For Bitcoin, Voting And Weighing Machines May Point To Investor Exits

In investing, like in sports, maxims abound.

Some of them are even helpful, and possibly instructive.

Look to the savviest investors and you’ll find pearls of wisdom that speak to the current climate, the past investing landscape and which may be good lodestars for the future.

How about this one: Benjamin Graham, widely regarded as the man who basically created the discipline known as value investing, and who said (or wrote), “In the short run, the market is a voting machine, but in the long run it is a weighing machine.”

The gist of that maxim offers up two concepts that sometimes can sometimes gel, and sometimes can clash: popularity versus substance.

When looking at any vehicle that changes hands and changes price, it pays, no pun intended, to keep an eye on votes versus weight. A few scenarios come to mind with, well, anything that is tradeable.

High votes, high weight: popular, yes, but with value that is recognized and likely costs a pretty penny. Low votes, low weight: No one really wants it, and likely for good reason, as shoddy workmanship, value or trouble is in the offing. Low votes, high weight: this is what investors want, where value goes unrecognized and price is low. Scoop up an asset at this point, goes the thinking, and it’s just a matter of time before the market wakes up and the votes accumulate. Buy low, sell high becomes that most pleasurable of activities.

And then there’s high votes, low weight: the popularity contest that ends in tears. Here is where you find the mindset where people buy something just because others are buying, with the assumption that you’d better do it now before it gets much higher and you’ll have missed the opportunity to sell it to someone else for more than you paid.

Momentum, you might call it. Or, by another name, bitcoin.

At this writing, bitcoin sits at a per-coin price of around $6,600. That’s a far cry from the $20,000-ish that the same coins fetched at the end of last year. That lofty five-digit tally was also a far cry higher than the roughly $800 seen at the beginning of last year.

So, what changed? Everything and nothing. It is the “everything” that ties in with the aforementioned “voting,” and which has bedeviled the price in recent months. The popular, conventional wisdom is that bitcoin will change the way we pay, and cryptos have plenty of room to take over the world – and there is enough room for all of them to co-exist.

But for that marquee name, bitcoin, news comes this week that “concentrated price manipulation,” as The New York Times termed it, may have been behind at least half of last year’s boost. That assessment comes from John Griffin, a University of Texas professor of finance, and Amin Shams, a graduate student.

In its starkest terms, the prices were led upward by exchanges, unregulated ones, such as Bitfinex, with presence outside the U.S. and lightly regulated. Here, said the research from Griffin and Shams, Tether, another virtual currency, was used to buy bitcoin. In other words, one crypto helped to prop up and boost another – and, by the way, Tether was in fact designed and sold by Bitfinex creators.

The specter of manipulation hit the bitcoin price, sending it down a few percentage points this week. Then, too, came reports from market research firm Chainalysis, as noted by Financial Times, that long-term investors held three times the amount of bitcoin than short-term traders, and in the ensuing months sold off a huge chunk of those holdings. Two months ago, the numbers stood rather near one another, at six million bitcoin held by investors to 5.1 million held by traders.

Not incongruously, this all came while regulators were gunning to regulate. Seems like a weighing machine is a-waiting to a-weight – and, perhaps, to restrict such hurried, unregulated transfers of wealth.

Not great odds that we have seen the last of the drops yet.


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