With Bitcoin down more than 25% from its peak earlier this year, is now the time to flee before it collapses further?
September is historically the worst month of the year for trading. Billions of dollars in leveraged longs are being liquidated as worrying economic indicators raise the likelihood of a recession. Hundreds of millions of dollars in “historic” outflows hit Bitcoin ETFs for days in a row. Analysts warn that Bitcoin will fall to as low as $40,000 when it trades at $54,000. Talkers who hyped up a Bitcoin bull run a few months ago now say there are no catalysts to push the price higher this year.
Panic is reaching higher levels, negatively impacting Bitcoin and the cryptocurrency market. Sentiment is so low that influencers have changed their titles from “Get Rich” to “Get Lost.” No wonder the Fear & Greed Index is hovering at its lowest level this year.
If you think Bitcoin is bad, then you are definitely going to be miserable if you hold Altcoin. Times like these make Bitcoin Maxis look like genius, while Altcoin are generally called "shit coin". The Ethereum ETF has been declared a failure. Pump.fun has withdrawn millions of dollars in degen funds, and leveraged losses have absorbed most of the rest. Multiple high-cap Altcoin such as Dogecoin, Avalanche, Cardano, Chainlink, and Polkadot have given back their huge gains from earlier this year.
Why it makes sense to be skeptical
Today, skepticism about Bitcoin and the wider cryptocurrency market is understandable. Wall Street was supposed to be unleashing a flood of capital, and Bitcoin luminaries like Cathie Wood and Michael Saylor were throwing out their million-dollar predictions. The halving has already happened, and based on history (which always repeats itself unless it doesn’t), Bitcoin should be trading at or near its all-time high.
Presidential candidate Kamala Harris has threatened to raise taxes and manipulate prices, suggesting her team may not be friendly to the economy. In addition, the current administration (Kamala is Vice President) has launched a predatory attack on the US cryptocurrency market, attacking cryptocurrency exchanges, NFT platforms, and other decentralized applications after suffering huge losses from Ripple and orchestrating a multi-billion dollar fraud by Sam Bankman-Fried and other cronies.
We all feel like we're getting poorer. Personal savings rates are near record lows, credit card balances are at record highs, and the government can't seem to report any economic data accurately. Inflation is supposedly down, but it's hard to know when you buy anything or pay a bill, and it seems like everything is going up.
As retail cryptocurrency investors, we face several problems:
We feel poorer because we are poorer.
We are used to getting hope from influencers and analysts, and now they are spreading fear because only greed or fear can get clicks and views.
Bitcoin is now approaching its last line of support, after which it could suffer another sharp drop.
Why Now Is Not the Time to Give Up on Bitcoin
I’ve written six paragraphs explaining why it’s smart not to buy or sell Bitcoin right now. Now, I’m going to explain why that thinking is short-sighted, wrong, and dangerous unless you’re a short-term thinker.
I could discuss how the amount of Bitcoin on exchanges continues to decline, how Bitcoin is trading below the short-term holder realized price (a historically bullish indicator), or point out Michael Saylor’s massive Microstrategy purchase or the continued accumulation of Bitcoin by Mr. 100. I could also dive into how the Crypto Fear and Greed Index has historically been a contrarian indicator, and how Donald Trump’s presidential victory brought massive capital inflows to risk assets.
In fact, I could highlight multiple other bullish data points and talking points to support why Bitcoin has huge buying potential right now.
But I won't do that.
I’m going to make a simpler argument. The Fed is changing direction. Below is the simplest and most accurate chart of when the price of Bitcoin is accelerating. The blue bars indicate when the money supply of major economies (US, China, EU, and Japan) is increasing. You’ll quickly notice that when the money supply is not increasing rapidly (red circles), Bitcoin exhibits a sideways or falling pattern.
Meanwhile, the price of Bitcoin rises dramatically when the printing presses start up. After two years of shutting down the printing presses, the Fed may turn them back on, and other central banks may follow suit.
When money printing is in full swing, you will want to hold Bitcoin. This is because of Bitcoin’s inherent deflationary structure. While an infinite number of dollars, yen, euros, and yuan can be printed, the number of Bitcoins remains constant. Money printing causes two things:
As Bitcoin is (wrongly) labeled as a risky asset, more fiat money flows into Bitcoin.
More and more ordinary people are beginning to realize that the current fiat currency system is manipulated, and Bitcoin can protect them from currency devaluation.
Some different ways to look at the market
Sometimes when my portfolio isn’t performing as well as I’d like, I try to use metaphors to calm the nerves. Here are some alternative ways to think about the state of the Bitcoin and cryptocurrency markets today.
Imagine you are heading out on vacation and you are stuck in a traffic jam. You know the traffic will get better someday, but you are not sure when. You wouldn't cancel your trip and go home just because of the traffic jam, would you?
If you are betting on a sports team, what will happen? The team you are betting on has an 85% chance of winning. If the team you are betting on is trailing in the third quarter, do you bet on them to lose the game or cancel your bet on them? Or do you increase your bet based on your confidence that they will win?
Good things are hard to come by. If you want to build muscle, you have to rip off the old muscle. If you want to be the best at something, you have to face painful losses and overcome adversity. Holding Bitcoin is not always easy, but it will be extremely rewarding in the long run.
Key Takeaways
If you are feeling scared, worried, or stressed about Bitcoin and the cryptocurrency market, it is completely understandable. As discussed, there are many reasons why you might feel this way, and our environment influences our thoughts. Giving up on Bitcoin is what Wall Street and the Bitcoin moguls want you to do. Since they own so much wealth, a drop in Bitcoin price represents a buying opportunity.
If you invested in Bitcoin for short-term profit, now may be the time to exit. It is important to understand “why” it makes sense to hold Bitcoin. If you are not familiar with the fundamental reasons for holding Bitcoin, it is easy to get spooked and leave the market too early.
On the other hand, if you recognize that as the money supply expands, the price of Bitcoin will also increase, and that we are entering a phase of money supply growth, then now may be a good time to load up or accumulate more of this scarce asset.
If you think it makes sense to hold Bitcoin right now, please clap. Or, if you don’t, please share in the comments why it doesn’t make sense to hold Bitcoin. Thank you for reading.
I own Bitcoin and a Bitcoin ETF. This information should not be considered investment advice. I am no more qualified to give financial advice than I am to win a hot dog contest. Digital assets such as cryptocurrencies and NFTs involve risks, so you should always do your due diligence before investing.
