Bitcoin…is it worth the hype?

Many new crypto investors are coming out of the woodwork because Bitcoin is breaking out. The new excitement is fueled by anticipation of big news for a pending Bitcoin ETF approval in the US. This ETF will most likely happen and there are other reasons to be bullish on Bitcoin for the next 21 months. But if you were thinking of diving into the Bitcoin craze or already have, there is a few things to keep in mind.

Financial Markets are still unpredictable, and that certainly includes Bitcoin. While the outlook is promising, there is some danger, especially around that time when the ETF will launch, which could be as early as next week.

Bitcoin has become a global equity and people are jumping in because of FOMO, the fear of missing out. There are currently 13 applications pending with the SEC, from companies like Blackrock, ARK, Grayscale and others. The thought is that all these companies will massively buy Bitcoin when the ETF’s are approved. However, these companies have actually done that already, they use so called buffer accounts.

I think that there is a good chance that we will see Bitcoin spike at the announcement of the approval, but then retrieve shortly after. It’s called ‘buy the rumour, sell the news’. It promotes the idea of capitalizing on market movements by opening a position on a rumour, in anticipation of an announcement that could cause a shift in the markets. The trader will then close their position once the news has broken at a profit. Bitcoin has been up 160% for the last 12 month and is a good candidate for an event like that.

This could confuse some investors who thought that this is a sure thing and likely initiate more selling, which will put even more pressure on the price. But most likely, this will just be a temporary pullback, maybe to the current level or even below, but nothing more than that.

Another and much bigger factor to consider before investing in Bitcoin is the extreme volatility that comes with it. Bitcoin and many other Crypto Currencies have been trading on boom-and-bust cycles. Every few years there is a downturn that brings all the doubters out of the woodwork and sees bitcoin tumble down around 75% or more, 85% even in 2022.

Despite that, Bitcoin has averaged over 20% annually and outperformed everything else. It is now a global asset, and we have to think bigger than just the United States, their regulations and their approval of ETF’s. About 70% of the amount of Bitcoin in circulation hasn't moved in over one year, that's long-term holders and a sign that Bitcoin is not just a day trading subject anymore and that it will take less net new dollars to move the price upwards in the future.

Bitcoins concept and technology is hard to understand because it’s so different from everything else. Many who don’t understand, dismiss the asset as a scam, or a digital currency trying to take control of your financial life. Ironically it is the opposite of that. There is a reason that governments and central banks dislike it.

A very effective crypto strategy lately has been buying altcoins, which crashed even more than Bitcoin in 2022 and then rallied tremendously last year, and then invest the proceeds into Bitcoin. Solana for instance is up about 700% for the last 12 months and SEI, which was just launched in August of last year is up over 300%.

If you deal with crypto currencies outside of Bitcoin, Ethereum, Cardano, Solana and a few other main currencies, keep in mind that many of these other 20,000 crypto currencies are in fact scams. And while Bitcoin itself is not a scam, many who are in the business of selling it, are involved in questionable practices, caused by the lack of regulation.

Investing in Bitcoin or other cryptocurrencies can be rewarding, but is not for everyone. Cryptocurrencies are subject to high fluctuations in value. A decline in value or a complete loss are possible at any time. The loss of access to data and passwords can also lead to a complete loss.

If you decide to invest in crypto, it’s best to get a good understanding of it before you buy, but it is even more important where you obtain and how you maintain your crypto investment. You can also check out some of my earlier blogs about Bitcoin and learn about wallets and I’m of course available for any questions you may have.