Do you own Bitcoins that you bought over a year ago and have forgotten about? You may have noticed that I haven’t said hardly anything about Bitcoin all year. When Bitcoin rallied a few months ago I got some emails asking about it and some of them were from people frantically telling me that I needed to buy and get into it, but I refused to say much at all about that Bitcoin rally.
I just wasn’t sure if it was real. There is nothing to judge what a Bitcoin is worth, because it doesn’t function as money and has no real value. Back in 2017 people were saying that it would create revolution with “blockchain,” but here we are two years later and there is no revolution and the “blockchain” has proven to be a fad much like Pets.com was in 1999.
Sure some people used the Pets.com to buy things and they had a customer base that found it fun, but it didn’t change the world as we know it. Banks have done things to make banking transactions easier so no one needs to use these crazy crypto “wallets” on shady exchanges that shut down and lose the money.
Now there is no doubt that Bitcoin went up a few months ago and as an instrument of speculation if you can buy it and make money more power to you. But I decided to look at a chart of Bitcoin now and see how it looks and it looks like a potential disaster is lining up again for people who bought into it again.
There are three observations to make from this chart.
1)Bitcoin did rally back above $10,000 but it has simply been drifting sideways now for weeks and if it closes below $9,000 it will make a confirmed top. That would signal a potential drop back down to $4,000 as all those that bought this summer sell in to the end of year to harvest tax losses.
2)This is a double top and in reality this Bitcoin chart is very similar to the way gold looked in 2012, before it rolled over into a new bear market. Now today in 2019 gold is rising and so is silver in a new bull market, but that was a big top in 2012 and Bitcoin is putting on a similar double top pattern.
3)Take a look at the correlation indicator measuring the price correlation between Bitcoin and the Nasdaq 100. This is the indicator on the bottom of the chart and it’s at 0.75, showing us that it’s price action is closely tied to the Nasdaq 100. Historically Bitcoin HAS NOT acted as a safe haven against the US dollar, because it does not trade opposite to the US dollar.
Bitcoin’s recent high preceded that of the stock market. In other words a surge of Bitcoin speculation was part of the recent stock market rally. Investors in the US who saw their investment portfolios go up and have a second small account for gambling type plays jumped in to Bitcoin.
But Bitcoin did nothing in August when the stock market dropped and got wobbly.
In fact we have seen a rush into safe havens such as bonds and precious metals in August, but Bitcoin did nothing. Bitcoin does not act as a safe haven, but as the most speculative element of the financial markets. That’s why it has such a close correlation to the Nasdaq 100.
In my view if you have some Bitcoins you bought back in 2017 or at any time for that matter now is a good time to sell and walk away from the crypto market forever. The smart Bitcoin player will sell and move that money into gold, silver, and mining stocks that are now becoming the play of the year.
Yes there is risk in all financial markets. I see the US stock market as risky from a valuation standpoint for one thing, but at least there is value in the US stock market. When you buy a stock you buy ownership in a company and can get dividends. It might be overvalued, but there is something there! When you hold on to crypto currency you own nothing but some currency someone printed out of thing air in a manipulated market. You’ll never get a dividend and you own no ownership in anything at all.
Never will Bitcoin or any other crypto currency supplant the US dollar as money and nor will they supplant the use of gold and silver in the world market either.
If you got some crypto coins with this year’s rally to $10,000 now is the time to sell the ones you bought and forgot about them forever. Even if it’s just $20 worth of “coins” that’s $20 you can use for something real! Take the $20 and go out to dinner. If you got hundreds of dollars or even a thousand or more in them use that to buy something working in these markets now. Take advantage of the Bitcoin bounce while the getting is still good. Don’t let the whales eat all of your money.
-Mike
