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BEIJING, Nov. 7, 2019 -- A visitor tours a display center of the National Big Data Comprehensive ... [+] Pilot Area in southwest China's Guizhou Province, May 22, 2019. (Photo by Ou Dongqu/Xinhua via Getty) (Xinhua/Ou Dongqu via Getty Images)

Crypto markets are not reeling this week because China is cracking down on Blockchain. Tokens have been getting slammed since the summer because most of them are unnecessary, and because the need for coins that may offer some utility is not as imminent as buyers thought it would be. This is most obvious with King Crypto, bitcoin, whose purported use-case as a store of value is not looking very compelling.

The risk-reward in bitcoin has always been an extreme one, which is why its biggest proponents/salespeople assigned astronomic price targets to it. Widespread adoption is an extremely low-probability event with an enormous payoff if the stars align. And lets be clear: the things that need to happen for the world to turn to bitcoin complete central bank impotence, widespread currency debasement, falling equity markets and the abandonment of traditional gold means betting on bitcoin is essentially betting against the house. Hence the short bankers, long bitcoin meme. To say bitcoin will offer a 100x return yet also say its a highly probabilistic event is inherently contradictory and hugely dishonest.

The market is now realizing this. As the global economic slowdown of the last nine months shows signs of stabilization and the Federal Reserve sees no need for more interest-rate cuts, the case for bitcoin is taking body blows. None of the stories about adoption are turning out, big tech giants from Facebook to Google are doing everything possible to dominate electronic pay and finance, and projects designed to make bitcoin a means of exchange are either slow, fruitless, or both.

In short, the house does not look like its in a losing position just yet. And so bitcoin is getting killed. Sure, the U.S. and China could have a major fallout, get into a currency war, and Chinese citizens could rush to crypto as a way to get money out of the system. Thats why bitcoin will never be worthless, and why every investor should watch its price action, but that scenario is looking way, way further away from reality than the cryptoknights had so many believe.

Bitcoins violent moves are a factor of the speculative nature described above. Because its probability of success is low, it is closer to a roulette wheel than any traditional asset class. Average people were lured into the bitcoin sales pitch in 2017 when the economy was tearing hot, cash flow was heavy, stocks were churning out huge gains, and people could afford to take a gamble. Why not roll the dice?

Now those buyers are losing faith in their chances of winning, and are using this years rally to get out. As the fundamental reason for owning bitcoin as a store of value also loses luster amid a stabilizing economic situation, the true believers may start bailing out too. If it continues, it should be a warning sign to more traditional investors who made a similar bet in gold, and maybe even those who ran to Treasury bonds as a hedge against chaos, too.

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Bitcoin Isnt Down Because of China, Its Down Because You Dont Need It - Forbes