcoin, there will always be a certain number of short-sellers, and that means short squeezes like this are going to be a more likely occurrence than not. That should theoretically provide a level of price support over time.
The bad news is that bitcoin has a wrinkle that makes it more vulnerable than low-float illiquid stocks.
Willy Woo and other bitcoin bulls talk about “organic investment.” With even a low-float illiquid stock, an investor is actually buying something that produces a good or service and generates an earnings stream (assuming the business itself is profitable).
As long as that good or service is in demand, and the company itself is at all competitive, then it will receive true organic investment.
Bitcoin is neither a good nor a service. It is a vague investment commodity that produces nothing.
It isn’t even a very good store of value for the very reason that Willy Woo points out – volatility.
Something isn’t a store of value when that value can fluctuate as much as 15%, or more, in a given day.
Over the past three years, bitcoin has an average annual return of 144%, plus or minus 197%.
Gold has an average annual return of 1.8%, plus or minus 21%.
While I wouldn’t call gold the most stable store of value, it’s a heck of a lot more stable a store of value than bitcoin is.
Eventually, speculation is going to die out. When that happens, perhaps then bitcoin will be an actual store of value.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN Markets.
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