The Last "Bigger Fool" Collapses a Market

Be Warned, Beware

The Bigger Fool theory states that there is little risk when one invests in nothingness or empty air as long as a bigger fool will come along to invest afterwards.  Bitcoin and other crypto-currencies have all the makings of a classic Bigger Fool bubble.  It works, until it doesn't.  In other words, it works as long as there are bigger fools willing to invest in the bubble and purchase what you bought yesterday. 

Crypto wipeout: Market loses $200 billion

Frank Chung
NZ Herald

Bitcoin and other cryptocurrencies including ethereum, litecoin and ripple plummeted in value on Monday after Coinmarketcap removed prices from South Korean exchanges without warning.

Prices on South Korean exchanges are typically up to 30 per cent higher than in other countries. The widely used research site's decision to exclude average price data from Bithumb, Coinone and Korbit resulted in a sudden drop in displayed prices.

That caused confusion among investors and partly contributed to a major sell-off, which was also fuelled by news that South Korean and Chinese regulators planned to increase oversight on cryptocurrency trading and mining. . . .

The total market capitalisation of more than 1,300 cryptocurrencies tracked by Coinmarketcap fell from around US$830 billion ($1.15 trillion) to bottom out at US$669b ($932b) on Monday, a drop of 20 per cent. By late Monday, the market was sitting at around US$742b ($1.03 trillion).

Among the hardest hit were ripple, litecoin and bitcoin cash, which at the time of writing were down 25 per cent, 11 per cent and 13 per cent respectively on the previous day, while bitcoin was trading at US$15,215 ($21,205), down more than 7 per cent.  "The most obvious point is how undeveloped the ecosystem supporting bitcoin and cryptocurrency trading still is," said ABC Bullion chief economist Jordan Eliseo.  "It highlights the undeveloped nature of trading in bitcoin, reporting in bitcoin, market data sources for people to utilise when they're wanting to track performance or monitor trends in that space." . . . .

Others weighed in on the broader implications. "How healthy is a market really if a single non-exchange website can crash it?" one commenter on Reddit asked.  . . .

Eliseo said it was a "real risk factor" investors needed to be aware of. "While it's very easy to get money into this system to buy cryptocurrency, it may not be so easy to get it out when you want to liquidate your position, realise profit and get your money back into the banking system," he said.

"There is enormous opacity surrounding the vast majority of the leading cryptocurrency exchanges. I think a lot of people, when they buy bitcoin on an exchange, they think they're actually buying a specific bitcoin or portion of a bitcoin, whereas I suspect what they're really buying is a claim on that bitcoin.  In that sense it's broadly analogous to a bank, which doesn't have a whole heap of banknotes waiting for you to come pick them up, but the big difference is there is absolutely zero governance over these big exchanges. With a bank, the government is there to protect depositors."

Yup.  It's a Bigger Fool market for sure.  It works only as long as there are sufficient Bigger Fools willing to buy.  When they disappear, the market in crypto-currencies will be crypto indeed.