Our mailbag lit up this week with questions about bitcoin. “What’s going on with bitcoin?”
To put it simply, this is what bitcoin does. It goes through these amazing growth periods, during which it rises in value dramatically. Word spreads, and eventually FOMO (fear of missing out) takes hold of the market. People bid up prices significantly, thinking they may not get another chance to buy this low. The price eventually corrects, and bitcoin takes a breather for a few days. That’s what just happened in a broad sense.
But we also have some major upcoming catalysts propelling this new bull market. If you’re a regular reader, you’ll be familiar with these. But for those who are new here, we’ll go over them again.
The first major catalyst is the bitcoin halving, which will occur in May 2020. After that date, half as much new bitcoin will be coming onto the market, and the inflation rate will drop to 1.8% per year. This has been a huge price catalyst in the past, and it’s one of the reasons I’m incredibly bullish on bitcoin.
The other major catalyst, of course, is institutional investors finally coming into the market. All of the institutional pieces are coming into place. Fidelity Digital Assets is opening its doors to some of the biggest institutional investors on the planet soon.
The previous bull market cycles were all driven by retail investors (you and me). Now big firms are coming into the market to play too.
A Brand-New Bull Market
Most importantly, bitcoin has entered its fourth major adoption and growth cycle. The previous one, which started at a low of $164 in 2015, ran up to nearly $20,000 in December 2017.
The cycle before that one, which started at around $2 in October 2011, saw bitcoin’s price soar to $1,142 in November 2013.
The first cycle, which was before any real bitcoin exchanges existed, went from roughly $0.05 in July 2010 to $24.15 in January 2011.
As you can see, previous periods were even more volatile and crazy than today. They were gut-wrenching (yet profitable) on the way up, and I expect it to be similar this time.
There’s no guarantee we’re heading to new highs in this cycle. But I’d say it’s highly likely. This cycle started off at a low of $3,148…
Why So Volatile?
Many of these new owners won’t stick around for long. They get freaked out by the volatility and leave, usually in large numbers. Hedge funds are also contributing to the crazy price action, as many of them tend to trade in and out frequently.
But a portion of these new adopters will become intrigued by the idea of decentralized money and will want to learn more. They’ll fall in love with the mission and hold on to their bitcoin because they believe so strongly in the idea.
Others will hold long term because that’s the smart thing to do based on bitcoin’s track record (its value goes up over time). And there’s nothing wrong with that either.
But ultimately, it’s the holders who are important. They form the base of bitcoin’s value and preserve it by holding while others sell. And if the long-term price trend continues, holders will be well-rewarded for putting up with all the crazy volatility.
Good investing,
Adam Sharp
Co-Founder, Early Investing