Bitcoin is back in a bear market – but don’t sell now

After its recent spectacular rise, bitcoin suffered a whopping great selloff that, technically, put it back in a bear market. But that doesn’t mean you should sell, says Dominic Frisby. Here’s why.

Bitcoin © Chesnot/Getty Images)

Bitcoin: what goes up, must come down. And then back up again.

"Buy the rumour, sell the news" is one of those old sayings you so often hear.

Old sayings, though, become old sayings for a reason: there is usually some truth to them.

"Red sky at night" does often mean good weather tomorrow it is something to do with dust particles, high pressure and stable air coming from the west, apparently.

The early bird does catch catch the worm the early hours of the day are often the most productive, and don't get me started on the advantages of being the first mover.

And so this past fortnight we have had another classic case of "buy the rumour, sell the news".

The market I am talking about is, of course, bitcoin

Bitcoin's mini-bubble

Bitcoin has had a pretty amazing year, even by its amazing standards. It began 2019 around $3,700. By February, it was down at $3,300. Four months later, by late June, it had more than quadrupled to $13,850.

(And don't say we didn't warn you buy, buy, buy we said.)

Yesterday it slipped beneath $10,000 down roughly 30% from its highs in little more than a week. Given that a correction of 20% is widely accepted as bear market, we are, therefore, back in bear market territory.

(My system hasn't yet called sell, by the way.)

So what's this all got to do with "buy the rumour, sell the news"?

Loudly accompanying bitcoin's rally this year has been this story that Facebook is about to issue its own digital currency, Libra. When it does, that is going to be incredibly bullish for bitcoin, was the argument.

Facebook's enormous network 2.4 billion users, so they say is going to get more and more people into the idea of cryptocurrencies. Then there's its Whatsapp user-base of another 1.5 billion, including several hundred million in India.

More and more people are going to be sending value across the internet and across borders, from phone to phone, just as they would a text. That has to be good for bitcoin.

And so, through the spring, the price crept up.

"Bitcoin passes $11,000 on news of Facebook's cryptocurrency plan," screamed The Guardian, when Libra was announced.

Craig Erlam, senior market analyst at financial trading firm Oanda, said: "Facebook's Libra has clearly been a catalyst for the recent surge. The publicity that the launch has once again brought to the space, combined with the legitimacy it offers, has understandably excited the community."

Excitement, excitement, excitement a mini bubble. The price spikes. And then what do we get a week after all the fanfares around Libra?

A whopping great sell-off.

It's as cut-and-dry a case of "buy the rumour, sell the news" as I've seen in a long time.

I'm HODLing onto my bitcoin

I'm not calling sell on bitcoin, by the way. Quite frankly the best way to play the bitcoin market, despite the enormous corrections it has seen I think it is now five corrections of 80% or more in ten years is not to sell. "HODL", as they say. You can be cute and catch a high, but timing the re-entry is not easy, and often you don't end up re-entering.

That said I have outlined a trading system, based on simple trend-following, on these pages before and that system has not issued a sell. It's a system based on weekly charts so I would not have expected it to issue a sell after just a week of correction.

So far, even my shorter-term system, also based on moving averages, has not yet issued a sell but a couple or three more days of whipsawing and we will get one.

I do think the bitcoin price is probably headed lower in the short term. There has been a little too much fizz in this market. But that does not necessarily mean sell I could just as easily be wrong. And we are talking about short-term movements.

Longer term, bitcoin could go and on become the default cash system for the internet. Or it could become the reserve currency for the internet.

I'm not saying it will. I am saying it could. And when something has that much potential, it is absolutely essential that you have a stake in it. The possibilities are too great not to. Even if Paul Krugman or Jamie Dimon don't agree.

We could very easily go back to the $7,000s or even the $5,000s. Who knows? We could just as easily go to $25,000. Remember bitcoin's record. The surprises are almost always to the upside.

PS, John here bitcoin and the future of money in general is a topic that will definitely be coming up at the MoneyWeek Wealth Summit in November. Don't miss it get your early bird ticket here now

Recommended

Bitcoin mania: private currencies are nothing new
Bitcoin

Bitcoin mania: private currencies are nothing new

The idea is gaining ground that bitcoin and the plethora of other new currencies are here to stay. But the existence of private currencies operating p…
15 Apr 2021
The days when you could get 7% from your bank are long gone – so what do you do?
Bitcoin

The days when you could get 7% from your bank are long gone – so what do you do?

With interest rates at rock bottom for so long, we’ve been forced to move from saving to speculating to earn any sort of return. Dominic Frisby asks w…
24 Feb 2021
Tesla buys into bitcoin in a big way
Bitcoin

Tesla buys into bitcoin in a big way

Tesla has spent over $1.5bn on bitcoin, driving the price higher, and says it will accept the cryptocurrency as payment for its cars.
11 Feb 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021

Most Popular

Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021