I’m often asked about my thoughts on Bitcoin.
And those who are asking typically don’t like my answer.
Cryptocurrencies are not an area of my focus, so I tend to avoid giving any recommendations.
However, I’ve always believed that Bitcoin will become an integral part of our future societies.
The issue I’ve had has been the price.
Like other assets with little to no intrinsic value, such as gold, for example, Bitcoin’s price depends more on investing trends and sentiment rather than anything else.
And, since the 2017 peak, cryptocurrencies have been viewed quite negatively.
On one hand, many people lost money after the bubble popped. This was an uncomfortable experience for them, of course, and they’ve since avoided the asset class. Besides, the roaring stock market was far more attractive in comparison.
On the other hand, the economy was doing well, inflation was low, and money printing was on the decline. There wasn’t much concern about the fiat currency. Remember that Bitcoin enthusiasts believe that cryptocurrencies are the next step for our monetary system.
However, all of that has changed since the advent of COVID-19.
The Bullish Outlook For Bitcoin Is Improving
In my view, money-printing is not something we should be welcoming with open arms.
Unfortunately, it has proven to be an effective way to battle financial crises and so has become the favorite tool of central banks in recent times.
So, it didn’t come to me as a surprise when central banks around the world resulted to such measures in response to the coronavirus-induced recession.
What came as a surprise, however, is the unprecedented sums of money they decided to print.
In the United States alone, the amount of dollars in circulation increased by 16% since February.
And with the Fed chairman Powell saying that they’ll keep the foot on the gas until jobs return, this is likely just the beginning.
Whether this will have the desired effect remains to be seen. But one thing is certain—it has once again spurred doubts about the stability of our fiat-based monetary system.
Not to mention that with trillions of U.S. dollars entering into circulation, one starts to wonder about the real value of the greenback.
And whenever issues like these emerge, investors start looking for alternatives… especially those without links to any government.
Until recently, gold was the only obvious choice. Now, of course, we also have Bitcoin. And the demand for both has picked up significantly once the feds began printing.
Bitcoin, for example, is up by about 130% since the March lows. This is important news for bulls since it was such high returns that have drawn many people to cryptocurrencies during previous rallies.
But perhaps more crucial is the fact that current Bitcoin investors are mostly the die-hard fans. 62% of the owners have been holding the cryptocurrency for over a year, which is one of the highest statistics on record. Meaning, the typical speculators are yet to return.
Of course, there are also some risks.
Consolidation Phase Not Over… Yet
The largest risk at this point is that the recent rally could just be the result of stimulus checks.
We saw that many Americans spent that money on stock speculation, and I’m sure that some of it also went into Bitcoin.
In which case, once the checks disappear, the rally could end.
Another thing that worries me is the technical picture. Bitcoin would have to break above $10,500 to officially enter a bull market. For now, we’re still in the consolidation phase, so the price is just as likely to turn to the downside.
So here’s what I recommend.
Watch For These Two Buying Signals
For now, I think the best course of action is to be patient and stay on the sidelines a bit longer.
Long-term fundamental certainly favor Bitcoin, but downside risks are not to be underestimated. Therefore, I suggest waiting for the price to send a better signal.
If it breaks above $10,500, then this is most likely the start of a new bull rally that could see Bitcoin reach new all-time highs. That’s when you want to be a buyer.
If, however, the price declines, then a better entry point would be near $6,000. Over the last three years, Bitcoin has rebounded at that level many times, so I would also be confident investing at that point.
All in all, this could the moment those who missed the first two bull markets were waiting for.