DCU - Bitcoin Caution (14th Aug '17)

Bitcoin is setting new highs, peaking at $4,338 today, up nearly 29% this week alone. The rally is showing no signs of slowing, and as one Tweet I read earlier said "$5k seems like a two-foot putt from here."

$5k is looking promising and should it reach that price it may turn into a battle for it to hold. Remember, nobody knows what will happen, what my gut tells me is either one of the following:

  1. A big sell off at either just before or on $5k as targets are hit, and investors liquidate profits. This may take some time to recover, depending on how big the price traces back.
  2. A price acceleration through to $10k. While this may seem like a ridiculous jump, $5k is likely to create a considerable amount of mainstream and financial news. We already have more and more news about crypto specific hedge funds. I can see more traditional institutional investors diverting investment funds into Bitcoin and Crypto. Also when a market accelerates the last jump tends to be the biggest.

    A $5k Bitcoin will also mean a market cap of $83bn, and I can also see a push through to a $100bn market cap. Another milestone which will draw wider attention to Bitcoin and Crypto.

There is also the significant risk of a crash. The current move feels similar to 2013 as the price increases are accelerating. When the crash comes, I don't know, but it is very likely some crash/correction will happen. Every major Bitcoin move has been followed by a significant pull back.

If you see the chart below for the YTD, you can see the price gains accelerating. This will not go on forever, and it is unlikely that when this run ends it will smooth out to trade sideways. What goes up, must come down, the question is how far down it will go.

Whatever happens to Bitcoin it will have a knock on effect with the rest of the market:

  • When Bitcoin moves up rapidly, it takes liquidity away from altcoins. Alts perform better when Bitcoin trades sideways.
  • While Bitcoin is growing steadily, it provides a significant opportunity to make money from altcoins as investors look for cheaper per unit coins and massive growth opportunities.
  • When Bitcoin crashes, it takes the whole market down.

I feel stuck in the dilemma of what to do in a fast growing market as fear is setting in. I have a duty of care to my own life to ensure my trading strategy can continue to support a lifestyle of owning my time. A market crash will hurt this. My risk profile is therefore different. 

As such I am doing the following: 

  1. Sticking to my strategy of selling off my 5% for 25% religiously to ensure I am holding Fiat if a crash comes.
  2. Consolidating my coins so that I can react to a changing market with more speed. 
  3. Looking for new coins which provide an excellent opportunity for growth. 

Corrections like June/July I can handle. Corrections present a growth opportunity for smart investors. Bear markets are a different story. I've never traded a Crypto bear market and don't have a defined strategy for it. The tricky thing is even knowing if it s a bear market or a short term correction. 

I am starting to see signals which give me a reason to be cautious: 

  • Accelerating Bitcoin price moves
  • +1,000% moves in some altcoins
  • Volatile price movements in altcoins

A harsh reality of Crypto trading is most traders measure performance in their local currency as this is where they trade out to benefit from their gains. Yes, some are investing for the long term, but significant gains present lifestyle change opportunities. In a volatile market, conditions can change very quickly. 

Maybe I am over cautious; maybe there isn't too much to worry about, maybe we are on our way to a trillion dollar market in the next three years. I hope we are. I'll ride that plane with the rest of you, but I want a seatbelt and a parachute, even if I have to pay more for it.

In other news, NEO continued to make further gains. It appears I sold out two positions on this early and missed out on up to an additional £35k of profit. I have accepted this without too much regret as I have made good money on NEO, I still hold a good position, and I am becoming stronger at trading without emotion. It sparked an idea for an article I wrote this morning about how you can trade Crypto without giving a fuck.

The altcoin market has taken quite a battering today. This could be a couple of reasons:

  • As I have said before, when Bitcoin is rallying then altcoins suffer as money is going into BTC
  • Altcoins cooling after quite a rally
  • Early signs of a looming correction

If you look at the two charts below for total global market cap and total global market cap excluding Bitcoin, you will see that the total global market cap is on the rise, but the total market cap for altcoins has dropped for the last two days. 

As such, my gut tells me total growth is stable, but the signs are there that if we continue to grow at the current rate, we will be at risk of another correction. A correction I don't mind, corrections are healthy, if a correction turns into a long bear market, then I will need to review my strategy.

I hope that Bitcoin does slow down and trade sideways for a while to give my altcoins a chance to grow. I would like to get to the end of August without any major volatile movements to plan my trades for September.