The Coming Bitcoin Crash

January 29, 2021

Bitcoin, or as I like to call it BitCON or S*H**T coin, is not gold 2.0. What makes gold valuable is its extreme rarity, its beauty, and its quality of being virtually indestructible. Bitcoin enjoys none of these traits.

Of course, Bitcoin is not in the least bit beautiful. This is because its private key consisting of 64 electronic letters and numbers are invisible to the naked eye. And, even if you could glimpse a view of one under a very powerful microscope, they turn out to be not very pretty at all. BTC aren’t exactly indestructible in practice either—I’ll explain that misconception too, as this is where the justification for BTC’s obscene valuation completely falls apart. Also, as it turns out BTC is not in actuality scarce because it is in reality part of a group of commodities that have an infinite supply.

While the number of BTC is limited to an eventual 21 million units, and therefore technically rare, it is also a fact that there are an unlimited number of cryptocurrencies that can be created. These “currencies” perform the same primary function of moving a “coin” along a block chain whose transactions are decentralized, immutable and anonymous. In other words, the worth of each existing cryptocurrency gets diluted every time a new one comes into existence; and this function is perpetual. It is as if geologists were constantly finding new elements within the earth’s crust that held the same qualities as gold. While the quantity of gold would not be increasing, the value of each existing ounce above ground would plummet.

Most importantly, while BTC is indeed nearly impossible to eradicate by governments, these same governments can rather easily relegate all cryptocurrencies to the dark web; thus, greatly suppressing its valuation. The truth is governments don’t like to lose control over their currencies—they will never allow it to happen. They do not tolerate tax cheats very well; nor do they like money launderers; or promoting commerce in illicit activities. Needless to say, not all users of BTC engage in such activities. But no one can deny such things take place and the decentralized nature of cryptocurrencies attracts those who traffic in these behaviors. Hence, governments will eventually end up regulating cryptocurrencies by declaring commerce in them illegal and outlawing the exchanges, along with all of Wall Street’s investment products associated with it. Their liquidity would then vanish overnight along with all price transparency. This in turn will wipeout most of its value.

Here then lies the conundrum: BTC, et al, now needs to be regulated by government and accepted by Wall Street in order to justify its ridiculous price. However, once cryptos become regulated and taxed they lose their essential characteristics of being decentralized, the transactions are no longer immutable, nor are they anonymous. Indeed, all trading in BTC can be easily viewed by the relevant authorities. Therefore, those who engage in these transactions expose themselves to having their cryptocurrencies confiscated; making its very purpose for existence annulled. In other words, worthless. BTC will then return to the dark corners of the internet where few venture to go. There will no longer be mass acceptance of BTC and its price must then crash to reflect its extremely limited use. That won’t be anywhere near $40,000 per unit; but probably closer to the three-digit zone.

 Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check” and Author of the book “The Coming Bond Market Collapse.”