It wasn’t that long ago but in terms of price differentials, we might as well be comparing different millenniums. In December of 2019, bitcoin was trading in the neighborhood of around $7,000. Aside from the dip courtesy of that little inconvenience I call the novel coronavirus, that was it. If you wanted to get onboard the bitcoin freight train, it wasn’t getting any cheaper.
Indeed, once it broke through the five-digit barrier after the pandemic struck, that was the signal to get in at a “reasonable” price. Of course, reasonable is a relative term. About 13 months ago, it took a true contrarian to buy BTC knowing that in the aftermath of the cryptocurrency bubble circa 2017, the original blockchain reward token was once trading hands for a little over $3,000.
Since that time, bitcoin has been the toast of town, securing a remarkable ten-bagger. Shortly after it breached the psychological resistance barrier of $20,000, it continued to add to its record-breaking rally. Before long, it was hurtling toward $30,000 — and no, it wasn’t going to ask for an invite.
Technically, the crazy heights we’re seeing now were forecasted several months ago. On Dec. 19, 2019, I wrote that while the volatility in the bitcoin price wasn’t encouraging on a near-term basis, over the long run, it appeared to be charting a bullish flag formation.
To summarize, this is a horizontal consolidation phase where bulls and bears negotiate until an “exhaustion” point. Typically, at the end of this phase is a robust breakout move to the upside.
Turns out, what I should have said was that bitcoin was charting a bullish pennant formation. It’s a similar concept: bulls and bears negotiate until the high-low spread funnels into an apex point. From there, the asset price explodes higher.
But now that bitcoin has already made such a strong move, what can we expect next? That’s where the fundamentals come into play.
Low (or Negative) Rates Are Good for Bitcoin Too!
One of the perplexing dynamics of the Covid-19 crisis has been the apparent disconnect between Wall Street and Main Street. Amid terrible statistics of job losses and an eviction crisis — an issue that Washington keeps kicking down the road — the stock market has been doing nothing but booming. If you just looked at the situation from the outside, it wouldn’t make a lick of sense.
But it does — albeit in a sick, twisted way — when you factor in nuanced economic data. Presently, the benchmark interest rate is at multi-year lows, which means investors are making next to nothing sitting in cash. But the real interest rate (or the interest rate backing out inflation) is actually negative.
You know what that means? Basically, you pay the bank to hold your money. I like to think of it as a “guaranteed penalty” if you don’t do something with your money. On the flipside, if you do end up doing something with your money, you’re rewarded (i.e., the bank pays you to take out a loan).
It’s weird. But it has tremendous implications for bitcoin.
What we have found out with the Robinhood effect is that collectively, people are more rational than we give them credit for. As CNBC reported, many Americans used part of their coronavirus stimulus check to trade stocks. And of course they would — with rates going negative, there was less incentive to stay in cash.
Further, this era of cheap money fits perfectly into the millennial mindset. As smart marketing materials consistently tell you, millennials are seeking convenience, not staid rigidity. Well, what is Wall Street but rigid with its Monday through Friday schedule? Don’t even get me started about how inconvenient it is for people on the west coast to trade stocks.
With bitcoin and other cryptocurrencies trading 24/7 — yes, even on Martin Luther King, Jr. Day! — you couldn’t have a more convenient platform to avoid the negative interest rate penalty.
Buy Away According to Your Risk Tolerance
Although I believe that bitcoin is a high-conviction bullish trade, I’m not 100% sure, obviously. My personal target for 2021 is $50,000. While I can’t tell you exactly when this price will be met, if it gets there, it will be a wild ride.
Therefore, if you’re new to this arena, don’t wager more money than you can afford to lose. In this market, going up 15% and dropping 10% can occur within the same hour. You think I’m joking, but I’m not.
As well, the recent calamity with ripple gave us all a reality check. Sure enough, Uncle Sam has been watching the proceedings very carefully and he wants his share of the pie. Though I’m not sure if government bodies can do anything — at this point, it seems Pandora’s box has been opened — you never want to say never.
Ripple was making big waves until the Securities and Exchange Commission (SEC) had a thing or two to say. And that set off an avalanche of what I’ll briefly summarize as horse manure.
Again, I think the economic foundations incentivize movement into bitcoin, particularly for millennials. But please be careful as this is a brutal market.
On the date of publication, Josh Enomoto held a long position in BTC and XRP.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.