Minsky Moment refers to the onset of a market collapse brought on by the reckless speculative activity that defines an unsustainable bullish period. Minsky Moment is named after economist Hyman Minsky and defines the point in time where the sudden decline in market sentiment inevitably leads to a market crash.
Controversy
In order to prevent flamewars on Hacker News, articles with "too many" comments will get heavily penalized as "controversial". In the published code, the contro-factor function kicks in for any post with more than 20 comments and more comments than upvotes. Such an article is scaled by (votes/comments)^2. However, the actual formula is different - it is active for any post with more comments than upvotes and at least 40 comments. Based on empirical data, I suspect the exponent is 3, rather than 2 but haven't proven this. The controversy penalty can have a sudden and catastrophic effect on an article's ranking, causing an article to be ranked highly one minute and vanish when it hits 40 comments. If you've wondered why a popular article suddenly vanishes from the front page, controversy is a likely cause.
I don't think Bitcoin is going to $0 any time soon, but I do think the pool of "greater fools" has likely shrunk significantly and that's going to make climbing out of these dips tougher. Also, if there is a major recession on the horizon, tons of small-time cryptocurrency investors are going to be liquidating their positions just to get some form of cash to roll in.
With that said, there's probably enough HODLers who can just trade it among themselves for the foreseeable future to keep the price from completely tanking. But this will make crypto less accessible to outsiders.
If a company’s stock is in free fall, it won’t usually trade that far below its earnings. People wont sell a stock that’s expected to earn them money for much below that amount unless they think the company will collapse before those earnings come back. There is probably a similar point for Bitcoin, where the price actually matches the demand for its utility as a currency. AFAIK it never got that popular for that purpose, so I think the theoretical floor is extremely low. We’re watching it rapidly lose the value driven by demand for speculating on it.
Yes. I was simplifying, in some circumstances stock price drops go down to the bare net asset value. Companies have assets and liabilities, and the shares shouldn’t drop much below the net value of those assets because even if they declare bankruptcy, the shareholders get the proceeds of liquidation after the creditors. You expect a distribution of those funds, and so shares don’t drop to zero unless a company is deep in debt.
When earnings projections are inflated and then drop back to earth, or some economic news means the projections are no longer good, then shares drop to an estimate of that base asset value + the new, lower earnings potential. That’s your typical stock price drop story.
Because Bitcoin is not a company publishing reliable earnings reports etc, everyone is currently guessing at the amount of value attributable to the utility demand value I was referring to, compared to the speculative value. If people tell you they know where the bottom is, they are probably completely bullshitting based on analysis equivalent to drawing lines on the stock chart in MS Paint.
We’re on what, the 4th major crash now (depending on how you count them). I’m always surprised that people are still surprised by it.
Bitcoin crashes, it will linger around some low price level for a while, then at some point there will be another bubble and the cycle begins afresh. Many of the alts and other random crypto assets are toast though.
In the past, there have always been people new to bitcoin joining in. But my god, this year we had a crypto superbowl; it's hard to imagine that there is a large untapped population remaining.
Most people might have heard about Bitcoin by now. But how many people have actually bought Bitcoin? Maybe several million .. 50-100 worldwide?
IMO it all depends upon how inflation of the major currencies develops. If we see sustained high inflation at the current level then there might be hundreds of millions of people around the world, who could become interested in Bitcoin.
Past performance is not an indication of future performance. If we knew this was the last peak the value would be nothing. If we knew it wasn’t, the value never would have crashed. It’s all priced in.
Ultimately bitcoin has close to zero in fundamentals so it could crash all the way to zero and that’s it.
In 2020 and 2021 Bitcoin went from less than $10k to $60k in a couple of months. Now it did basically the same but in the opposite direction, except that we're currently at $18k instead of $10k.
I wouldn't buy at either price, but to me Bitcoin at the current $18k looks like a much more promising investment than a couple of months ago when it was $60k. Not only based on the price, but also based on the fact that a lot of players with risky business models are driven out of the market.
