It
had to happen sooner or later and this week it finally did.
The
Bitcoin phenomenon made the front cover of a major news magazine when Bloomberg
Businessweek ran a story on the intricacies of Bitcoin mining.
The impressionist art on the front cover was evocative of the dream of
fabulous wealth entertained by many Bitcoin enthusiasts.
The
question that naturally comes to mind is whether or not this qualifies as a
legitimate "magazine cover indicator" and does it therefore have
predictive value? Historically, whenever an investment craze makes the
front cover of a major magazine it reflects the saturation of that investment
and implies that the value of said investment has (temporarily at least)
overextended. A "correction" or decline in the investment's
value often follows soon thereafter.
Bitcoin
is a bit different than more classical investment crazes, however, and requires
an entirely different set of tools to evaluate it. The appearance of
Bitcoin on theBusinessweek cover likely doesn't signal the end of
the craze -- especially since the vital ingredients of full-fledged mania
status are missing, viz. strong institutional and hedge fund involvement and
widespread public participation. What the cover could signify, however,
is the commencement of an extended "internal correction" in Bitcoin's
value.
An
internal correction can be defined as a lateral trading range-type market in
which consolidation takes place over an undetermined length of time. This
would give Bitcoin a much-needed rest and would also take some of the heat off
the market by removing it from the mainstream media spotlight. This is
necessary from the vantage point of the hedge funds who need a dull, uneventful
market in order to quietly build a substantial position.
Don't
be surprised, then, if Bitcoin posts an underwhelming performance for a while.
