If you are just getting into bitcoin and crypto, you have enjoyed the elation of a small bull market, which translates to a pretty big bull market in traditional finance. Bitcoin has risen from $11k to $16k in the past month, a gain of around 45%, give or take.
Don't get too happy. Bitcoin has the ability to dump just as dramatically. We have probably made a floor around $11k because entities like MicroStrategies and Square have the excess capital to hold the price, but take this to heart: You will probably wake up to see double digit dips in your portfolio if you stay in crypto long enough.
But that would be an unrealized loss unless you sold. Should fear of a flash crash that would represent a total disaster in the stock market keep you from investing in bitcoin or altcoins now? I'll give you my perspective.
The August Altcoin Bull Run
If you bought your first bitcoin in September, you barely missed the altcoin rally that happened immediately previous. In August, other crypto coins like Polkadot, Chainlink and Band enjoyed huge gains over the previous months, hitting yearly all time highs in some cases. Just as quickly, they dumped all of those gains and more in September. September was a sideways month, then big daddy bitcoin decided to wake up and took ether (ETH) with it.
So September bitcoin holders are happy. But August altcoin holders are sad. That's the volatility of crypto, which should teach us all a valuable lesson about having a strong hand. Crypto is more volatile than traditional stocks, but crypto follows the same patterns as the stock market. Bull runs tend to erase the losses before them, especially because crypto is a baby market. The risk is still quite asymmetric even if bitcoin and altcoins experience a retracement bigger than the last altcoin correction.
Bitcoin Will Retrace
It's almost a guarantee that bitcoin will retrace back to US$14,000 or so before continuing on its march up to US$20,000 (hopefully not before the end of the year; here's why). Technical analysts and chart watchers would say that this is because bitcoin has been trading well above the top Bollinger band and must come down to retest it. I prefer a simpler explanation Dash I just know that bitcoin can't go straight up for too long. So if you were lucky enough to get in at $11K and now you're seeing a 45% return, either take your gains or prepare for a pullback in the next few weeks.
People without this information for those who made their first purchase of bitcoin at, say, $15K, may experience some negative emotions during their first crypto pullback. For their sake's, I hope they do not completely pull out of the market or look at crypto as a scam just because they recorded some unrealized paper loss. If you look back in crypto history on Twitter, you will see countless comments of people famously regretting a purchase of bitcoin after a pullback only to watch it skyrocket later.
A Little Crypto History
You'll also see plenty of Twitter posts of people thinking they were geniuses because they bought at $5 and sold at $8. If you're going to get in on bitcoin and crypto in general, you should know that we are in the very early stages of what will probably be the next technical, political and social revolution to bring humanity forward. You shouldn't think of selling out of anything for the next 3 to 5 years. The bull market that will probably occur sometime in 2021 will be nothing compared to the total market cap and price range of the same investments in 2024. Unless you are a professional trader with plenty of experience and time to follow chart patterns, it is best to buy in and hold until we see crypto gain mainstream adoption.
At the point where the crypto market cap begins to rival that of the stock market, you can begin thinking about a serious sale. Right now, the stock market outpaces crypto by about 90X. Do you really think that productivity in the traditional stock market is outpacing productivity in crypto by 90X? (Hint: No.) The bottom line is that any bull run that occurs between now and the end of 2021 is not really a bull run. It is only a beginning. $15k is nothing for bitcoin, and neither is $11k or $20k. Think long term.
