Several years ago when no one but those in the know were talking about cryptocurrencies, I practically begged a former InvestorPlace editor to allow me to write about Bitcoin (CCC:BTC-USD).
He must have thought I was nuts but deep down, I knew he was wrong – although I couldn’t say that at the time. Today, I have a more nuanced opinion about BTC, one that I really think deserves consideration.
Generally, I stay away from self-gratulation, especially when it comes to investment markets. Believe me – when you’re banking on speculation for validation, you’re going to have problems. But when you depend on other peoples’ speculation for validation, it’s a recipe for long-term failure.
That said, when it comes to the ebb and flow of Bitcoin and other cryptocurrencies, I’m the expert that went through all the phases except obviously despair and suicide.
Don’t get me wrong – I endured some dark moments with Bitcoin and the cryptocurrency complex. However, I made some fortuitous wagers earlier in the crypto narrative and they paid off very handsomely. I can genuinely say that this asset class unlike any other changed my life. Most conspicuously, I bought my home outright – and in a very desirable part of the U.S., thank you very much!
But that also implies that I mostly exited the Bitcoin train. And indeed, I have. Admittedly, I was premature in my exit plan. But the thing was, BTC changed my life in other ways and not for the better. During most of the crazy runup in the crypto market, I suffered from chronically high blood pressure. I couldn’t get over how stupid speculation made me a superstar, even though nothing about me fundamentally changed.
But I also knew that this ride could end in a heartbeat. Looking at the BTC price now, it looks like it’s about to.
Be Brutally Smart with Bitcoin
Looking at various advocate opinions in the blogosphere, I’ve arrived at the conclusion that incredulity caused much of the pain that Bitcoin holders are currently suffering. Primarily, you’ll hear the argument that major institutions are buying BTC. As well, you’ll come across the inflation argument.
With these two major catalysts working in favor of decentralized assets, how can Bitcoin collapse like this? Well, these two bullish arguments are critically flawed.
First, while it’s true that institutions have bought Bitcoin, you must also remember that they respond to shareholders. And I just don’t think that they have the warm and fuzzies over exposure to such a volatile asset. Thus, to avoid catastrophic damage, should BTC fall further, you can reasonably expect these institutions to dump out.
Second, inflation may not be the biggest threat to the global economy but rather deflation. Look at the dollar’s money velocity trend. Currently, it’s near all-time lows, while the U.S. employment level is down 4.5% from right before the pandemic. These are deflationary pressures, not inflationary.
But the biggest contributor to the present fallout in Bitcoin is market psychology. One of my recent ventures is to help build content for Blockster.com, an informational hub and community for cryptocurrency-related opportunities. In an article published May 13, I described how BTC jumped too far, too fast.
While I’ll let you read the granular details of my thesis – which involves explanatory charts – the main argument is that Bitcoin needs to build support at lower price thresholds before flying to higher thresholds. In other words, BTC needs to build the foundation first before addressing the ceiling.
Instead, BTC built a ceiling at above $60,000, while glossing through its previous high of just under $20,000. Of course, BTC will fall (eventually) because it didn’t establish credibility at $20,000, let alone $60,000.
Therefore, the smart play based on the science of market psychology was to progressively sell as BTC approached its peak.
Eyeballing the Incoming Lows
At time of writing, Bitcoin is trading hands at just under $37,000. If you’re curious where I stand, I wouldn’t be a buyer here even though it’s almost half off from its all-time high. Rather, my downside target is between $15,000 to $20,000.
Why that range? If you look at the charts for my story on Blockster.com, you’ll note that trading action is light in this particular spectrum. The way I look at it, BTC will establish credibility in this price range first, then slowly build the foundation between $20,000 to $40,000. From there, a six-figure target isn’t out of the question.
But it’s got to do the work first. And that’s why I’m not comfortable with adding cryptos to my portfolio at this time. Let the volatility play out; especially, let the major institutions dump out (which I think they will). From there, let’s talk.
On the date of publication, Josh Enomoto held a LONG position in BTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.
