The cryptocurrency market is ultra-efficient, just like the stock market is. A major crypto-market event is coming, no doubt, but financial traders already know this. So, here’s a principle to remember: the last investor who shows up to the party always gets punished. Consequently, it’s too risky to buy Bitcoin (BTC-USD) now.
Market sentiment can change quickly. BTC-USD is falling due to the FTX controversy and SEC Chairman Gary Gensler’s stance on cryptocurrency. In what feels like the blink of an eye, investors are now overwhelmingly on the bullish side of the BTC boat. If you’re a contrarian investor like I am, you should understand that boats tend to tip over when too many people are on one side.
BTC Starts to Wobble in 2024
Don’t get the wrong idea. I like Bitcoin for the very long term, meaning a decade or more. It’s great that only 21 million Bitcoins will ever be issued (assuming the rules aren’t changed at some point). Hopefully, this should put a floor on the BTC-USD price because of the principle of supply and demand.
For the immediate term, however, the recent price action in Bitcoin may send a warning signal. In 2023, Bitcoin soared from $17,000 to $42,000 for a gain of around 147%. Then, it wobbled during 2024’s first few days.
Perhaps, the hype cycle is fading and buyers’ exhaustion is setting in after last year’s searing rally. “Volatility is increasing over the prospect of whether or not the SEC will approve a spot Bitcoin ETF,” explained Bartosz Lipiński, CEO of Cube, a cryptocurrency trading platform.
The ultra-efficient market may have gotten ahead of itself in pricing in the impact of an anticipated spot Bitcoin exchange-traded fund. “Markets were a bit overbought,” Lipiński observed, though I’d say the cryptocurrency markets were more than “a bit” overbought.
After ‘Buy the Rumor’ Comes ‘Sell the Fact’
The expected spot Bitcoin ETF approval is now front-page news in the financial headlines. It’s not even about one Bitcoin fund anymore. A report is now circulating that the SEC will approve multiple spot Bitcoin ETFs.
It’s dangerous when an asset’s price is already very elevated based on baked-in assumptions that haven’t actually played out yet. Consequently, I concur with JPMorgan Chase strategists, who recently said that they’re “cautious” on cryptocurrency.
Moreover, per Barron’s, the JPMorgan Chase strategists see a high chance of “buy the rumor/sell the fact” with cryptocurrency once the SEC approves a spot Bitcoin ETF.
Some crypto aficionados also expect the BTC-USD price to surge in 2024 because of the “halving” or “halvening” event in April. This event happens every four years, and it’s when the reward for mining Bitcoin is cut in half. As a result, mining activity is dis-incentivized and the growth of the available Bitcoin supply is reduced.
This, like the upcoming Bitcoin ETF(s), has already been baked into the proverbial pie. Efficient markets don’t sit around and wait for a known future event to happen.
Every trader wants to front-run the others. So, don’t count on the Bitcoin price automatically jumping every four years, right before the halving/halvening events. The financial markets, crypto included, aren’t that predictable.
Sell Bitcoin Before ‘Sell the Fact’ Kicks In
If you’re a contrarian, it should bother you when the media talks about “animal spirits” coming back. That’s a sign that too many people are on the bullish side of the boat with Bitcoin.
The cautionary tone of the JPMorgan Chase strategists is, I feel, commendable. It’s difficult to contravene the market’s prevailing sentiment. The time to buy Bitcoin was last year, but that’s old news now.
Bitcoin will still probably be higher in five or 10 years. For the immediate term, however, financial traders should take profits and prepare for a “sell the fact” drawdown event with the BTC-USD price.
