Bitcoin, Entry Now $56k, Scary?

A friend sent me the above message today morning. Here’s my response.

BITCOIN PRICE UPDATE 22ND FEBRUARY 2021 ~$57K

I am NOT a certified financial advisor. This is NOT investment advice.

Another day, another week of bullish price movements. Bitcoin is almost up 90% since the ~$30k levels just in end-January.

Bitcoin’s Price In February 2021

And this is flashing in some of the technical analysis. The Bitcoin Profitable Days is back in red, the Golden Ratio Multiplier is above the Upper Bull High and nearing the x5 dotted line, The Pi Cycle Top indicator though not signalling the price top (happens when the red and the green lines cross) but is near that and the 200 WMA is light green / yellow.

However, would historic analysis of Zoom make sense of Zoom’s stock price increase last year?

Zoom’s Stock Price (US$)

Does historic analysis makes sense that Coinbase, the first US crypto exchange is filing for IPO around $100 billion valuation? Would historic analysis make sense for the famous 4 Facebook, Apple, Amazon and Google stock prices?

The world changed last year. We all moved to video calls and so Zoom’s accelerated adoption makes sense in the context of 2020.

The world also changed last year in terms of macro economics.

Governments, companies and households raised $24 trillion last year to offset the pandemic’s economic toll, bringing the global debt total to an all-time high of $281 trillion by the end of 2020, or more than 355 per cent of global GDP.

Source: World’s $281 trillion debt pile set to rise again in 2021, says IIF — Business Standard, 18th February 2021.

And this led 2020 to be the first year that institutions started buying bitcoin, worth $55 billion so far.

Source: Meet the 30 Private & Public Companies with Bitcoin Reserves Totalling Over $55 Billion — BitGo Blog

But this is only a trickle, it’s just getting started. Because no matter what opinion you have about Elon Musk, you have no choice to sit up and pay attention. On 8th February, 2021, bitcoin overnight became a mainstream financial asset when Tesla bought bitcoin worth $1.5 billion or ~7% of its $19 billion cash reserve.

And more money is being lined up. Both from old bitcoiners like MicroStrategy and new institutions.

“MicroStrategy Already Raised $1.05 Billion To Put Into Bitcoin” — U*Today, 19th February, 2021.

And this is not speculative money which will go in and go out. This is long term money, only coming into bitcoin.

But as a mental exercise, I want you to read this article: 10 Reasons I’ll Never Buy Bitcoin — an opinion article on The Motley “Fool”, 20th February, 2021.

What do you feel? Do you feel scared, insecure, unsure about bitcoin? Then build knowledge and conviction before you invest. That means you are only riding the price wave. You believe in bitcoin only because the price is currently going up. And you will lose all confidence in bitcoin if the price dips.

I want to quote some important lines from the book The Psychology Of Money which I think is critical to invest in bitcoin, especially at this stage of the cycle.

Page 142 On Price Volatility Of Investments

Disneyland tickets cost $100. Few felt the $100 was a punishment or a fine. Same with investing, where volatility is almost always a fee, not a fine. Market returns are never free and never will be. You’ll usually get what you pay for. The volatility/uncertainty fee — the price of returns — is the cost of admission to get returns greater than low-fee parks like cash and bonds.

Page 147 On Market Bubbles

Bubbles form when the momentum of short-term returns attracts enough money that the makeup of investors shifts from mostly long term to most short term.

And so I strongly advice that spend time to convince yourself that the market’s fee of volatility is worth it. The way to do that is to learn about the current monetary system of the world, get an idea of macro economics and then understand how bitcoin fits in.

The next is try and understand what percentage of the current price is because of long term vs short term mindset.

To answer the title of this article, the fact that this question is asked means one has not yet understood the long term journey that bitcoin is on. And so while an entry now at $56k could feel like a bargain to someone who has understood the potential of bitcoin over the next 10 years, it should be scary to someone who has not.

If you have been following me, I do believe that due to the unprecedented times that the world is going through, bitcoin’s current price cycle, cycle number 6 could be bitcoin’s super cycle number 1. The point before the S curve adoption.

My goal is to help you in this journey.