Invest; don’t trade.
Bitcoin’s big rally is a great opportunity to revisit some timeless market wisdom.
An uncannily timely quote from the great business journalist Charles Dow, uttered in 1900:
“There is always a disposition in people’s minds to think that existing conditions will be permanent. When the market is down and dull, it is hard to make people believe that this is the prelude to a period of activity and advance. When the prices are up and the country is prosperous, it is always said that while preceding booms have not lasted, there are circumstances connected with this one which will make it unlike its predecessors and give assurance of permanency. The one fact pertaining to all conditions is that they will change.”
By “the market,” Dow no doubt meant the stock market. But the investor psychology he cautioned against very much applies in the markets for crypto, bonds, gold, real estate, and many other things as well.
Bitcoin in particular is providing a lot of Dow-esque reminders right now about the constant need to adjust to new information. The token just posted a weekly gain of 11%, recently trading around $30,000 per coin for the first time since mid-July. The gains have pushed bitcoin dominance, or the token’s share of the broader crypto market, to a fresh 2-year high above 51%.
Unfortunately, a premature rumor that U.S. regulators had approved an exchange-traded fund on bitcoin got the rally going on Monday. They haven’t, but Wall Street is still generally optimistic such an announcement will come eventually, perhaps by mid-January, according to JPMorgan analysts.
The week’s bitcoin buying caught second wind Friday after Federal Reserve Chairman Jerome Powell made remarks that signaled the central bank might pause interest-rate hikes it its next policy announcement, due Nov. 1. An easier rate policy would favor speculative investments like crypto.
The week’s big rally marked a big change of pace for bitcoin, which had held remarkably steady through all of September and early October. Apparently thinking that trend would continue indefinitely, CNBC pundit Jim Cramer made what now seems like a characteristically ill-timed bearish call on bitcoin on Oct. 11.
Oops.
It should also be said: Now that fresh buying is coming into bitcoin, there are also bulls who think that trend will never end. Some are posting outlandish, supposedly imminent BTC price targets to social media, like this $135,000 call by entrepreneur and author Robert Kyosaki.
As in many things, the truth probably lies somewhere between these extremes, no?
Full disclosure: I own some bitcoin, because I believe in its long-term potential. (Crucial qualifier.) I like that it’s a form of money with limited supply that’s technically native to the internet. The latter seems kind of important — and useful — as people do a lot of business on the internet these days. Call me crazy.
And, yes, I do believe an ETF on it will be approved at some point. I covered the early explosion of ETFs in the 2000s for the Wall Street Journal, including funds with all sorts of weird features that the Securities and Exchange Commission somehow found a way to stomach. A bitcoin ETF is not at all crazier than much of this stuff that’s already listed.
Exactly when regulators will come around to that view, and whether there might be some turbulence in the bitcoin price along the way, I don’t know. And I don’t care, because I’m investing, not short-term trading here.
That’s another big distinction worth making regarding any market you might be interested in, by the way. Invest if you like, but don’t trade looking for a quick gain. The latter is folly as you will never be faster at it than the investment banks and hedge funds using insanely sophisticated algorithms and AI.
I’m sure Charles Dow would agree.
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