We have all listened to no-coiner acquaintances reasoning that, “Bitcoin is purely virtual, so the price could crash to nothing”. But why are they wrong? Who are the heroes that stop the drop in a bear market cycle? These, my friend, are Bitcoin’s Buyers of Last Resort.
What Goes Up…
The rise of bitcoin has depended on increasing adoption, occurring as more people discover, then desire, then buy bitcoin. If only this discovery was purely organic, based on word of mouth, and led to a steady accumulation of new users over time. The resulting appreciation in bitcoin price would be stable and sustainable.
Unfortunately, adoption happens in waves. A few positive articles in mainstream media causes a swell of new investors, eager to snap up the available coins at any price. Momentum traders join in the fun, speculating to profit from the sudden influx and price gains.
Must Come Down
But the adoption and momentum eventually peak. Nobody wants to get caught holding the bomb when the music stops, and the price begins to drop. Momentum traders switch to shorting. Uncle Bobby, who was sure it was all a scam but didn’t want to miss out just in case, panic sells.
Nobody is buying, so the Bitcoin price 00 keeps on falling, causing more panic and desperate sellers. With a price in freefall, something needs to stop this negative feedback cycle. That something is the ‘Buyers of Last Resort’.
BOLR, HOLR and LOLR
Actually, we don’t just have to thank ‘Buyers of Last Resort’ but also ‘Hodlers of Last Resort’. Both of these terms derive from ‘Lender of Last Resort’. This typically describes central banks, who can provide liquidity to financial institutions when they are unable to borrow elsewhere.
HOLR seems like a misnomer, unless you consider bitcoin itself as the entity needing them. These ‘true believers’ refuse to fold under the pressure of falling prices, FUD-mongering and panic selling. They calmly wait until the cycle reverses again, and perhaps announce it on social media. I mean, that is how the term came to be – thanks to a drunken late night post on Bitcointalk.org in 2015.
Undoubtedly, Bitcoin has the most HOLRs, leaving it less prone to wild price fluctuations compared to low-liquidity altcoins.
BOLR soak up seller panic by providing liquidity to the market. They include employers who pay staff in bitcoin, regular investors, and HODLers who have perhaps received a recent cash windfall. These groups buy irrespective of price. A subset of BOLR are the ‘Bidders of Last Resort’, who put in low limit bids to capitalize if the price drops low enough.
Together, enough BOLR will stem the panic, the market will regain confidence. and prices will start to rise again. So we should all be thankful for them…and maybe join them?
Remember, the ‘Buyers of Last Resort’ always bought the dip.
Are you a buyer of last resort? Share your thoughts below!
Images courtesy of Shutterstock
The post The ‘Hodlers of Last Resort’ Saviors of Bitcoin appeared first on Bitcoinist.com.
Source: Bitcoinist.com
Original Post: The ‘Hodlers of Last Resort’ Saviors of Bitcoin
