Bitcoin’s Price Drop Not a Buying Opportunity

bitcoin's price

“Paul, what do you think of bitcoin?”

If you read my last article on bitcoin, you know that I believe bitcoin is real. However, the current mania for it looks unsustainable.

Now, bitcoin fans and owners are going to disagree with me. After all, how can you really argue with their success?

On December 31, 2016, you could buy a bitcoin for $968.23. At its high on November 8, 2017, it was at $7,879.06. That’s a gain of 714% in under a year! Astonishing, incredible and mind-boggling gains.

In other words, when it comes to the real bottom line — making money through gains — bitcoin owners have been right.

However, bitcoin has suddenly lost its mojo.

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A Sharp Pullback in Bitcoin’s Price

On Friday, the digital currency suddenly sold off and is now at $6,692.26. Then over the weekend, bitcoin lost more ground until it was down by nearly a third from its peak.

bitcoinchart

Now you might be thinking. Should you jump in now?

A Bad Reaction to Good News

Personally, I’d stay out and the reason why lies in what has unfolded over the last few weeks.

First, there was a fight between two groups over what the original bitcoin should be.

One group wants bitcoin to be a store of value like gold. The other wants bitcoin to be liquid and accepted around the world like cash.

This fight was to be resolved by splitting bitcoin. One version of bitcoin was going to be the store of value, while the other would be more liquid like cash.

Then suddenly on Friday, the split was called off. Bitcoin prices dropped on the news.

That came as a surprise to me. After all, no split means fewer bitcoin. And in the way I look at markets, fewer bitcoin means more scarcity and higher prices.

Instead, bitcoin continued to plummet through the weekend. And through the writing of this commentary, the cryptocurrency continues to be incredibly volatile.

I can tell you that this sequence of a rapid decline in bitcoin following what should have been seen as good news is always a bad sign in my experience.

The negative reaction usually indicates that the people who are buying bitcoin are full up. By that I mean that they no longer have more money to commit to buying. The lack of new buyers to keep pushing the currency higher leaves it vulnerable to a pullback.

If this is right, what you’re going to see over the next weeks and months is a continuing decline in the bitcoin price.

Running Out of Buyers

Now, that’s a different way of analyzing bitcoin. Most analysis that I read are about the system of how bitcoin should be produced, maintain, etc.

For me, when I look at any investment, the only thing that truly matters to me are two things:

First, I look to see if the price of an investment is going up.

Second, I look to see if the upward price trend is going to continue.

This is the essence of my GoingUpness system that I use to determine if I should buy anything.

And when I look at bitcoin today, it’s no longer going up. And worse, the pattern of price collapse following what is good news is indication that there aren’t enough people left who want to pay higher prices for bitcoin to keep it going up.

Bottom line: Bitcoin fails my GoingUpness system test. I think you should avoid it right now.

Now, even though I expect bitcoin price to fall, I believe bitcoin acceptance and liquidity will increase.

In time, when it’s more widely accepted, more liquid and less volatile, I believe it’ll go up and make new highs again.

Regards,

Paul Mampilly
Editor, Profits Unlimited

P.S. To hear more of my thoughts on the future of bitcoin, click on the video below.

  • Steve Jenks

    Paul,
    Like so many stock experts who comment on cryptocurrencies, you are off the mark. First you have to understand why the big run-up occurred in the first place. A crypto fork is not like a stock split. After a fork, the holder of the coin keeps the original coin and gets another new coin in the new crypto. Nothing automatically adjusts the price of either crypto as occurs in a stock split: the market decides the prices of each. There have been enough of these forks that crypto speculators are catching on: They get something for nothing and can sell it for something. As an example: It has been reported that a large, long term holder of bitcoin sold $5,000,000 of Bitcoin Cash right after the fork. That was five million reasons to hold bitcoin during a fork. From now on, when a fork is in the offing, people will pile into the crypto in order to take advantage of this “something for nothing” phenomenon.

    When segwit2 was called off (by a large consortium of miners), the reason to hold “excess” bitcoin evaporated. In fact, Bitcoin Cash became the golden boy of bitcoin-like coins, because it has substantially lower fees and better transaction times because the block size is 8 times larger. As a result, people voted with their feet and left bitcoin in preference to Bitcoin Cash, which caused the price action you noted.

