Cryptocurrencies have gone ballistic, led by Bitcoin. Consider that since October 2020:
- Bitcoin (CCC:BTC) exploded from $11,334 to a recent high of $41,993
- Ethereum (CCC:ETH) ran from $382.50 to a high of $1,339
- Polkadot (CCC:DOT) tripled from $3.04 to a high of $10.31
- Litecoin (CCC:LTC) soared from $49.77 to a high of $183.19
- Bitcoin Cash (CCC:BCH) surged from $251.98 to a high of $609.66
With that, it comes as no shock that fear-of-missing-out (FOMO) investors have piled in. However, be careful if you plan to join them.
While none of us want to miss any future rallies in Bitcoin, be patient and wait for confirmation before jumping in.
After exploding to record highs, BTC has become overbought. Even relative strength, MACD and its Fast Stochastic are telling us it’s overextended. At this point, it’s better to wait for confirmation of further upside before jumping in. The last thing any of us want to do is buy at the wrong time.
No Shortage of Crypto-Bulls
Bitcoin could run to $318,000, according to Citibank. Guggenheim is calling for $400,000. Skyridge Capital says cryptocurrencies could see a “tidal wave of institutional capital” as coins mature as an asset class. JPMorgan says the digital currency has emerged to rival gold and could hit a high of $146,000.
That, and FOMO has retail investors flocking to buy Bitcoin. In fact, according to Pantera Capital CEO Dan Morehead, users of PayPal (NASDAQ:PYPL) and Square’s (NYSE:SQ) Cash App have bought nearly 100% of all new Bitcoin supply entering the market.
Bigger Investors are Starting to Buy Bitcoin
Billionaire Paul Tudor Jones and Stanley Druckenmiller have both invested in Bitcoin, as a potential hedge against inflation. Institutions have been buyers, too. When you look at the rally, one of the biggest drivers has been the entry of institutional players.
We could see even more interest if regulators approved a Bitcoin exchange-traded fund (ETF).
Gary Gensler, a former public official with expert knowledge as a crypto academic, has been named as the next chairman of the U.S. Securities and Exchange Commission (SEC). As a professor, Gensler teaches blockchain technology at MIT Sloan and is also a senior advisor to the MIT Digital Currency Initiative.
In fact, a new BTC ETF application was just filed with the Ontario Securities Commission in Canada. Arxnovum Investments filed documents for the Anxnovum Bitcoin ETF just last week and could list on the TSX under the ticker BIT.U. In addition, two weeks ago, VanEck filed with the SEC to list the VanEck Bitcoin Trust. If approved, it would be another sign of institutional acceptance.
There’s Also Fear of a Bitcoin Shortage
At the moment, there is more demand for Bitcoin than supply.
According to MarketWatch contributor Anthony Scaramucci, about 900 new Bitcoin are mined daily. However, PayPal, Square, and the Grayscale Bitcoin Trust have been buying more than that volume of Bitcoin every day because of rocketing investor demand. Should that continue, Bitcoin prices could push even higher.
Be Cautious of Potential Pullbacks
While these are all certainly reasons to get bullish on Bitcoin, wait for confirmation of upside before jumping in at the wrong time. Remember, parabolic rallies in any asset are typically not sustainable. Quite often, they’re met with vicious pullbacks.
“While further growth is inevitable, investors should not expect this to move in a straight line,” said Gavin Smith, CEO of cryptocurrency consortium, Panxora Group, as quoted by Reuters. “The reality is that bitcoin is far from being a magic money tree, nor is it free from downward price swings. In fact, we can expect dips as sharp as 25% at times as investors periodically withdraw profits.”
Here’s the bottom line. While there are plenty of reasons to get bullish on Bitcoin, do it safely. Wait for the potential pullback from overbought conditions. Don’t get swept up by FOMO. The last time we saw a rally in Bitcoin, things didn’t end well for FOMO investors. I’m sure you remember watching BTC plummet from $16,995 in 2018 to a low of $3,495.
Just be careful with BTC. Nothing ever just goes up in a straight line.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.