Another day, another China-inspired bloodletting in the crypto market.
Maybe you saw—China is now pushing banks and financial-services companies to stop dealing with crypto altogether. Well, that freaked out a market already more jittery than a meth-head going through withdrawal.
Bitcoin dropped $10,000 in a day—about 25%. Ethereum lost about 17%, dipping below $2,000 for the first time since April.
All over the cryptoconomy, cries are rising up: Crypto winter has arrived!
I never judge events like these by their immediate impact. That’s like judging a book by its cover.
Instead, I like to connect dots. What’s the bigger picture? Because these kinds of events have knock-on effects that ripple for days, weeks, months, maybe even years. And in the case of China’s enhanced crypto crackdown, I see a different picture than the Sturm-und-drang and the “I told you so”-itis that’s playing out in the mainstream media.
First, imagine you run a giant, crypto mining farm somewhere in China. Your massive collection of high-end computers is mining tens or even hundreds of thousands of dollars per day in bitcoin and Ethereum.
Suddenly, this Chinese policy roots…
Banks and financial institutions no longer want your business.
You risk losing practical access to the crypto you own and the business that’s sustaining you in pretty luxurious fashion.
- Say, “Oh well, fun while it lasted,” then box up all your mining rigs, sell them for spare parts on eBay, and go find a job elsewhere? Or…
- Dump all your bitcoin while you can still turn it into cash, then pack up all your rigs, ship them to someplace like Canada or a Nordic nation (both destinations have low-cost green energy to power your electricity-intensive rigs), and rebuild?
The answer is plainly obvious.
Which is why b) is what’s actually happening.
Chinese bitcoin owners and miners are dumping crypto so that they can pull out their money while they can.
Miners, meanwhile, are sending millions of dollars’ worth of mining gear out of China. Some of it is headed to Texas, apparently, home to plenty of wind energy. Others are heading for Florida, where Miami has a crypto-friendly mayor.
That massive selling pressure, and the sharp reduction in mining capacity while rigs relocate, clearly has a negative impact on crypto prices.
But—and this is key—this does not even remotely hint at the emergence of crypto winter.
This is a hurricane in the middle of summer—powerful and destructive, for sure, and there’s a lot of cleanup to do. But the storm always passes quickly, and summery blue skies return. (I grew up in hurricane country; seemed the perfect analogy.)
Which means that, if anything, this moment is an opportunity to grab bitcoin and Ethereum on the cheap.
As I always say, though, only invest in crypto if you can handle the insane volatility. And only invest what you’re willing to lose.
I don’t think you will lose if you have a longer-term perspective. But if seeing your portfolio down 30% or 50% in the short run—even on paper—sends you into paroxysms of panic, then please don’t buy crypto.
This is not a market that will treat you well if you’re prone to panic or moved by mainstream headlines.
But if you realize paper loses mean nothing, and that the future is being built today in the cryptoconomy, then wading through the bloody streets of CryptoLand right now is going to yield great bargains and potentially life-changing profits.