When bitcoin hits a low price, we’ve come to expect two things: “bitcoin is dead” headlines splashed across mainstream media outlets, and epic surges in price. We know that “bitcoin is dead” is both a popular search trend and a story mainstream media outlets love to cover (again).
You’ll never believe how many times bitcoin has “died” already
Counting exactly how many times bitcoin has allegedly perished since 2009 offers something that long-term investors can’t get enough of… Perspective.
Before I actually tell you, take a wild guess – how many times has bitcoin (and by extension, the entire cryptocurrency marketplace) been declared dead? How many times have widely-respected news outlets like The New York Times and The Economist and The Wall Street Journal dolefully informed their readers that crypto is over?
Bitcoin has been declared dead a total of 461 times since 2009.. Last year alone, bitcoin died 47 times – despite hitting a new all-time high! These alleged fatalities are reported, on average, more than 30 times a year. This year has been no different.
What can we learn from this? The act of printing a “bitcoin is dead” article, no matter how influential your media outlet, no matter how many readers you have, doesn’t actually make it happen. Declaring the entire cryptocurrency marketplace dead on arrival simply isn’t a self-fulfilling prophecy.
Let’s call this the Monty Python rule…
Lest we forget, as Baron Rothschild, the 18th-century British nobleman banker, boldly declared: “Buy when there is blood in the streets.”
Contrarian investors love low prices
Contrarian investing means moving against market trends – selling when others are buying, and buying when others are selling. Warren Buffet’s famous dictum, “Be fearful when others are greedy, and greedy when others are fearful” probably encapsulates contrarian investing best.
Why? Here’s how Investopedia explains it:
Contrarian investors believe that people who say the market is going up do so only when they are fully invested and have no further purchasing power. At this point, the market is at a peak. So, when people predict a downturn, they have already sold out, and the market can only go up at this point.
Now, most people simply don’t have the confidence and the nerves of steel required to invest against market trends. It’s psychologically easier to buy assets when their prices are already rising. Maybe you remember the way everyone wanted to buy a bigger house back in 2008 (how’d that work out)?
The truth is, legendary fortunes are made by buying low and selling high. Unfortunately, most retail investors do the opposite. Which is why we aren’t all Warren Buffet-level rich.
“Wait a second – are you saying the lowest price of the year is a good thing?”
That depends on your perspective. Are you buying cryptocurrencies because you’re anticipating next week’s prices? Or next decade’s prices?
As Warren Buffett also said, “Our favoring holding period is forever.”
Mike McGlone, Bloomberg’s senior commodity analyst, recently shared an alternative view. McGlone’s said bitcoin’s $18,000-$19,000 price range is good. In the context of general monetary tightening and the widespread slump of asset prices, well, what else would you expect?
McGlone views bitcoin, along with U.S. Treasuries and gold, as a store of value rather than a risk asset. It’s hard to deny that the cryptocurrency market’s correlation with stocks has been overplayed to a staggering extent. This correlation was misreported at least as frequently as bitcoin’s alleged death.
Everyone with an eye on gold knows its price has developed what looks like a correlation in recent times. Does this mean that stocks going up or down determine how gold’s price will move? Or does it simply mean that investors are buying even during times of risk-on gains? And that during recessions, big investors are liquidating every asset in their portfolios, regardless of its price?
The last point does shed some light on why McGlone sees bitcoin’s price drop as a good thing, or more specifically, for whom it’s beneficial. We know that bitcoin has historically reversed and posted new all-time highs every single time it sold off in the past. (That’s not a matter of debate – it’s a matter of historical record.)
We also know cryptocurrency changes hands in a predictable manner. Smaller investors sell, and large HODLers buy. While the number of people with bitcoin addresses is growing year after year, the number of people owning significant amounts of bitcoin is undeniably dwindling. During every rout, even those who should know better and own tens or hundreds of tokens are selling. And those who already own thousands are thrilled to buy at discounted prices.
As supposedly explained by legendary banking magnate J.P. Morgan, “In bear markets, assets return to their rightful owners.”
As the market cycles, we can expect familiar scenery. Likely directly tied to when the Federal Reserve stops tightening, bitcoin will probably turn around and move towards a new ATH. This will undoubtedly be followed by more slumps and more ATHs. Even more significant, however, is the ownership consideration.
Despite what is an exceedingly clear trend, it seems day-traders and speculators just can’t stop themselves from selling despite current low prices. And with its hard-capped supply, bitcoin is one asset where availability is going to become a real talking point somewhere down the line.
This is what McGlone might be talking about, we’d imagine. To HODLers, bitcoin’s current low point means lots of selling and, indeed, lots of discount buying on their part. When the market reverses as it so often does and the media reminds us that crypto is the hottest asset class, HODLers will have even more bitcoin while sellers will presumably buy high (again) so they won’t miss out.
What is a market? It’s a battle between two perspectives: the short-term, driven by FUD and FOMO, and the cold-blooded long-term, informed by history and a thorough knowledge of market cycles.
Now, let’s not forget, both perspectives are valid! It takes two sides to make a market. Buyers become sellers, and sellers become buyers when prevailing sentiment clashes with rationality. Those of us who have a long-term perspective often use the popularity of “Bitcoin Is Really Really Dead For Sure This Time” headlines as a contrarian buy signal.