Are You STILL Strong Enough To Sell Bitcoin? (31 Jan ’18)
(This article was previously published on LinkedIn on 1 January 2018.)
The end of the first month of 2018, and the focus remains on bitcoin as prices trade almost 50% below the December high.
However, this pullback should not come as too much of a surprise.
Whilst everyday investors and speculators were in bitcoin’s thrall, the professional voices were advising caution.
The question to ask now is – ‘what comes next?”
Following the sharp fall, is bitcoin getting ready to turn higher once again? Or are we at risk of still further losses into the coming weeks?
My answer to clients is to expect further downside tests.
The chart below summarises the current technical picture.
Bitcoin is taking a breather.
Following the meteoric gains into the end of 2017, the recent sharp ‘pop’ lower has turned price action more cautious. Of course, people are looking to re-enter and buy once again. However, downside pressures are in force, suggesting risk of another slide in prices, before a more sustainable stabilisation period develops.
And this could be a good thing in the longer-term.
A fresh break lower would further reduce the speculative positions. It would also help to remove the ‘irrational’ investor psychology which has fuelled bitcoin’s gains.
The bitcoin rally has been fuelled by word-of-mouth. Yet, speculating in a market on a friend’s suggestion is generally a recipe for disaster.
As friends told me they were thinking of joining the bitcoin train, the words of my ex-boss from the mid 1990’s, Akis Karayiannis, were ringing in my ears.
At that time, I was a dealer’s assistant on the FX spot desk at Lehman Brothers in London. My immediate boss, (trading DEM/FRF), was moving the equivalent of USD5-6billion a day through his intraday book. With the positions this high and volatile, ‘Aggi’ was always nearby.
He pulled me aside one day, and told me something which has stuck with me since.
“If you have a view on the market, take a position and it loses, that’s the nature of the job. But, if you take a position because of something your friend said, even if it makes a profit, I’ll fire you!”
By repeating these words to friends, I was hoping they would appreciate how the professional traders were thinking, and cause them to think again before putting their own cash at risk.
It is this reduction in speculative trading which could ultimately help bitcoin. Reducing its highly speculative nature, and turning it almost ‘boring’, could lead to professional investors showing interest.
Not professional speculators – professional investors.
Rather than viewing it as a highly speculative instrument, it could gradually become a staple part of a balanced portfolio.
Looking ahead, it could even lead to a fresh asset class, sitting next to Commodities, Fixed Income, FX, Equities, etc. There is space for a Crypto asset class, but not until the speculative fever dies down.
For now, however, the market remains speculative, and the general public continues to see bitcoin as a means to ‘a quick buck’.
Are you STILL strong enough to sell bitcoin?