Why is the price of Bitcoin rising? The main driver behind the latest hikes is thought to be the banking crisis. On the one hand, some feel that bank collapses strengthen the narrative of Bitcoin as an alternative system. On the other hand, liquidity injections carried out to avoid panic exert upward pressure on the markets. In other words, Bitcoin, as a result of this situation, has managed to find many buyers. You could say that we were given the miracle.
If we take the last minimum as a reference, obviously, it is an extremely important rise. An increase of almost 100% in such a short time is not anything. I must confess that, at the end of last year, personally, I did not find this scenario as the most likely. It would not be an exaggeration to say that this has taken more than one by surprise.
The big question: What now? Will we have a 2020 or a 2019? During 2019, we obtained 6 months of continuous increases motivated by the supposed launch of the Facebook Libra (now Meta). This release never happened. But the expectation served at the time as a great motivator. For 6 months, we had something to say. And, precisely, that is what is required to arouse the enthusiasm of the markets. We must remember that this is essentially a speculative market. What people are actually buying is an expectation. If a lot of people think that the price is going to go up, the price goes up. As simple as that. This market meets its own expectations. The engine of speculative markets, basically, is promotion.
However, making forecasts, in the midst of so much uncertainty and volatility, is not an easy task. Well, forecasting is relatively easy. LIt is difficult to get those forecasts right. In such exceptional times, what is likely is not always what happens. And any forecast must be based on probabilities.
Investing is not necessarily a matter of being right. In fact, it is a matter of strategy. It is true that we bought before a bullish forecast. But that does not imply that we must place all the eggs in the same bet. You also have to cover the risk. In other words, at the same time, we must be prepared in case of obtaining an unfulfilled forecast. How to predict the banking crisis? How to know that the market in this opportunity would react in this way?
What we must do at all times is manage risk. What to do in such complex times? If we buy at a bad time, we can lose money. If we don’t buy and the price goes up, we miss an opportunity. We can be extremely objective when making our predictions. However, it is a mistake to place all our trust in our predictions. Because, deep down, no one is a fortune teller. Markets very often fluctuate capriciously. Or put another way, our strategy must assume that we are wrong.
Now let’s reflect on another phenomenon. I want to talk this time about unrealized gains and unrealized losses. In other words, more words, less words, about the great short-term volatility of Bitcoin. The militant bitcoiner tends to be bullish at all times. For the militant, the rises are permanent and the falls are temporary. So the seller is some kind of traitor. And the buyer is an enlightened genius. This bullish bias (driven by ideology) can produce hikes, at the right time, under the right conditions. Retailers, motivated by a narrative, in conditions of thin liquidity, can increase the price considerably. But that momentum is not always sustainable. In other words, Just as the price can go up very quickly, it can also go down. Unrealized winnings can be erased in no time. That fact is too often forgotten during periods of greed.
False expectations have the same power to generate gains as the most accurate expectations. But this tends to be true for shorter time frames. That is, an annual forecast is not necessarily valid for the next week or the next month. Which implies that we can be pessimistic for the end of the year, but optimistic for the next week.
It is perfectly possible that next week’s demand will be higher than today’s demand.. But at the same time, we can be more conservative in our year-end forecasts. What is the difference? The data. Liquidity for the second half of the year could be less than the current one. What happened, for example, in 2019. We had a very good first semester. And then we had a very bad second semester. Losses in the second half wiped out gains in the first half, despite initial optimism. In the end, we got a pretty mediocre year when comparing the first day of the year to the last. That’s not to say that volatility didn’t play its part in the intervening months.
HoweverIf the consensus is right and we owe the current upward momentum to the banking crisis and the injections of liquidity from the bailouts, it doesn’t take a genius to figure out what a temporary impulse is.. That is, once this circumstantial problem is solved, buyers could get tired. Therefore, we could experience a blur of profits.
What do we need to achieve a 2020 instead of a 2019? In my opinion, we need better macroeconomic conditions. Specifically, we need a twist in monetary policy. Well, that’s actually not entirely accurate. The prospect of an eventual reversal may be enough. The anticipation of a turn around can serve as an excuse to keep buying. Otherwise, investors may feel the need to take profits early.
Buyers need a story to buy. And that story needs to be able to sustain enthusiasm for more than a few months in order to break the all-time high of the previous bull cycle and beyond. People willing to buy at $70K must believe that the price of Bitcoin can exceed $100K and higher. Do we, at this time, have the conditions for it? Frankly, not yet. But short-term volatility is not ruled out. The price in the short term can fluctuate in different directions quite unpredictably. In other words, the most sensible thing to do is to act very cautiously, because anything can happen here.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here 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.
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