    Paul, please announce when you finally decide to buy cryptos, because that will mark the beginning of the stampede of the masses getting into the crypto space out of FOMO.

  • Alberto Alvarenga Rebollo

    Bitcoin is a casino. Non FDIC insured. Non correlation between real money going into the system and how many bitcoins are in circulation. Then is expensive as a regular Bank because miners had being paid a total of $2,006,015,307.59 or 2 Billion dollars in transaction fees from 8/18/2010 to 11/23/2017. Total users after 9 years are only little more than 19 millions (wallets). The number of bitcoins in circulation reported by Blockchain Luxembourg S.A. is the same after the Fork and currently 16,697,588 bitcoins; and so how come all bitcoin owners can have double number of bitcoins? Total number of transactions as 11/22/2017 are 274,127,988 and so average transaction fee is $7.32. Average Total transaction fees per wallet is $105.40 (Total charged from 2010 to 2017). Add that AMD and NVDA stock prices had increased 10 fold in 2 yrs because of miners buying their microprocessors, and you see serious “banking fees” in Blockchain system.

  • Alberto Alvarenga Rebollo

    Bitcoin is a casino. Non FDIC insured. Non correlation between real money going into the system and how many bitcoins are in circulation. Then is expensive as a regular Bank because miners had being paid a total of $2,006,015,307.59 or 2 Billion dollars in transaction fees from 8/18/2010 to 11/23/2017. Total users after 9 years are only little more than 19 millions (wallets). The number of bitcoins in circulation reported by Blockchain Luxembourg S.A. is the same after the Fork and currently 16,697,588 bitcoins; and so how come all bitcoin owners can have double number of bitcoins? Total number of transactions as 11/22/2017 are 274,127,988 and so average transaction fee is $7.32. Average Total transaction fees per wallet is $105.40 (Total charged from 2010 to 2017). Add that AMD and NVDA stock prices had increased 10 fold in 2 yrs because of miners buying their microprocessors, and you can easily see serious “banking fees” in Blockchain system. You are right Bitcoin currently is exposed as a place to speculate with no real intrinsic value as stocks have (buildings, inventory, establish customer base, board and CEO you can analize, study, evaluate if dreamers or realistic goals, etc).
    Blockchain Luxembourg does not even control or know how much real money you have in your wallet as they explain to police officers and law enforcement:
    https://www.blockchain.com/legal/index.html
    Here the source of all data referred above: https://blockchain.info/charts
    Reading the Frequently Asked Questions of the New crypto currency “Bitcoin Cash” it is clear to financial analysts that a new scam has being created and Bitcoin has being abandoned basically:
    “Was the 1 MB block size limit causing problems for Bitcoin?
    Yes, In 2017, capacity hit the ‘invisible wall’. Fees skyrocketed, and Bitcoin became unreliable, with some users unable to get their transactions confirmed, even after days of waiting.
    Bitcoin stopped growing. Many users, merchants, businesses and investors abandoned Bitcoin. Its marketshare among other cryptocurrencies quickly plummeted from 95% to 40%.
    Does Bitcoin Cash fix these problems?
    Yes. Bitcoin Cash immediately raised the block size limit to 8MB as part of a massive on-chain scaling approach. There is ample capacity for everyone’s transactions.
    Low fees and fast confirmations have returned with Bitcoin Cash. The network is growing again. Users, merchants, businesses, and investors are building the future with real peer to peer cash.”
    https://www.bitcoincash.org/

  • Alberto Alvarenga Rebollo

    It is clear Bitcoin wallet users are speculators since after Japan government recognized the cyrpto currency as payment in March 31 2017, wallets increased from 13 to 19 millions or just 6 millions, and so the Japanese public has not agreed. Between 2014 and January 2017, the Chinese market made up around 90 percent of global bitcoin trading volume. Then China made illegal bitcoin and India will follow. The current race is made by Japanese speculators whom have seized 60% of the market.
    News Sources for above:
    https://www.forbes.com/sites/kenrapoza/2017/11/02/cryptocurrency-exchanges-officially-dead-in-china/
    https://blockchain.info/charts/my-wallet-n-users
    http://www.jinse.com/news/bitcoin/88005.html
    https://cointelegraph.com/news/bitcoin-price-surpasses-1000000-yen-as-japan-seizes-nearly-60-market-share