Before we discuss when is a good time to buy Bitcoin, we need to address the bigger question. Most people with whom I discuss the e-coin still call it fake. But Bitcoin is actually a thing — it is real enough to cost over $30,000 each. Where it came from doesn’t really matter, because it is here and millions of people covet it. It’s similar to gold, I say, and this is where I usually get the dagger-eye looks. How dare I compare this hogwash to gold?
Let’s say an alien visits our planet and comes across a gold nugget and they toss it in a lake. Any human walking near them would freak out. But if asked, we’d have a hard time justifying why this yellow rock is worth more than so many other ones. The answer is simply, people love it and it’s rare. Therefore people assign it its high value. Sure it has its uses, but are they enough to justify its $1,850 per ounce price?
That’s exactly the situation with Bitcoin. There are many people on the planet who love the king of cryptos and want to own it. In fact I’d argue that it’s even rarer than gold because there is only a set number of them. Imagine what would happen to gold prices if we found out that there is no more of it in the ground.
From that perspective, BTC stock is perpetually going higher. It will have bad stints (like gold) but eventually they will buy the dip.
Another topic that always comes up is the perceived evil of its uses. Because it cannot be tracked, people say it facilitates crime. To that, I suggest that for centuries cash has been the easy way to transact for crime. In fact cash is pretty much untraceable. Thieves, counterfeiters and murderers use cash for their transactions. So that’s not a problem that Bitcoin started. It is electronic and all data is traceable to a degree. I think the confusion comes from the fact that it is not regulated.
And therein lies its best quality. This is the reason Bitcoin soared now into astronomical highs. Governments can’t affect its value.
Why Bitcoin Is a Safe Haven Where Wealth Hides
Now that we agree that Bitcoin is real and it’s not nuts for it to have value, we can discuss the validity of owning it now.
It has outperformed every other asset class for years. Timing entries into it has been tricky because it is volatile. It moves in big waves, and it’s not unusual for it to drop 40% for no apparent reason. But remember, gold crashed in 2011 and took a decade to recover. Bitcoin recovered a lot faster.
So far the bulls have been correct and they keep calling for much higher prices. I can’t disagree but I will try to keep my opinion of it ground by using technicals on the chart.
This has served me well for picking good entries in Bitcoin. They are not surgical because of how fast it moves. However, they have been great guides to avoid easy mistakes. I used the cues from the charts to forecast this most recent super spike it just had. I watched several triggers, especially near $10k and near $12,400 that launched the mega-spike. The bears had no chance — it was off to the races.
Now it is in the process of retracing some of the upside. This is a normal price action. This is where those who missed the rally have the opportunity to participate. There might even be opportunities to buy it closer to $27,000 per coin. If we are lucky it would revert to lower breakout lines near $18,000 or $14,000.
This will take a lot of patience but that’s the only way to avoid chasing a stock too late. Sometimes it’s okay for traders to admit that they’ve missed a rally. Investors, on the other hand, can add a little at far-apart increments and they’d do well in the end.
There is also the matter of what’s going on in the U.S. dollar. The greenback has been falling for months. It could be stabilizing here and that could put a lid on the prices of gold and bitcoin.
The Central Banks Are Killing Cash
I am not a perma-bull of Bitcoin, and the extent of the rally was bigger than I thought. But I have been suggesting to own it and gold for over a year for a very specific reason.
Central banks, including the U.S. Federal Reserve, are actively destroying cash. It can no longer hold value so I suggested using gold or Bitcoin as alternatives. The Fed and the European Central Bank, to name two, are in perpetual quantitative easing mode and to infinity. The federal government just released another $2 trillion in stimulus. Remember when a billion was a lot of money? Now we use the word “trillion” like it’s nothing.
Yes, the economy needs help but we’re dumping the cash in the wrong areas. Mom-and-Pop stores across the U.S. are dying by the thousands. These are the entrepreneurs that risked it all to open a restaurant or a salon. Now they are not even allowed to open their front doors for clients. Those are the people that need help (not loans).
Instead the government is making it rain cash into the hands of the people so they go out and spend. The problem is that they no longer “go out” but they “click” to spend it. There’s a huge disconnect and as a result the value of cash has gone down precipitously.
The only way to store wealth is by owning assets like Bitcoin that governments cannot affect. If I buy a little bit at a time, in the long run I will be just fine. This thing is rare and people are not going to stop wanting it anytime soon. This is a formula for increasing value over time. Everybody needs a little Bitcoin as part of their net asset value.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.