Crash time or just a bump in the road?

Well, the past 48 hours has been anything but calm in the Crypto Currency world.  BTC shot up to $2700 and then promptly crashed to as low as $1600 on Poloniex.  Almost all Alt coins, including 100% of the coins I track, followed suit.

We have been prediction a "correction" for quite some time.  The past 6-8 weeks in Alt coins and BTC for that matter have been crazy.  Almost every day, most coins were up double digit figures.  It was rare to see a down day at all. In my opinion it isn't healthy for the market to see a run-up like that without a retracement.  If you are in BTC for the long run, you want to see it behave like a mature asset, not like a flash-in-the-pan bubble.  Its recent climb from the $800 area to $2700 had the look and feel of a mania rather than investing.

That being said, a lot of it could be attributed to new money entering the market.  When you look at it in terms of the volumes that trade on well known markets like the NYSE or NASDAQ, the BTC volume pales in comparison.  So, with an influx of new investors and new money, it is possible that the runup was due to the scarcity of BTC rather than mania investing.

The whole BTC structure is based upon just that type of price inflation.  BTC is programmed to grow at a rate of 25 coins every 10 minutes.  It doesn't matter if there are more minors or less minors, the "difficulty" value that is automatically assigned in the mining code makes sure that, on average, 2 new blocks of 12.5 coins each, are found every 10 minutes.  That number decreases over time at a pre-programmed, predictable rate.

That means the number of coins in circulation is known right now and can be determined at any point in time from now until 2140 when the last coins are mined. As of today, May 27th, 2017, there are 16,355,775 coins in circulation.  When the last coin is mined there will be a total of 21 million Bitcoins in circulation.  Assuming the demand for BTC continues to grow through widespread acceptance, the normal "intentional" result of that is price inflation.

When BTC first started, there were a ton of coins and very few users.  Now we are seeing just the opposite - there are a ton of users and not that many more coins.  In fact it is estimated that about 35-40% of the coins in circulation were mined very early on and are now "lost".  They had very little to no value then and many people mined just for the technology challenge.  When they lost interest they walked away from it and those coins were lost into the electronic haze.

So, back to what we are seeing now, is it healthy or not?  Is it a buying opportunity or the beginning of the end.  Well, only time will tell.  You can probably guess that my position is that it is a healthy correction and that we should return to and exceed the levels met earlier in the week.  The question is "when".  In 2013 there was a run-up from $22 per coin to $1200 per coin.  That spike corrected and it took 5 years to get back to that $1200 price - which was hit just a couple months ago.

Will it take us 5 years to get back to $2700?  I personally don't think so.  We'll have to see where the market goes from here.   If it tanks and ends up down in the $900 range, then it could be a couple years before we see that price again. But, if it firms up and bases here at around the $2000 price, I think we'll see it back to $2700 sooner rather than later - maybe as soon as this summer.