As Bitcoin soars to dizzy heights and moves past the $6000-mark, first time investors are thrilled. They expect it to soar on and on and on. But there is a high probability that it will not happen. Investing is a game of probability. Especially when you are putting your money on an unknown commodity like Bitcoin.
The probability is stacked against you
Few early investors whom I know have already earned 500% profits from Bitcoin. They are still holding on to the investment hoping that it will be their lottery ticket. Nothing wrong in such thinking, but the fact is that the probability of winning lotteries in life is extremely low. The Powerball lottery in its website says that the probability of winning the lottery with a single ticket is 1: 175,223.510 roughly 1 in 175 million.
That is when the odds are transparent. In case of the 150 million odd investors of Bitcoin the odds are stacked against them. This is because of several reasons. First and foremost, there is no regulator in the fray, the rules of play are uncertain. It is not recognized by most nations. Also, the element of halving of bitcoins mIned every four years makes a system heavily stacked in favor of early movers.
The price movement of Bitcoins cannot be predicted. You do not know how the Bitcoin cartels will function because it is still early days. This is probably why Jamie Dimon of JP Morgan called it a Ponzi scheme not so long ago after the value of the digital currency quadrupled in the first 3 quarters of 2017. He said “the price craze resembles the tulip bulb frenzy of the 16th century. It could even peak to $20,000, but will eventually blow up” and promised to dismiss anyone indulging in its trading.
Less than 100 geeks could own two third of the world’s Bitcoins
Why is boss of America’s biggest investment bank so skeptical about Bitcoin investment? Now if you look at the rough distribution of Bitcoin ownership you will find that 147 million wallets own less than 0.01% of Bitcoins. That is probably where you are as an early investor. On the other hand, less than 20,000 wallets own 65% of the Bitcoins mined worldwide. It is highly probable and widely speculated that these 20,000 wallets are owned by less than 100 geeks, many of whom know each other.
This raises the possibility of a cartel you cannot beat. With two third of the supplies under control they can raise the price or crash it at will. Even a cartel which owns 20% of a volatile supply chain can rock the prices to its own advantage. It can start buying just 5% of the free flowing stock in the markets and get prices to double in a week. Once it doubles and thousands of new unsuspecting investors flock to buy Bitcoins, they can sell 10% to 15% of the stock at high prices and rake in the profits.
Such bulk selling will also ensure prices to plunge from where they can buy again. It is very difficult for small investors holding only a few Bitcoins to combat such volatility. So, if you have a few bitcoins in your kitty it is time to sell and book profits
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