On the looming Bitcoin bubble

I haven’t made any predictions for awhile (seeing as my Bear Case for Crypto is playing out more or less exactly as described), but I will sound a warning today.

Dramatic run-ups in the price of Bitcoin strangely seem to coincide with large exchanges having banking, withdrawal, and possibly solvency problems. This was the case with, e.g., Mt. Gox in 2013, and some have argued was also the case with long-suffering crypto exchange Bitfinex in 2017.

Gox is an old story, from Bitcoin’s ancient history, where a mere $460 million was at stake. Fortunately, the scribes at Wired etched the tale into granite, a copy of which may now be read online here.

For those of you who are really new around here, the 2017 bull run coincided, almost to the day, with two events at the beginning of April, 2017:

1. Bitfinex getting cut off from the U.S. banking system by Wells Fargo.
2. The Tether shadow dollar hawala system, which was nominally independent but appears to have been managed by the same individuals who run Bitfinex, kicking into overdrive and beginning a ten-month run in which Tether would print several billion dollars’ worth of Tether tokens.

Prominent critics have delved into possible explanations for this coincidence in more detail than I care to expand on here, save to say that I do not dismiss those explanations out of hand.

Today, Bitfinex – the largest cryptocurrency exchange in the world – appears to be, allegedly, in a spot of trouble once again. And the price of Bitcoin is rising quickly once again.

I will not dwell at length about Bitfinex’s current drama, save to say that individuals who have allegedly done business with Bitfinex are under federal indictment, assets managed by those individuals have been seized, and Bitfinex itself is known to be under investigation for alleged fraud by the Attorney General of New York.

If you’re a trader or investor, tread carefully. It is possible that the current price of a Bitcoin bears some relation to, and is uniquely vulnerable to, regulatory developments.

If the looming bubble should spin wildly out of control, here’s a timely and healthy reminder to investors to keep their wits about them, don’t propose that a new paradigm is upon us, and be mindful of gravity.