It is not bought, because the price has dropped. It is bought, because it is thought that the price will rise. The fund represents a definite change in sentiment and expectations. Has it bottomed out yet?
Declaring a fund on the spot is not one of the most prudent things to do. In fact, it is not the most sensible of adventures. The background is easy to see in hindsight. However, it is virtually impossible to see in advance. Of course, the idiosyncratic investor often suffers from irrational optimism. In other words, it is always bullish. By faith and conviction. So, everything goes down is interpreted as a temporary setback. Consequently, every downside is an opportunity to buy the downside (“Buy the dip”). That pseudo-religious bias is responsible for many unwise purchases. Because a fund is usually declared very prematurely. This illusion of certainty being sold on Twitter so often around Bitcoin causes many investors to lose a lot of money.
Those calls to buy the dip and all the hasty statements from the fund should be taken seriously. It’s not a matter of feeling a cosmic vibration out of the blue and suddenly buying impulsively on a hunch. Investors have Bukele and Michael Saylor as an example of what not to do. They both arrived very late to the play. Both bought expensive. Both are represented as protests of the cause. They both go around teaching their bad practices to others as sacred truths. Not a very good idea. Speculate with debt and other people’s money. Buy expensive and with false expectations. And invest in an idiosyncratic way, leaving financial aspects in the background. Not a very good idea.
- Bitcoin Price Outlook: 09/21
When the price of an asset falls significantly, it does not necessarily mean that the asset in question is cheap. Because what really defines “cheap” or “expensive” in an asset is not yesterday’s price, but tomorrow’s price. Many bitcoiners rely on the past glories of Bitcoin to speak of the future with iron security. However, you have to be very careful with that. Doubt usually leads us to advance and progress. While faith often leads us to ruin. If the price of Bitcoin tomorrow reaches $30K, then Bitcoin is cheap today. Of course, if the price of Bitcoin tomorrow reaches $15K, then Bitcoin today is expensive. The fact that over the past year the price of Bitcoin topped $60K and is much lower today is actually not very relevant to today’s prospective buyer.
The investor is forced to forecast. That is, buy with an expectation. Sell with an expectation. Because his profit lies in that difference between today’s buying price and tomorrow’s selling price. Thus, optimistic sentiments about the future are essentially bullish. And pessimistic sentiments about the future are essentially bearish. The bottom usually occurs during a sentiment turnaround. In other words, a definitive before and after is marked, because circulations have clearly and permanently changed. What really changes is our vision of the future.
Let’s not think about the price of Bitcoin in relation to its past prices. Now let’s think about the macroeconomic situation of the next year 2023 in relation to today. Will we be better or worse than now? Production, geopolitics, liquidity, employment, monetary policy, inflation, income, etc. What is the perception of investors around this difference between today and tomorrow? Is this an advance or a setback? Can we see a turn of sentiment?
- The Merge: bullish or bearish?
In relation to the future price of Bitcoin, the opinion of a committed bitcoiner is not as relevant as the opinion of the nobitcoiner. Why? Because future demand does not depend on those who have already bought. That demand depends on those who are yet to buy. What do they think of Bitcoin in the current circumstances? We must remember that it is not necessary for many to sell for the price to fall. The lack of buyers can cause a crash.
Bitcoin is very different from a company. In the case of a company, there are underlying assets and income. In the case of a company, you can talk about value and price as something different. Because the market price of a company, due to temporary circumstances, may be below its underlying assets and income. So, a long-term investor who has already bought at a good price can rest easy, because he knows that he will recover the investment from him. Sooner or later, thanks to the underlying assets and income of the company, a profit will be generated. And that profit does not depend on the market price in the short term. That is not the case with Bitcoin.
Bitcoin is a code in a computer network. And a code is an abstraction. They are numbers and letters. There is no intrinsic value. There are no underlying assets. There are no sales or income. What you have with Bitcoin is a monetary value. Because Bitcoin is nothing more than an exchange rate that is defined by supply and demand.
Who buys Bitcoin? Libertarians, anarcho-capitalists and conservatives are idiosyncratic buyers. They buy with a political agenda in mind. This is a very loud group on social media. Nevertheless, that group has already bought and is not numerous enough to bring the price of Bitcoin to the levels we aspire to. There are also the convenience users. I am referring to the gig economy, the gray economy, merchants, moneychangers, and remitters who use Bitcoin as a form of payment and as a non-banking solution to make transactions. This group adds a lot of volume. But This activity does not increase the price very much, because it is usually sold as often as it is bought.
- Latin America: Cryptocurrencies as a solution?
Of course, the most important sector for the price of Bitcoin is that of investors who buy for investment. This is the silent majority that buys Bitcoin for purely financial purposes. This group is not as tolerant of losses as the idiosyncratic bitcoiner group. This sector hurts your pocket. And putting bread on the table is more important than the number of followers on Twitter. This group is the king and lord of the Bitcoin price.
The casual reader looking for a definite yes or no to the headline question may be disappointed with this article. For more comfortable and simple answers, you can resort to Twitter and YouTube. There is always someone there willing to say what the others want to hear to get views.
Now, our current low of $17K (+/-) may have been our bottom. However, if that eventually proves to be true, we can count ourselves extremely lucky. Because, Given the current levels of volatility and uncertainty, a further capitulation due to lack of buyers would not be as unlikely as the bulls claim. In fact, it is not a bad idea to be prepared for such a scenario.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
- Bitcoin Price Outlook: 09/21
- The Merge: bullish or bearish?
- Latin America: Cryptocurrencies as a solution?