Crypto vs Cash Flow

  • Bitcoin is a bubble waiting to burst, Jeffrey Gundlach.
  • Deutsche Bank: Market analysts think Bitcoin and Tesla are more likely to halve in value than double over the next 12 months
  • Is a cash flow possible from cryptos?

Bitcoin’s recent price drop has raised some recurring concerns surrounding the crypto industry. Taking a reference from the 2017 events where Bitcoin, and in extension, the entire crypto space was referred to as assets in a “bubble” ready to burst.

Is Bitcoin a Bubble?

The rationale behind this is backed by the fact that cryptos are known to easily double their prices in a relatively short period, and also lose a considerable percentage of their values. Can one categorize cryptos as being in a bubble?

One strong point of crypto critics has always been the volatility of the market. Notable figures like Jeffrey Gundlach, Warren Buffet, even the National Bank of America, have all referred to Bitcoin, which largely represents the crypto market, as a bubble.

While the crypto markets are arguably more volatile than their contemporaries, they are currently not the biggest bubbles around now.

U.S. Tech Stocks are the Biggest Market Bubbles Right Now

According to a survey conducted by the Deutsche Bank, Bitcoin and U.S. tech stocks are both viewed by investors as market bubbles right now. However, U.S. tech stocks hold the position of the biggest market bubbles.

In a recent survey that was conducted on 627 market professionals, Deutsche Bank found a whopping 89 percent think some financial markets are in bubble territory. Bitcoin and U.S. Tech stocks topped the list.

Just like Bitcoin, 83 percent of these market professionals hold the opinion that the stocks of electric car manufacturer Tesla are more likely to fall than rising over the next year.

In 2020, the stocks of Tesla grew by an astronomical 695 percent. Some compared this rapid growth to those witnessed in the crypto markets. The crypto markets, just like every other governed by economic principles, are bound to face market pullbacks after a major bull run.

Why it is more notable with the crypto markets is because these markets are more volatile and capable of faster price movements than traditional assets.

On the Flipside

  • Janet Yellen, the nominee for Secretary of the Treasury, has emphasized the role of cryptos in illegal transactions and money laundering
  • According to Yellen, the government could impose new restrictions on how cryptocurrency can be used

Can You Generate a Steady Cash Flow from Cryptos?

Many who sell the idea of Bitcoin being a bubble also pass across the belief that crypto investors are at a greater risk to lose their money than they are to make a cash flow. However, is that really the case?

More than the current use cases of cryptos and the future ambitions of the industry, generating a cash flow from cryptos is very possible. This is because currently, money in the crypto market flows in a predictably cyclical manner. There are three types of investors that make money in the industry.

1. The Active Trader

The rationale behind the active trader is simple. Buy cryptos at highs and sell at lows, or buy at lows and sell at highs over a short period. This is made possible by the volatility of the asset class. Bitcoin dropped more than 20 percent of its value in two days, for a short term trader, that is bliss.

2. The Hodlers

These are enthusiasts who believe in the future offering of a project. They buy into a project and wait until the project gains mainstream acceptance, and its value rises, just like the popular 21-year old Bitcoin millionaire, Erik Finman.

3. The Diversified Investors

Unlike hodlers who trust a single project, these people are concerned about improving the diversification of their portfolio. Holding multiple cryptocurrency assets can improve long-term risk-adjusted returns.

4. Miners

With large power-hungry rigs, many have set out on the journey of crypto mining. Although the cost of mining may be relatively high, some people have stepped up to the challenge of mining, and get their rewards from it.

Each of this peculiar group, and more, have carved out a niche in the crypto space through which they get their steady cash flow. Thus, it is indeed possible for people to generate a steady cash flow from the crypto market.

While the relatively young crypto markets are still struggling with the issue of volatility, it doesn’t repudiate the fact that cryptos are the future of the financial industry.

Images from Shutterstock

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss


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