Buy the Dip in Bitcoin If and When It Comes
In all, bitcoin prices are up more than 120% so far in the fourth quarter. If it were to close out the quarter right now, it would be bitcoin’s best performance since Q2 2019.
The latest performance is even more impressive, as bitcoin finally broke out over the key $20,000 mark. In 2017, the cryptocurrency was flying higher on hype and momentum. It started off the year near $1,000 and cleared $19,500 less than 12 months later in December.
Any move of that nature will get the public’s attention.
Now though, we’ve had a few years to let prices mellow out a bit, slowly drawing in real buyers with staying power. Better yet, we’re starting from a higher base. In 2016, bitcoin was only a few hundred dollars. It didn’t take long to get toward $20,000.
While 2019 ended with a nice ramp in prices, the cryptocurrency topped out near $13,000 before retreating and finding support near $6,500. That’s about 15 times higher than where it was trading in mid-2016.
Looking at the way bitcoin trades is actually an important observation. Like it or not, technicals play a role in the way many assets trade. That’s particularly true for bitcoin, in my opinion.
Why Does This Matter?
In many assets, particularly here in the U.S., there are a number of different ways that regulators and exchanges can impact the “flow” of the market. First, there are set trading hours. But there are also circuit breakers, day-trading rules, uptick rules and other considerations for trades to make before stepping into the ring.
The great thing about bitcoin is that it’s largely a “true market,” meaning it doesn’t have as much influence and noise in the way it trades. When bulls are bullish, they can drive the stock up. When sellers get in control, they can crush it down.
Bitcoin trades like a true market, and that’s great for investors — even though it can put you on an emotional rollercoaster at times. That’s not to say regulations are a bad thing, as they in fact bring legitimacy to the table.
Instead, all of this is to say that bitcoin’s technicals will continue to be a driver among buyers and sellers.
Bitcoin prices were under pressure on Monday morning, falling to the 10-day moving average where it quickly found support. I had been looking for a move to new all-time highs, which has recently been achieved with the surge to $24,000.
But as much as bulls love a runaway-train rally, a dip would be the most helpful to keep the longer-term move intact. Remember, we are here for the long haul, not a couple of weeks. A dip back into the low $20,000s would give buyers an excellent buying opportunity.
The Demand for Bitcoin Continues
A few years ago, there was a ton of skepticism surrounding bitcoin and other cryptocurrencies. Now, it’s becoming more accessible and more legitimate. Consumers didn’t know what bitcoin was. Many still don’t. But the education of cryptocurrency has continued over the years, and with more education has come more trust.
Companies continue to get involved in the cryptocurrency. For some, that means buying it outright and holding it along with its cash and equivalents. For others, we have some of the most reliable names in the business acting as a broker, allowing investors to buy and sell bitcoin and other cryptocurrencies.
These are the kind of developments we need to see in order to get more investors interested in buying bitcoin — and that’s what will continue to take prices higher. It helps when legendary investors like Paul Tudor Jones are championing the cryptocurrency as well.
The increasing financial aid from Congress, the Federal Reserve and various global central banks makes bitcoin and other alternative currencies another consideration. It’s why gold has also done well this year (although not nearly as well as bitcoin).
Central banks have had to take action against the economic impacts from the novel coronavirus, and there’s nothing wrong with that. But it weakens fiat currencies and strengthens other assets whose supplies cannot be magically raised overnight.
I don’t know how this all ends — no one does. But it’s likely that bitcoin will be there. Thus, we are buyers on the dip.
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On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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