It’s been an incredible journey for loyal holders of Bitcoin (sometimes abbreviated as BTC), the world’s most popular cryptocurrency. Now that commentators are predicting year-end targets of $25,000 or more, Bitcoin seems absolutely unstoppable.
Yet, we must remember that some of those same commentators were less enthusiastic about Bitcoin earlier this year. It’s interesting to observe how quickly the tide of sentiment can change with Bitcoin.
As this stock rounds out a wild year of bruising lows and breathtaking highs, it’s time to take a step back and consider whether it really makes sense to add to one’s position now.
After all, the last thing we want to do is become another victim of FOMO (fear of missing out). Cryptocurrency fortunes can be built on FOMO, but they can just as quickly be taken away.
Bitcoin’s Roller Coaster Ride
Long-standing cryptocurrency traders will likely recall the heady days of late 2017, when Bitcoin hovered briefly near the $20,000 level. That certainly was an exhilarating experience, but it wouldn’t last long.
Even to this day, there are financial experts who cite Bitcoin in 2017 as a textbook example of a market bubble. A year after Bitcoin peaked, the price reached a gut-wrenching bottom of around $3,100 in late 2018.
But as they say, after the rainstorm comes the rainbow. It wasn’t a quick trip to full recovery by any means, but at least 2019 was an improvement over the horrendous previous year.
Thus, Bitcoin started off 2020 above $7,000 – not a massive breakout by any means, but at least Bitcoin wasn’t plunging.
And then came Covid-19.
Chasing Cash
Interestingly, the onset of the novel coronavirus brought a broad range of asset classes down – stocks, cryptocurrencies, gold and silver, you name it.
Since Bitcoin was birthed in 2009, commentators sometimes speculated about whether Bitcoin would withstand a crisis event.
Some folks even predicted that Bitcoin would sharply increase in value during such an event. Yet, as it turned out, investors got spooked and cashed up during the onset of Covid-19.
As a result, this stock briefly plunged below $4,000 in March. The narrative of increasing cryptocurrency adoption seemed irrelevant at that point. Fearful investors sold everything but the kitchen sink in order to raise cash – but the faithful Bitcoin holders would soon be richly rewarded.
Mark the Milestones, but Fear the FOMO
After the panic-driven rush to cash subsided, the investing community rediscovered Bitcoin’s value as a promising alternative to U.S. dollars.
In late 2020, it was the U.S. dollar’s turn to get crushed. This, along with the increasing acceptance of cryptocurrency as a legitimate way to transfer funds and make purchases, catalyzed the Bitcoin price.
Crypto historians will remember December 2020 as the month when Bitcoin finally broke through the $20,000 resistance level. Not only that, but Bitcoin also breached $23,000 and soon afterwards, $24,000.
At times like this, calls for caution are rarely heeded. And yet, at the risk of being ignored or derided, I’m suggesting that we must remember what happened to price chasers and FOMO victims in late 2017.
There’s a reason I recounted Bitcoin’s epic journey in detail today. It’s only by knowing the errors of that past that investors can effectively navigate the future.
To borrow a phrase from Charles Mackay, let’s not get caught up in the madness of crowds with Bitcoin. This is a time to consider gradually adding Bitcoin to one’s portfolio, not loading the boat at all-time highs.
The Bottom Line
If FOMO is a disease, then caution is the cure. It’s tempting to go all-in on Bitcoin now, but that’s not advisable.
Instead, consider this as an opportunity to learn from history and make measured moves as Bitcoin’s bull cycle, built on sentiment and the dollar’s decline, could end anytime.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
