Recently a JP Morgan analyst stuck his neck out to make a price projection for bitcoin at $150k.
You might think that’s extreme, given bitcoin started at zero only a decade or so back, but it’s actually conservative to other forecasts.
Anywhere from 300k, all the way up to …. $1million.
I know what your thinking – jeez I can’t even afford to stump up enough cash at the current price, let alone 150k for some future purchase.
With bitcoin CFDs, (even micro accounts) you can have exposure to this potential explosive upside.
I hate price predictions usually.
It’s too easy to let greed get the better of you when targets are at moon shot levels.
However, I can’t help but be intrigued at these hyper bullish forecasts.
Why on earth would any rational person set a price target of $1million?
It beats the hell out of me – so let’s try to figure out some of that in this post.
Institutionally driven rally
This new bitcoin bull run feels different from the last.
I wrote a post on that one here.
It was fuelled by amateurs, want-to-get rich-quicksters, buy-at-the-wrong-timesters, and crypto-is-suddenly-going-to-change-the-worldsters.
It was a disaster waiting to happen – and it did.
But while that last bull run was fuelled by amateurs, this latest one so far appears to be made of different stuff.
It’s based on fundamentals.
It is based on institutional buying.
It’s based on reduced supply.
Let’s take Paypal.
Paypal, as a company are doing some amazing things these days.
So often shunned by e-commerce vendors and consumers for being inconvenient, they’re now a pretty cool company.
This is what there CEO Shulman had to say about bitcoin.
I think that there’ll be more and more use cases for cryptocurrencies,” that make bitcoin more widely accepted, more stable and probably “more valuable” over time.
Paypal has walked their talk.
They’ve opened a crypto service for US account holders, with plans to roll it out elsewhere in the future.
Let’s be clear here.
PayPal offering crypto services is a watershed moment.
In the same way, the GLD ETF was for the gold market in 2004.
But Paypal isn’t the only company entering the bitcoin space.
Payment company, Square has used some of its corporate cash to invest in the coin.
Then there’s software company, Microstrategy.
CEO Michael Saylor has been quite vocal about bitcoin. Saylor has made some astute investments in the past, he’s far from an idiot.
Then there are hedge fund wizards like Stanley Druckenmiller and Paul Tudor-Jones who are also long bitcoin.
With these two legends backing it you’d be mad to not at least think about it.
Is bitcoin money?
The first commercial bitcoin transaction was to buy pizza – at 10,000 BTC.
That’s one expensive pizza at today’s bitcoin prices!!
In the early years, BTC was the domain of gamers, computer nerds, cryptographers and a few sophisticated drug dealers.
Early adopters saw bitcoin’s future as a medium of exchange.
In the same way, the dollar is, or sterling or the euro is.
But commercial transactions using bitcoin are low and trending lower (though the Paypal service may help to reverse this).
Mediums of exchange need to be widely accepted, and a few cyber-punks buying gaming credits is hardly going to herald in a new currency regime.
Another way to view money is as a store of value.
Gold is a store of value.
It has stood the test of time.
The first gold coins were used 2500 years ago, bitcoin can’t even come close to that longevity.
Whether a store of value or mediums of exchange, both need to be relatively stable.
Yet, bitcoin volatility is off the charts.
So no one quite knows what sort of role bitcoin plays.
It’s got aspects of money, but it’s also got new components.
The fact it removes the need for cumbersome financial clearing and settling via the blockchain. That’s a big reason right there.
But as Michael Saylor says, maybe it’s just going to be one helluva an inflation hedge.
This is what Druckenmiller and Tudor-Jones see too.
As short-term traders though, we don’t need to get wrapped up in deep economic whys and hows.
All we need to know is that company treasurers, large investors, and payment processors are getting into the crypto space.
Bitcoin vs gold
One thing that saddens me with the emergence of bitcoin is, without doubt, it’s taking money away from the gold market – for now at least.
I have a soft spot for gold. Always have always will.
But physical gold needs to be stored and incurs fees.
If you were to move large shipments from one place to another that would cost a nice chunk of change.
Bitcoin is stored in a digital wallet.
And can be moved around the world in next to no time.
Bitcoin supply is capped at 21 million coins.
The supply of gold increases by 2% a year give or take.
Gold can also be faked.
Note the recent news out of China, where gold bars made of copper and tungsten, entered the financial system and were used as collateral on loans.
A joke among gold bugs is it would take an alchemist to turn lead into gold for the metal to lose its shine.
That’s likely impossible given the laws of the universe.
But the advent of bitcoin is a sure threat to the gold market.
Bitcoin’s a young upstart – and many gold bugs are rightly wary.
I’m wary too.
But to ignore a potential market, out of blind loyalty to a different one is not the way to make outsized trading gains.
Here’s an interesting CNBC video between Anthony Pompliano and Peter Schiff.
I think Peter Schiff is a legend.
But he’s one of the most vocal bitcoin bears there is.
I think he’s wrong – to a point. Still, the video is well worth watching and making up your own mind.
Blockchain, the technology used for cryptocurrency has the potential to revolutionise the world of business.
It’s not surprising this era is being called the fourth industrial revolution.
One of the coins with the brightest future is Ethereum (ETH).
It’s ‘smart contracts’ can solve many problems in the world of trade and logistics, where there are reams upon reams of documentation.
Many crypto assets have a utility that bitcoin ironically doesn’t have.
