Bitcoin: State of the Market

There has been chaos in the bitcoin market recently. Have you been able to feel it?  Initially when covid began, both the stock and bitcoin markets dipped deeply.  But then soon after, governments began printing money and also artificially propping up financial markets.  The huge correction that we were destined to see, never happened.  In fact, we went on to break continuous new all-time highs in the stock market and also crypto market.  It seemed that you could simply pick any investable asset and the price would go up in value. But, as I mentioned before, that was artificial and that huge drop was potentially only delayed. Governments are now having to deal with the consequences of everything they did during 2020 and 2021.  The largest consequence has been greatly increased inflation.  In the USA to combat this increased inflation the FED has vowed to increase interest rates and also decrease the government's spending budget.  To put it simply, the FED or government will begin to make lending more expensive, lower their purchasing to prop up the financial markets and also stop printing money for Covid aid.  This has led the financial markets to panic resulting in a sell off of liquid assets to cash.  This is what caused bitcoin to drop under $40,000.

It's possible that bitcoin could dip further, but what should you be doing about it? Should you be worried, be more aggressive, or not even care?

The answer to the question above will greatly depend on what your own situation is and what your time frame is.  For those who are closer to retirement age, a huge drop in the value of their portfolio could be devastating.  While those who have quite a bit of time until they're planning to retire will have a lot more flexibility.  

Yes it is true that bitcoin dropped more than 20% since Christmas, and at the peak of this current drop was down nearly 40% from its all-time high price of $69k.  For many, that would lead them to feeling extremely worried, or doubting if we are in a bull-cycle anymore.  That also leads us to the next important question.  

Are we in a bull-cycle still?

No one knows the answer to this, including me.  This has been a cycle unlike any other most of us have ever experienced.  During most bull-cycles, bitcoin had to deal with only minor FUD, and also the price going hyper-parabolic with a large blow off the top in price.  Which would deliver us to a bear market and scare away retail buyers for years.  

But this cycle we have had to deal with extreme FUD.  For example FUD dealing with bitcoin's use of energy, Future's ETF, regulations by the USA, being banned from China, a mass shut-off of exodus of mining from China.  But most of all, bitcoin has had to deal with the market chaos that covid has brought on.  This also includes combating against inflation and spending budgets.  I have said it before, but in a normal year any one of those listed things would have ended the bull market. But, bitcoin has survived and has become stronger. That is incredibly bullish.  

My answer to whether or now we are in a bull-cycle is that you shouldn't even care.  There is a famous phrase in bitcoin, "If in doubt, zoom out."  Meaning that while the current dips may seem large and extremely bearish.  All you need to do is to zoom out on the price charts to see that in the grand scheme of things, this price movement is rather small.  The trajectory is still, and always has been upwards.  If you liked bitcoin at $60k and $50k, why wouldn't you like it at $42k?

Most people get caught up in the price highs that bitcoin is setting, but that isn't the important thing.  Actually new price lows is the thing that you need to be paying attention to.  Looking at the picture above, which is the history of bitcoin's price.  Sure the price highs are quite volatile and would have you potentially worried with how much the price has dropped.  But, looking closer at the price lows, you will see that this is still an incredibly bullish trajectory.  

So now that you see that the price is generally up and to the right that should eliminate a lot of the stress or anxiety that you are feeling.  Don't sell, you don't want to be the person that buys high and later sells low.  If you purchase using the dollar-cost-average strategy, there is nothing that you need to do.  You're already taking advantage of the price dips. On the other hand, for those of us with cash on the side, these are the golden moments that allow you to build a great portfolio.  Remember that bitcoin is now around 35-40% from its all-time high, which means that it is now quite cheap.  I do understand the frustration that many people feel.  Influencers will tell people that this dip is a great buying opportunity.  This leads them to buy the dip, but then the price continues to drop and then the influencer once again says to buy the dip.  During those times, remember to zoom out and you will know what to do.

As for me, I'm not concerned about the current fear in the market.  I would be ecstatic if bitcoin were to run up to $100k, but I would be just as happy if bitcoin were to go back down to $28k.  Each scenario brings great opportunities.  Years ago when I first entered the market, bear scenarios would have caused to be very anxious and worried. Perhaps even doubting why I got into the market.  But, being in the market for a few cycles will change your mindset.  Oddly enough, you become accustomed to the market chaos, and sometimes even welcome it.  

For those who are worried about the recent 40% price dip that we saw just look at the above picture.  During the bull market of 2017 we saw several large price drops, and two that were nearly 40%.  Even more recent, think back to the summer of 2020 which bitcoin dropped by 50%.  Bitcoin is extremely volatile. That is the price that we must pay if we want bitcoin to go to those extremely-bullish price predictions. My plan is simple.  I continue to do my dollar-cost average buying, but am also keeping cash on the side and buying those large dips.  Also, I continue to have my bitcoin work for me by lending it out and earning income from that as well. 

The point is this.  Bitcoin's recent price-movement might have a lot of people worried, stressed or even frustrated. But long-term, this will forgotten. Very few people remember those price drops during 2017 and just as few people will remember the price drops of 2020 and 21. People have been disappointed that bitcoin didn't reach $100k by the end of the year, or even higher.  Even I would have been happy if we reached it, but that is much too short-term of a time frame to have.  It doesn't make much different on whether bitcoin reaches $100k  in December of 2021 or June of 2022.

Have patience, perseverance, and continue to stack those sats.  It will be the best thing you ever did.

How about you? What are you thoughts on the current state of the bitcoin market? What's your price prediction?

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As always, thank you for reading!