For comparison: If you invested on Jan 1 2020 into an S&P 500 index fund you increased your investment by 18% (based on the total-return index version of S&P 500 which includes dividends). If you invested the same amount in Bitcoin you more than doubled your investment and are still at +150% of your initial investment. I'm not saying that Bitcoin is necessarily a good investment in the future, but based on the large volatility in the past the current decrease in value doesn't really look concerning to me.
How could anyone decide on an appropriate price for Bitcoin when there's no fundamental intrinsic value to it? That lack of a fundamental value helps it increase because nobody can ever say when it's too high, but the inverse, that it's never too low is also true.
The fundamental intrinsic value(s) are that BTC can't be printed, second that transactions are unrestricted and borderless, and third that it's network effects, i.e size of user base.
How this translates to some price though is an open question though. :)
There's a first mover advantage that will always price out future investors, so it will keep retracing again and again. If you want something that has better intrinsic value rooted in utility, Cardano's the one.
And please, no one reply Ethereum is better than Cardano, when 2/3 of the globe can not afford GPUs. PoW mining is a losing battle.
Because a well diversified portfolio is a good comparison/reference for individual investments. A better choice than S&P 500 would probably be the FTSE Global All Cap Index.
Anything after Jan 1 2020 is probably not a good comparison due to the Covid-related market volatility. Anything before could also make sense (personally I have a long term target so I care more about longer time ranges), but would be even more in favor of Bitcoin.
HODL is dumb. Even if you like bitcoin you could’ve cashed out and repurchased. The entire philosophy can be reduced to: if you think it’s going to go up, buy more, otherwise sell.
1) Taxes. When you sell you will owe taxes (considering you’re selling at a profit). At best you’re probably looking at ~23% + whatever state taxes you’re in. So, you may need to sell right before the asset drops a considerable amount. Hard to time.
2) You can’t predict. It’s easy to look back. But you don’t know at the time. Saying that, there’s pretty well defined practices on selling a bit and holding a bit.
Taxes are on gains, but they are far from irrelevant when comparing buy-and-hold strategies with those involving many transactions. An x% tax effectively reduces net profits by x% every time you sell, meaning that it eats into the compounding rate (at the buy-sell interval), which is fundamentally different from eating into your "simple" profit as it effectively would for buy-and-hold.
To give some concrete numbers, imagine you want to invest $1000 for 10 years with 10% APY with gains taxed at 20%. Buy-and-hold nets you $1000 * 1.1^10 = $2594 pre-tax, and $2594 - (2594-1000)*.2 = $2275 post-tax. Cashing out and immediately buying back in every year nets you the smaller $1000 * 1.08^10 = $2159 post-tax.
What you’re saying isn’t relevant because the HODL philosophy is that you believe bitcoin will moon, therefore you can buy all dips and cash out inevitably when it moons.
No. It means don’t sell in a bear market [1]. From the originator, GameKyuubi:
> You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.
It’s not irrelevant at all. You use your capitalization for margin loans and credit. Naturally you’re hedging so it’s not super important but I wouldn’t call it irrelevant in many cases.
And gains are great! But tax consequences should be considered if you plan on reentering the position with the same capital.
> Even if you like bitcoin you could’ve cashed out and repurchased.
The HODL strategy is based on the belief that: 1) Bitcoin has not yet reached its full potential. 2) Short-term price movements are unknowable.
You may disagree with #1 but I'd say you're delusional if you think you can predict Bitcoin price movements.
Of course, this is just my dumbed-down version of the strategy. For a more nuanced and rigorous version, it's better to read the source directly[0]:
> I type d that tyitle twice because I knew it was wrong the first time. Still wrong. w/e. GF's out at a lesbian bar, BTC crashing WHY AM I HOLDING? I'LL TELL YOU WHY. It's because I'm a bad trader and I KNOW I'M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro. Likewise the weak hands are like OH NO IT'S GOING DOWN I'M GONNA SELL he he he and then they're like OH GOD MY ASSHOLE when the SMART traders who KNOW WHAT THE FUCK THEY'RE DOING buy back in but you know what? I'm not part of that group. When the traders buy back in I'm already part of the market capital so GUESS WHO YOU'RE CHEATING day traders NOT ME~! Those taunt threads saying "OHH YOU SHOULD HAVE SOLD" YEAH NO SHIT. NO SHIT I SHOULD HAVE SOLD. I SHOULD HAVE SOLD MOMENTS BEFORE EVERY SELL AND BOUGHT MOMENTS BEFORE EVERY BUY BUT YOU KNOW WHAT NOT EVERYBODY IS AS COOL AS YOU. You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.
