Bitcoin update - likely near major inflection point.

In this post I discussed Bitcoin for the first time ever at the request of a reader.  At the time, Bitcoin was still skyrocketing.  Needless to say, I did not provide a positive looking chart model for it.  While significantly undershooting the peak price, I so far seem to have gotten the fact that a major reversal was in the cards.

I wrote, "But for all of its benefits, Bitcoins are not tangible.  If the government is threatened by it, the government could shut it all down literally overnight with the stroke of a pen.  Don't think they are above doing this because they are not."

Government intervention is in fact my top fear about bitcoins, right up there with buying into charts that have already begun to go exponential.

"So good luck with Bitcoins folks.  Maybe it really is different this time.  But then again maybe not.  And no matter what you think about them, don't chase them into the stratosphere thinking that trees will grow to the sky because, as soon as you do, the trap door will open under your feet leaving you to freefall back to Earth clutching desperately at digital nothingness."

So what comes next?  Well it depends on the wave count.  When I first looked at it some days ago, I found a blip early on that was large in terms of percentage gains but tiny in comparison to the blip at left in the chart above and almost nonexistent relative to the large exponential explosion on the right.  So the key is this: if the tiny blip at the start of the chart (which is not shown above due to size of chart) was 1 and then the small blip at left in the chart above was 3 and the exponential run at right was 5.  In that case, the a-b-c retracement is likely to retrace all the way back down to the level of the prior 4th.  In other words follow the red line down on the model above.

But if that little off chart blip was just part of 1 (and the blip up left above is therefore 1, then that exponential explosion was only 3, not 5.  In that case, the chart might already have pulled back because of China's recent banning of Bitcoins and be ready for yet another run up.  That would be the blue line.

So basically I don't know whether the next step would be hugely up or down but I do suspect the chart is at a major inflection point: either 1 more big wave up into 5 or a-b-c back down to the prior 4th.  Bitcoin was heavily in use in China so the recent ban could really hurt the overall popularity of it.  That ban news alone seems powerful enough to kick BTC back down into the dirt.  But until we get some more data it would be very difficult to make an accurate EW call at this point.

In any case, the key take away is just what I wrote initially: governments can, with the stroke of a pen, wipe out Bitcoin.  Thus Bitcoin is not the new gold, the old gold, or any kind of gold.  It is just a digital currency that is unbacked by anything.  It provides a way for people to trade outside of government taxation and outside of government monitoring.  Sure, great for the people but who gives a damn about what's good for the people?  The government?  Ha!  Government is out for itself and it needs to steal from the people in order to thrive or to even survive.  Letting people trade between themselves without taxing every transaction will wipe out the corrupt government and that is not going to happen without a fight.

 I'm not saying people can't do well in using these digital currencies.  Obviously some gamblers have done very well with them.  I'm just saying that it is a huge gamble as to whether Bitcoin et al. even exist in 2 years.  Gold is no such gamble.  Gold will outlive all of us.  Gold was around before the first human and it will be around long after we all kill each other off.