But it was the first. It has the best infrastructure. It is the most liquid. It’s a proxy on the whole crypto space.
Bitcoin is the Dow Jones industrials of the crypto world.
Easy recognised, and a relatively safe bet compared to lesser-known coins.
It’s taken investors time to get used to bitcoin
In 2017 it was viewed with suspicion among many, myself included.
Remember this though.
There is a whole army of younger analysts, investors, and traders, as familiar with bitcoin as with mobiles, the internet and duck-face selfies on Instagram.
It’s only us folks who knew a world pre-internet, who are wary.
As time goes on, these younger folk will be the head analysts, and even chief investment officers at the institutions with the money to invest in this asset class.
2020 will go down as one of the craziest years on record.
Global shutdowns of large parts of the economy have left the world in tatters.
In many respects, even the Great Depression can’t compare.
One of the outcomes of governments lockdowns has been unlimited amounts of money thrown at flagging economies.
On the monetary side, large QE purchases have added to central bank balances sheets.
On the fiscal side, governments have increased their debt load exponentially.
It’s not pretty what’s going on.
Fiat currency is being debased and treated with contempt.
Politicians (to justify their jobs) are indebting us all.
Is it any wonder distrust for central bankers and politicians is at an all-time high?
While central bankers use complicated and failing monetary policy, the monetary policy of bitcoin is simple.
There will only ever be a supply of 21 million coins.
Bitcoin exchange-traded funds
At some point, there will likely be one.
Think about it.
Institutions want in on bitcoin. Hedge funds, pension funds, have a responsibility to their investors.
Imagine the thought of having to store all your hedge fund’s crypto assets on someone’s digital wallet or handy drive?
Even worse, imagine losing the encryption key to all of that?
It’s hardly professional, is it?
The GLD gold exchange-traded fund was set up for mainstream investors to get exposure to gold – without having to worry about physical storage.
The same will most likely happen for bitcoin.
I’d say it’s a given
Either bitcoin will be banned or will go mainstream.
And in the US, with so much infrastructure now in place for crypto assets, chances of it being outlawed grow lesser by the day.
Better to control it’s through regulatory oversight – in the way of an ETF – than let it go underground.
And with the advent of an ETF new money will push the price even higher.
Bitcoin price action
As more money floods into BTC, price action will eventually become more stable and less volatile.
The large range expansion characteristic of current bitcoin price movement will lessen, and the ease of ten-baggers r multiple trades may disappear.
Liquidity affects the way price moves.
In liquid markets, there are enough participants transacting at every price level which results in lower volatility.
In less liquid markets, price discovery is erratic.
This is what leads to the large-ranging moves.
Bitcoin’s a dream to trade, with the strategies I discuss on this blog.
Readers already know of my preference for Harami Inside Bars.
But what happens if you can’t spot any of them?
If bitcoin was a normal market, I would wait patiently for setups.
But with such potential in this market, the fear of missing out is strong.
Fortunately, there are other methods to trade BTC that fit with the Tradeneophytes style of trading.
Below are two examples of pivot highs.
These patterns are three bar patterns, with the middle bar higher than the bar left, and the latest closed price bar to the right.
Using the high of the middle bar as resistance you’d place a buy order a few points above that high.
Trading three-bar pivots gives you more options than just trading Harami Inside Bar patterns alone.
If you recall I wrote a post on the Pivot High Inside Bar.
You’ll find many of these on a bitcoin chart.
The other three-bar pivot pattern is when the latest price bar makes a lower low than the low of the middle bar (the first pattern in the above diagram).
Again you’ll find many of these on the bitcoin chart.
Short-term CFD trading with bitcoin
In the above video, Peter Schiff makes some valid points against bitcoin.
He keeps returning to the thesis bitcoin has no intrinsic value.
And suggests if all you’re looking to do is buy an asset with explosive upside, regardless of intrinsic value, why not just buy lottery tickets?
He makes his point well.
And its certainly true many crypto HODlers dream of riches, merely by flipping their crypto assets on to someone else.
This is called the greater fool theory – there’s always someone more foolish to buy at higher prices.
But is this wrong?
Don’t all investors want to profit from price appreciation?
Of course, they do. Even the legend Warren Buffet.
Peter Schiff is a deep value investor, who likes to hold for the long-term.
Traders like myself (and maybe even you) are totally different.
Our goal is to make money trading short-term fluctuations.
And so yes, if there was a market in lottery tickets, traded on margin and with superior technicals, I’d be one of the first to trade em dammit.
My point is, as speculators it doesn’t matter what either the Schiffs or Pomplianos think.
Fundamentals matter to us only in as much as they help propel markets higher, farther and quicker,
Great bull markets have great fundamentals.
But they don’t have to.
Manias and bubbles, where valuations don’t make sense at all, are some of the best markets to trade albeit short-term.
So do we really care if bitcoin has intrinsic value or not?
If money keeps flowing in, why not trade it?
There are many thoughts on the future price performance of bitcoin and why. But let’s face it, nobody really knows.
Some are hyper bullish, and I hope they’re right. But we needn’t worry should Peter Schiff turn out right either.
Hopefully, you’re not a blind HODLers – deer in the headlights, with no exit plan.
To me, bitcoin’s a trading instrument nothing more nothing less. And so long as there’s extreme price volatility in it, I for one will be trading it.