Is Bitcoin entering a “Sell High” phase?
The extreme greed that has seized the market makes it necessary to ask this question.
|Sylvain Saurel||Nov 14, 2020||2|
In the investment world, there are some golden rules. Among the best known, you have probably already heard these:
“Buy Low. Sell High.”
I don’t even know if we can talk about a rule because it seems so trivial. Yet many end up buying high and selling low. The main reason that leads investors to do this is the lack of control over their emotions.
Known to all, this rule is difficult to put into practice
“Buy Low. Sell High.” is something obvious in theory, but when you are caught in the heat of the action, you can get carried away by the FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, and Doubt) feelings.
Eventually, you will end up following the mass and no longer making decisions with your sense of logical reasoning. Your emotions will take over. It is at these times that you risk losing a lot of money.
Warren Buffett, who is one of the greatest investors of all time, often says this when asked about his strategy at Berkshire Hathaway:
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
The strategy followed by Warren Buffett fits perfectly with the trivial “Buy Low. Sell High.”.
The Bitcoin price has increased by +60% since September 2020
As I write this, the Bitcoin price has broken the $16K barrier. Its current price is $16.2K. The Bitcoin price has increased by more than 60% since the beginning of September 2020.
Since the beginning of the year 2020, the Bitcoin price is up +125%. Better still, since the most annual $3.8K hit in March 2020, Bitcoin has posted a price increase of +325%.
If I am talking about March 2020 here, it is because the situation we are currently experiencing is to be contrasted with the one we experienced at the time.
At that time, the coronavirus pandemic had just taken over the world, and we were experiencing a liquidity crisis. All the liquid markets were swept away by sharp declines. Bitcoin, the only truly free market in the world, was obviously not spared.
The current situation is to be contrasted with the “Buy Low” phase of March 2020
Within a few hours, the Bitcoin price had fallen by -50% from just over $8K to $3.8K.
Everyone was in a panic. The Bitcoin Fear & Greed Index logically reported extreme fear in the Bitcoin world at that time:
While investors were massively selling all their Bitcoins at a loss, it was the perfect time to “Buy Low”.
But at the time, very few people were able to see that. Panic outweighed logical reasoning.
Some Bitcoiners, however, were able to see at the time that the real reasons for the drop in the Bitcoin price were not related to Bitcoin itself. Bitcoin was swept away by the liquidity crisis. So there was no reason to panic.
If you believed fundamentally in the Bitcoin revolution, it was a sale season. In fact, that’s what I wrote at the time:
Like all true Bitcoiners, I was able to take advantage of this period to accumulate more BTC. Today, while the Bitcoin price is above $16K, the BTCs acquired in March 2020 appear to be extremely cheap.
With the current price of Bitcoin at $16K, all anyone is talking about is All-Time High which could be beaten in the coming days.
I’m one of those people who are extremely optimistic about the future of Bitcoin. I have written several times that I see the Bitcoin price reaching the million-dollar mark within 20 years for two main reasons:
The law of supply and demand.
The endless inflation of the U.S. dollar.
I maintain this more than ever.
Bitcoin seems to be entering a “Sell High” phase
However, I also feel that in the short term, we could very well experience a major correction. The market seems to be entering a kind of euphoria as shown by the Bitcoin Fear & Greed Index:
The last time this index was above 90 was at the end of June 2019 when the price of Bitcoin approached $14K.
Behind this surge, we had experienced a major correction until October 2020 when the Bitcoin price fell below $8K.
I hear some people say that this time it’s different. Maybe it is, but why should it be different this time?
The fundamentals have been getting stronger for several months now, I grant you that. All indications are that Bitcoin is entering a positive feedback loop that should bring its price beyond $20K in the long run.
However, the extreme greed that prevails in the Bitcoin world at the moment makes it necessary to remain cautious. It is very often at such times that the trend reverses abruptly and a correction occurs.
The moment we are currently experiencing may well be a “Sell High” moment. No one wants to see it, just as no one was ready to buy Bitcoin at the end of March 2020. However, this is what is likely to happen.
I don’t know if this correction will take place when the Bitcoin price reaches $17.5K or $18K, but I have a feeling that it will take place and we will fall further down to purge the market as we usually say. I don’t see Bitcoin dropping below $10K any time soon, and I don’t think it will go that low.
If you decide to adhere to this assumption of a future correction, you have to be cautious in several ways.
You must be careful and act with confidence in the future that awaits Bitcoin
You may decide to remain a Bitcoin HODLer no matter what. This is the best strategy available. It is the one I constantly recommend to new entrants. Under these conditions, don’t panic with your BTC purchased at $16K, $15K, or $14K.
They will become profitable again during the upcoming Bull Run in 2021. Don’t make the mistake of selling at a loss by panicking. Be strong and keep your confidence in Bitcoin.
For those who bought Bitcoin during the “Buy Low” phase of March 2020, the question of taking profits is totally open. If you choose this option, don’t take too long before taking action. You will be able to enter Bitcoin again after this correction.
This is not the option I prefer as a Bitcoin HODLer, but I have to say this for those who choose it. In any case, stay confident and continue to believe in the Bitcoin revolution no matter what happens in the days and weeks to come. In the long run, you will be greatly rewarded.
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