Re:It can all go to zero
by InclinedPlane on Tuesday January 16, 2018 @07:05PM
(#16164150)
Yup, as volatility increases and prices fall more and more exchanges are going to halt transactions or just go offline because it's not worth it for them. It's going to get harder and harder to get dollars for bitcoins. And the transaction backlog is going to make people lose their minds. People will decide they want to get out and they'll try to sell, but that's just the start of a process Meanwhile, processing fees are going up and up and up because people who want to lock in their returns are going to pay a premium to get out as early as they can. And, of course, because the cash-dollar value of those processing fees will be in freefall and miners are going to "prefer to hold more of their wealth in dollars" as well. That's going to devolve into a really ugly feedback loop. People are going to be increasingly incentivized to get out early to avoid an even worse rush with higher fees later, and they are going to pay high fees for the same reason. It's going to be a mess.
What will happen is that animal spirits will change, and liquidity will slowly recede. At some point many market players will say, "Yes crypto has value, but I prefer to hold more dollars for the time being."
Price levels drop and volatility increases, and the feeling compounds. More people prefer to hold more of their wealth in dollars.
Those who have bought with leverage are force to sell, driving the price further down.
At that point there is a full on panic and crypto exchanges which are unregulated at best and sketchy at worst, and under no legal obligation to clear trades, will first front run their customers and then fail.
Stocks and bonds at this point would hit a floor at the value of the liquidation dividend, often, but not always, zero for the stock, slightly higher for bonds.
Currencies have no floor, but typically have capital restrictions (you can't get out) or a central bank with reserves and an interest rate mechanism The central bank would buy with reserves or raise interest rates to support it.
Cryptos have no central bank and no capital restrictions.