Again, the point is about taking gains. If you bought bitcoin at 18k and watched it go to 60k and didn’t sell anything and now you’re looking at 18k again you’re a fool. Period.
Basically every time the prices increases by X% sell Y% of your investment and don't touch the remaining part unless it is X% higher than the previous peak at which you sold. This ensures that you're realizing gains on the way up, but still benefit if the price continues to climb. In addition what I like about that strategy is that it takes emotions out of investing: Decide once what your parameters for the strategy are and then just strictly follow it, whatever happens. It's a lot easier to stomach a 90% price decrease if you realized a sufficient amount of gains on the way up.
Under certain conditions HODLing can be an ok strategy. Assuming my investments are diversified enough and Bitcoin is only a small percentage of my overall net worth, why deal with the stress of active investing and trying to time the market?
I can totally understand the mindset of investing some amount today but not wanting to have to care about that investment for the next X years. Especially with the high volatility of crypto currencies.
FWIW there's a lot of scientific research backing the idea that HODLing is the best trading strategy for stocks[0]. It's why women tend to do better than men on the stock market (they trade less)[1]. Given that cryptocurrency is even less predictable than stocks, it'd be surprising if it didn't hold true for cryptocurrency as well.
Your simple theory can also be applied to stocks. Easy! I'm guessing you must be a multimillionaire by now. Strange that nobody else came up with this simple solution: buy low, sell high. Incredible!
And here I am, an idiot investing in index funds and HODLing crypto. What a fool I am!
Edit: Sorry for my dumb question, but is it buy or sell right now? And at what price point to I need to sell or buy in again? Thanks for the advice! I'm going to be a multimillionaire soon.
HODL may be dumb, and yes you can cash out and repurchase, but "cashing out and repurchasing" requires timing the market, which generally doesn't work out.
I could've cashed out and repurchased funds in my IRA over the past few months, but that would've required me to be able to predict the future.
> The entire philosophy can be reduced to: if you think it’s going to go up, buy more, otherwise sell.
This crash doesn't really have anything to do with bitcoin itself. Volatility is not a feature of bitcoin, but a feature of the market which trades bitcoin. This volatility is a result of market participants investing with huge leverages and taking too much risk. It's a weird market. People tend to be bullish on long term which makes them overtly bullish on short term. There needs to be some kind of adjustment in behavior, which could happen with time.
Less volatility would make bitcoin more useful as money and therefore more valuable. So, the market should learn to control the volatility if the goal is to increase its value in long term.
You're aware that you're about two sentences away from realizing that cryptocurrency needs to be highly regulated, to the point that it no longer has any unique benefits over fiat, right?
The concept of speculation run rampant that then everybody sees the truth and runs hard the other way in the marketplace is a myth. The idea that the best weighing machine ever devised is so far off for so long and then just magically turns around on a dime - that so many smart investors we all deluded - that is a crackpot idea.
This is usually pushed by someone with an opposing view (who strangely enough didn't have the conviction to bet the other way) and is just a roundabout way of them patting themselves on the back for finally realizing what he could see so clearly from beginning (and still hasn't make money on the reversal).
Something happened to push this hard. We might not know what it is for a generation, but there is a logical reason. Constantly reducing a supply to allow pressure from the value it gets from demand makes it highly volatile (prices are intersection of the value of the currency and value of the item - and BTC's deflationary stance basically starts adding 0s to the front of the price 0.1 goes to 0.01 and now currency and demand swings are 10x greater). constant large swings make it a shitty currency - so over time is will fail.
Now, if only these other cryptofxs can get their shit together and shot with the constantly deflating things - yes it make the knownothings come running for a piece, but overall it will fail.
Please no Keynes quotes about irrationality. It is something he pulled out of his ass that isn't provable or disprovable. It makes a great soundbite and a terrible argument.
