"Teflon Don” is a nickname that was given to one time notorious American Gangster, John Gotti. Why? For a long time through several unsuccessful prosecutions, criminal charges against him simply never stuck. He was untouchable. Nonetheless, the authorities caught up with him.
He got life imprisonment. Although that marked his end, the name Teflon Don entered the general lexicon and to date carries the meaning of invincibility — that nothing can touch or stop someone/something.
One asset that has enjoyed “invincibility” is Bitcoin, thanks to its persistent rise in price despite several dips and looming regulation. But just like the real Teflon Don, a natural pause (read correction) is inevitable. Last week was that day.
The world's largest cryptocurrency dropped significantly, wiping out around Ksh. 31 trillion from the crypto market in its wake. The crash dashed hopes the market could reach another all-time high before the end of the year. That said, the price of Bitcoin is on the up again, at Sh5.4 million at the time of writing.
However, as these dips have become frequent and deep, it proves that Bitcoin does follow a natural cycle. We saw this happen back in October: It slumped before hitting a record high of Ksh.7,590,000. Why does this happen? The answer is investor psychology. Usually, investors use a crash as a good indication to buy while prices are low, which stimulates the markets.
Investors then sell off assets when they reach highs, starting the cycle off again. The dips is also proof that no asset is immune to the effect of the macro environment. It’s most likely that the US Federal Reserve’s tapering could burst the Bitcoin and larger crypto bubble.
Technically speaking, some analysts now see the largest crypto forming what’s known as a head-and-shoulders pattern, which would be a bearish development.
Speaking on its future sustainability, I for one don’t like the fact it uses more power than some countries. Recent study by Cambridge University shows that bitcoin mining uses up more electricity annually than the entirety of Argentina.
I also don’t understand how Bitcoin processes 7 transactions per second whereas Visa processes around 1,700 transactions per second on average while Mastercard has some 5,000 transactions per second. Some stock exchanges can even handle 80 transactions per second. Bitcoin’s usefulness is yet to be ascertained.
It really seems like blockchain is just a slower, more expensive, and more polluting way to solve a problem which we already have other solutions for. Not to misunderstand me, decentralising banking and money transactions is cool but at what cost to the environment?
To conclude this note; I truly believe the reality is dawning. Nothing goes up forever. If Bitcoin became Teflon Don, then its judgement day may have arrived. Its weakness is now showing.
No mainstream asset drops over 15 percent on a single day. It’s not gold, it’s just a speculative investment. So to all the Hodler, this time catching this falling knife will be detrimental to your pocketbook.
Mwanyasi is the managing director at Canaan Capital