"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.
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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 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
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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