A new generation has gotten caught up in a new technology notion and feverishly sending prices on a parabolic flight into space. We are fielding questions daily about this new asset, from common people, turned zealots. Ignore this perilous game of Russian roulette: you will be among the vast majority who are now getting in late and will suddenly lose it all (financially and emotionally). For additional insight, see two illustrations below for the prices of Bitcoin versus the Nasdaq, over the past 2 years.
In this first chart we see the distribution of daily price changes (in blue). That's an extraordinary amount of volatility. For context, see the distribution of daily price changes, for the technology-laden and high-beta Nasdaq (in red). Bitcoin is currently >4 times more volatile than the Nasdaq!
Now all of this is also happening as Bitcoin has been on a upward trajectory in the past two years, as shown below (also includes the large stock market crash from late 2015 through early 2016). While people were on-edge today as Bitcoin has an over 20% intra-day drop, a lot worse is yet to come when Bitcoin has an eventually random, price collapse. That's the key is that no one buying this has a value reference for where the price should modulate at and so this new bubble is even more dangerous than what we see in traditional asset classes.
Yes, eventually we'll have a multi-month correction -as a recession unfolds- in the currently levitating Nasdaq. And as frightening as that will be over time, some have no idea that they are going to be in store for the same magnitude of daily swings in Bitcoin on a daily basis! This is a dangerous game therefore for all and with few winners (i.e., not you). Get out now, and stay away.
December 6 update: for those using 1999's Amazon as a counter-example, see this below.
December 13: more updates on twitter.
Maybe he has. Prices swings & volatility will eventually slow & more will be shorting before it finally collapses hard.
A fraction will profit tens of millions when it does, while most either long or short will be wiped out altogether.
cc @winklevoss @tylerwinklevoss @nntaleb pic.twitter.com/kSGyU2K7zk— Statistical Ideas (@salilstatistics) December 13, 2017
Weren't you telling everyone to get out of the stock market three years ago?
ReplyDeleteYou must be asleep MP. We have had two large crashes in the past 3 years which some have easily traded on, and we'll have another large one soon enough.
Delete"Two large crashes?" LOL.
DeleteThank you for taking the time to warn about the risks. I'll link to your article to explain why volatility and accompanying emotional panic are hazardous to naive speculators.
ReplyDeleteI'm curious what will happen to cryptocurrencies the next time other financial assets tumble. In theory they're not subject to default risk, but they're also not fungible, & therefor would be a tempting target to sell off to raise cash. James Rickards is anticipating "no bid". I don't pretend to know, I just know I don't want to find out with my own money at stake.
Whatever else, the comparison between NASDAQ and Bitcoin is nonsensical. NASDAQ's underlying currency has no upper limit - it is created without compunction to mute volatility among other things. Bitcoin has a hard limit. All action is expressed in its price.
ReplyDeleteWrong, and unfortunately it's always the anonymous ones who leave nonsense comments like anyone cares. Please see this for the latest.
Deletehttps://twitter.com/salilstatistics/status/939531973722365953
"while most either long or short will be wiped out altogether."
DeleteHm. Longs and short both wiped out? You realize it's a zero-sum game, right?
"MP": you are a demented loser and I will no longer publish your thoughts. If you live somewhere on Earth, then these comments should have all been reasonable, valid, and in my case highly profitable.
DeleteThe two crashes are dated in the article above. I also promised a crash soon and in major news outlets, and it happened late January/early February 2018. Also any student of risk and convexity could look no further than VXX and XIV. Was that a "zero-sum game", or have they both lost >90% in the past year?
You might want to look up what defines a crash.
DeleteVXX decays due to contango. The money lost goes to couterparties trading the futures involved. For this reason, no one holds VXX long-term.
MP: you might want to lick your wounds for all the leveraged stock and Bitcoin holdings you had for the past couple years.
DeleteWhy are you responding you your own blog as Unknown? The confidence is that low?
Deletehey my little loser: read this for full explanation, particularly concerning "salil vs google". https://twitter.com/salilstatistics
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