Why the latest drop in Bitcoin might be a good thing

Bitcoin was shattered by Chinese news again, so why is this good news for the community in the long run?

It has happened – Chinese authorities have taken all the series of steps to completely discourage the use of the digital currency in the country for whatever reason. First they declared it as a speculative vehicle, and basically laughed at the idea that it is claimed to be a currency. As they informed consumers of the risks associated with it they proceeded to ban Chinese financial institutions from dealing with it.

Baidu and China Mobile followed the footsteps of Big Brother and voluntarily relinquished the use of digital currency payments and now the nail in the coffin: BTC China was politely asked by the government to stop accepting deposits. Obviously local investors ran scared that next they might be unable to withdraw their funds and slammed the BTCCNY by about 50% within 24 hours.

So why is this a good thing? Well let’s turn to a renowned entrepreneur (unlike the Winklevoss twins) for some advice – what does Elon Musk have to say about explosive price growth, even when he is discussing the valuation of his own company. Back in October when Tesla Motors’ share prices were trading at $171 he had this to say: “The stock price that we have is more then we have any right to deserve”.

At the time this was not his first public jawboning of his own company’s share price. He well realized that the generous valuation that the stock market has so graciously given to it was astronomical (close to 100 times 2014 earnings estimates at the time). So why did he do it, doesn’t it make him wealthier? Well the simple answer is “Yes it does, but…” But he is after real value here and boy is he in it for the long run.

Elon is after the ability of the company to deliver great products consistent with its goals and make a revolution out of the automobile market. His goal is to create real value for the customers of his company and the share price is merely a consequence. Shares of Tesla have grown 400% for less than a year and that definitely bothered the CEO – he did not wish his share price to become a mere vehicle for speculation.

Just as any sensible Bitcoin investor does not wish that the digital currency becomes merely a speculative asset (rightfully stamped by Norwegian tax authorities). So all of you crybabies who are desperately asking yourselves “What made me buy this stupid Bitcoin thing at the top?” better answer why did you buy it in the first place.

Was it because you believe that it can revolutionize digital payments in the future and you are willing to hold onto it, or because you wanted to make a quick buck by speculating with an asset that went up in value more than 100 times within a single year? Do you still hold it because you believe in the idea that fiat money loses its value over time and Bitcoin seems a sound alternative, or is it because of the media fuss surrounding it? Do you believe that you will be able to buy a sufficient amount of real goods and services with Bitcoin in the future?

Answer these questions and you will know whether you should be in this market or not. And last but not least, if you decide to stay – strap yourself in cause its gonna be a wild ride (or simply adhere to the age-old rule of investing: invest just as much as you can afford to lose). Meanwhile stay tuned to LeapRate for the latest news surrounding the digital currency.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

Read Also: