I love that Bitcoin (CCC:BTC-USD) prices have been stalling a bit. In the investment world, that’s called consolidation and it’s very healthy price action.
When the price of virtually any asset goes on a big run, it corrects in one of two ways: through time or through price. Should it correct via price, it usually results in a sharp pullback. Even if the pullback is short-lived, its velocity can be tough to stomach.
However, should an asset correct through time, it usually results in boring, choppy action as the price trades sideways for a while. For traders, this choppiness can be frustrating. For investors though, this sideways action is called a base, and bases are healthy.
It’s building the launchpad for its next move higher and that’s what I believe Bitcoin is doing.
Trading Bitcoin
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As fun as it would have been for Bitcoin to rally in an uncontrolled fashion — say, by screaming higher to $100,000 — it would have likely ended badly for investors. Instead, we want firm yet controlled moves to the upside.
Have a look at the chart. Notice how shares bubbled just under $20,000 for about a month. This was a key extension (the 161.8%), but also near the prior all-time high from December 2017.
When Bitcoin finally topped out near the end of that year, it had a massive run. And, again, that run was fun for investors. However, it was an unsustainable run that eventually ended in misery. We are trying to avoid that this time around.
Anyway, notice how it bubbled below $20,000 before igniting higher in December. It didn’t take long for Bitcoin to climb to a new high of $42,000 before the end of the year. Amid that rally, the cryptocurrency rallied in 20 of 25 sessions after the breakout occurred. It ended on a rally consisting of 11 daily gains in just 12 sessions.
Bitcoin gave the bulls a nice dip to the $29,000 to $30,000 area and the 50-day moving average. It responded well, with buyers stepping in and eventually pushing it back over downtrend resistance (blue line).
Now we wait. This was a dip to buy and I believe that Bitcoin will resume in the direction it was heading before its consolidation. A move above the current high at $42,000 will put the $43,000 to $45,000 area in play next, followed by $49,000 to $50,000.
Why We Like Bitcoin
Investors can get into all the different Bitcoin theories and bull cases they want. That includes talking about the blockchain and using Bitcoin to buy your morning coffee. All of that is fine and well, and I enjoy those arguments as well.
But the simplest and the best argument for Bitcoin isn’t some new and impossible-to-understand technology; it’s good ole supply and demand.
Simply put, there is only so much Bitcoin to go around. Unlike U.S. dollars or other paper currencies, Bitcoin cannot be manufactured out of thin air. The supply is not adaptive to meet demand, like currency or oil.
So when we have limited supply and growing demand, the price can only do one thing and that’s go up. Now in order for prices to continue to rise, demand must also continue to rise as well.
Back in 2017, the industry was a bit younger and more inexperienced. News headlines talked about the dangers and shady use of Bitcoin, while crypto exchanges would sometimes go bankrupt overnight or have a hack and lose a significant portion of its holdings.
It’s different now. We can buy Bitcoin on a handful of well-known apps — like Cash App. There are Bitcoin futures being traded on legitimate exchanges. Robinhood offers crypto trading, while Coinbase is gearing up for a massive IPO.
What I’m saying is, access to Bitcoin has never been easier or safer and it’s only getting better. All those people who wanted to buy Bitcoin but couldn’t are now gaining access and that’s only going to drive up demand.
However, the real kicker could come from the companies.
A handful of companies have started to accumulate Bitcoin as part of their “Cash and Short-Term Investments” holdings on the balance sheet. One even plowed a bulk of its holdings into Bitcoin, then raised funds to buy more. The timing couldn’t have been better.
But this isn’t just hype. If just a sliver of companies put a portion of their cash holdings into Bitcoin, it could be a serious driver for demand. Maybe that’s wishful thinking, but with interest rates virtually non-existent, there are only so many places to put one’s money. If corporations take this route, it could be a huge catalyst for Bitcoin.
On the date of publication, Matt McCall held a position in Bitcoin.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