Theres no secret about what happened. The government printed money and it caused worthless assets to sky rocket. Then they pulled the money away. Thats it. Theres nothing here.
This is somewhat reductionist. Yes, some "worthless" assets were inflated such as crypto. But so were "real" (or rather, those with a cashflow or some sort of tangible underlying value) assets like real estate, equities, etc.
It seems straightforward that crypto is suffering from flight to safer assets and fear around the expected recessionary pressures, as well as no greater fools due to a combination of rising rates and broad sentiment.
That would imply that we have been in a liquidity trap all along and it is only now that interest rates have changed that more and more people are getting out of the asset markets to speculate on higher interest rates.
Considering how many multi billion dollar corporations, investments and entire market sectors have been blown out by easily proven, easily deduced fraud that somehow ends up lasting years, or even decades before blowing up, I place less faith in "the best weighing machine ever devised" than you I think.
We'll see, but the HODLers are not selling (AFAIK). A lot of this latest deep pullback was driven by over-leverage and margin calls on BTC backed DeFi (like Celsius). The margin calls on staking tokens in particular are a new factor adding to volatility.
We'll see, but the HODLers are not selling (AFAIK)
This seems like a "no true Scotsman" statement. If someone sells then by definition they're not a HODLer any more, no matter how much they espoused those views in the past.
It's tautological, but mostly from poor construction. The crashes like this have a lot of forced selling, both from margin calls and LP/depositor redemptions. Two factors contributing to this are algorithmic leverage (DeFi and otherwise), and the combination of high volatility and decent liquidity meaning mark-to-market is both very easy and very painful.
"HODLer" as a term is not clearly defined, but usually refers to the sort of off-exchange spot position that allows ignoring moves like this. High-uncertainty events like country bans and network attacks drive people like that to sell, but this current crash is basically purely liquidity related and in line with similar assets. Selling is driven mostly by short-term expectations, not long-term viability.
HODLers are not defined by an external source. They are self-defined. It's like saying 'Catholics are leaving the Church'. And you say: 'Well if they leave the church they aren't Catholics". That doesn't make sense. The phase 'leaving the church' still has meaning and we know what it means.
Indeed. Anyone who did their research was already expecting the high likelihood of several years of prices being down 80~90% and either already sold or are expecting things to go up again in x years.
I'm both surprised and disappointed in the businesses who should have known better than to already be underwater.
It’s EXTREMELY different to talk about possibility of your investment in highly speculative asset going down, vs actually experiencing it and seeing your money disappear.
> Bitcoin believer Yves Lamoureux of Lamoureux & Co., though, thinks ‘bitcoin is fine
I mean, of course BTC is fine. It's a speculative asset. It can go up/down/sideways and it's still going to be fine. There are most likely some applications of crypto w.r.t. provenance, distributed DRM, and cross-ecosystem trading, but everyone and their mom knows that (for the time being) crypto is a volatile, speculative asset.
Sure, some weirdos traded BTC like "digital gold" most rational agents traded it like an option or a future.
Those TA is nothing but bullshit. Everytime it hits that "support level", they talk about the next one, like, ever since breaching $50k and they don't account for anything but Bitcoin's activity and not the bigger picture that is the global economy.
People who believe in those crappy local analysis were made to hodl thinking that line may hold, till they realize they're way under and forced to sell.
TA works because enough people believe it works. Its a self-fullfilling prophecy. It doesnt matter that there is no technical or mathematical reasons for it to be true.
Can any economists here (hopefully ones that have read the works of Mr. Minsky) opine on whether there are some more precise definitions of "Minsky moment"? Is there an objective way to determine whether this is a Minsky moment without being able to look at the future?
Theoretically, a single Raspberry Pi can run the entire blockchain without breaking a sweat (difficulty bomb aside), if that‘s all the aggregate demand for new coins and transaction fees can withstand.
Bitcoin would continue to operate even if miners used no electricity. The real question is whether or not the network can function with no block reward (solely off fees)
(sigh), the markets will get shredded on Monday. These days BTC highly correlates with SPX, both reflecting general investor optimism rather than any underlying economic parameters.
