Story by: Clem Chambers
A few days ago I wrote about bitcoin (BTC), which was in the middle of a classic crash. I gave several reasons why not to sell even though it looked like BTC was going down to $6,000.
One was: “Firstly, a change in the global situation could dramatically change the picture.”
That is what we got on October 25, 2019 – Xi Jinping, the Chinese president, used blockchain technology as an example of where China should focus on new technology as part of its economic progress. That is the accepted reason why BTC went from $7,500 to $10,500 in a few hours. The read through from blockchain to BTC is not a big leap of imagination and enough to have a lot of capital pile back into Bitcoin.
China is the driver of BTC or what they used to call the ‘Ax,’ the player that sets the pace. So when their President says ‘blockchain is good’ it’s a massive boost, especially when the Chinese state has been pushing back against crypto because of its ability to send Chinese funds abroad with the click of a mouse.
Meanwhile if China is going all in for crypto, where does that leave the ‘Libra phobic’ US quailing at the thought of Facebook eviscerating the dollar? Facebook is a big deal, but China is a bigger deal. The US will have to think about a 180 degree policy U-turn on Libra, if China is coming to town with crypto. The Europeans will have to get their game on too. With this potential BTC sits in the centre, the Nobel of this cyberwar.
This all sounds sizzly for crypto but forgetting all the jazzy narrative, what is an investor to do?
The investment first rule of this situation must be “Up like a rocket, down like a rock.”
I’m not saying that bitcoin will slump back, but this is what you should write in biro on your palm of your hand for quick reference when you get confused about the market tomorrow or next week and you need solid ground to brace yourself against as things get spicy.
BTC is extremely volatile. (I hope that’s not up for debate.) Which means a jump is not a singular event but simply an expression of inherent volatility with that volatility able to strike at any time in any direction.
Here is the chart:
Make no mistake, this chart is mad.
Now the key to understanding this market is to reach back into efficient market hypothesis. This states that you can’t time the market. This in turn means you can’t trade this madness if you want to come out ahead or even whole. You can try but unless you have something unique to back you up, you cannot call these moves.
As such I return to the mantra of buy and hold and buy the dip.
You have to think, I do not know where the price will be in a few days but I’m very sure in five years BTC will be a lot higher. Then all these moves are just noise.
Here is a chart of the noise:
Apart from the fact that you would need to spend your whole life lashed to your trading screen to actually be there for this move, it’s all but impossible to capture it when it happens.
Of course, if ‘intraday’ trading is your thing, you will remember this moment for a long time, but 50/50 it won’t be happy memories.
So enough grumpy old man warnings, what is up next for bitcoin?
It’s all about China.
Trade war off, BTC down. China going all in on blockchain, BTC up. The trade war factor is likely to be short term, the latter long term. The conclusion of the trade war could see BTC below $6,000 but China going all-in on blockchain could see BTC go off the dial. These factors will compete in the near term.
So one thing assured is volatility and the long term just took a big boost for China, because China is a big part of the global economy’s future and blockchain is a big chunk of their future, and that huge tide rolls directly into Bitcoin’s future.
So buy and hold bitcoin, acquire it and buy the dips. It works for equities and it will work for crypto.by