Send this article to a friend:

January
31
2023

An Idiot’s Guide to Bitcoin (Part 1)
Greg Guenthner

It’s one of the most frequent critiques lobbed my way on social media, email, and even delivered in person via scathing, spittle-soaked tirades…

You’re wrong about crypto! 

Yes, I am wrong. In fact, I’ve ignored crypto for years – so I’ve been wrong. The only positive aspect of my crypto-indifference is the consistency. Even when bitcoin was mooning, I remained skeptical.

Full disclosure: I’ve never made a dime directly from crypto, though I’ve successfully traded many crypto-adjacent stocks. My only actual crypto buying experience came in 2021 when the market was going absolutely bonkers. I opened a Coinbase account and bought an insignificant amount of Bitcoin, Ethereum, and a few alt-coins.

I had no grandiose plans of banking huge gains during this experiment. My goal was simply to have some skin in the game to force myself to track crypto during those insane rallies. At the time, I even joked that my official foray into crypto – even with “play money” – would mark the top of the speculative mania.

Unfortunately, I was right about that part. I never sold my holdings, either. They’re still sitting there in my little Coinbase account, miles from their 2021 highs.

While I didn’t bet the farm on crypto, many folks poured their hearts, souls, and retirement funds into these speculative ventures. The Covid Bubble convinced many investors that stocks (and crypto) only go up. Sadly, more than a few lives were turned upside down when it all fell apart. Same as it ever was…

But like many of last year’s big losers, crypto is starting to show signs of life.

This calls for deeper analysis – even from a self-professed crypto hater.

A few important crypto questions on my mind right now:

Is Crypto Winter over?

Will Bitcoin snap back to life, retake its highs, and prove all the haters, losers, and dummies wrong?

Has crypto earned a permanent seat at the table?

Can we take it seriously as an investment, or is it a long-term zero?

These are the questions I’m attempting to answer in this Idiot’s Guide to Crypto.

So buckle up, grab a snack, and open your mind. What follows is a cold, hard look at how to detangle crypto’s prospects from a (mostly) unbiased third party.

Just one disclaimer…

If you came here seeking some laser-eyed fever dream, you’re not gonna like what comes next.

Think Like a Crypto Outsider 

Before we begin breaking down Bitcoin and crypto’s prospects for 2023 and beyond, you need to understand how I’m approaching my analysis.

For starters, I’m not qualified to discuss the technology behind crypto or its potential applications. After all, I am the idiot behind the Idiot’s Guide to Crypto – and I’m quite comfortable in this role. I have a rudimentary understanding of what Bitcoin is and how it is used. I have no interest in diving further down the rabbit hole.

But I do possess a deep understanding of market mechanics. I know how price action works and the psychology driving bull and bear markets and investor behavior. I understand the madness of crowds and the power of boom-bust cycles. This is the information investors and speculators love to seek out when it confirms their previously held beliefs. Ironically, it’s the same information they dismiss as useless witchcraft when it begins to work against them.

Ultimately, crypto’s answers will come through price discovery. If crypto is a winner-take-all market, Bitcoin’s value (should Bitcoin come out on top) will increase dramatically while lesser coins plummet. If multiple viable cryptos emerge from the early speculative phase, we’ll see a market of winners and losers, with “blue chip” cryptos and a few also-rans. If the entire idea of cryptocurrencies begins to fizzle, then… well, you get the idea.

Again, no deeper knowledge is required to spot these trends. Sure, crypto will have more than its fair share of visionaries and technical experts beyond the pumpers and showboaters on social media. They might possess the brains and insider knowledge to capitalize on developments before this information becomes obvious to the marketplace. But, much like the stock market, the average participant has virtually no shot at figuring any of this out ahead of the crowd – no matter how many blog posts he reads.

Ultimately, you don’t need to possess a deep understanding of crypto’s inner workings to survive as a trader. Think like a crypto outsider, and you’re less likely to get sucked into the compelling storylines that might cloud your investing judgment.

Crypto = Tech 

Next, we need to acknowledge that crypto isn’t an asset class that lives on its own magical island, far from the gravity of market forces and the consequences of herd thinking.

If the Covid Bubble taught crypto investors anything, it’s that crypto and the tech-growth trade are on the same wavelength, and will therefore react similarly to various market conditions.

The crypto and speculative tech markets both broke out in the summer of 2020 as the lockdown trading phenomenon picked up steam, officially launching the final mania phase of the bubble.

The charts aren’t identical. Yet both Bitcoin and the Ark Innovation ETF (ARKK) – a solid proxy for the tech-growth trade – posted their biggest moves in the second half of 2020 leading into the Q1 2021 blow-off top.

Source: StockCharts.com

Crypto and tech each attempted to rally in late 2021. But those moves failed, and an ugly bear market materialized. Even during 2022’s short relief rallies, crypto and tech have moved in lockstep.

I don’t know which one’s the dog and which one’s the tail just yet. But we might have a chance to figure out this riddle in the months ahead if these groups finally display something resembling a divergence. Until the market tells us otherwise, these trades are one and the same.

Next week, I’ll dive deeper into what needs to happen in the crypto space to repair the damage and potentially plant the seeds for the next rally.

I’ll also dive into the charts to try and figure out where we are in this cycle – and where Bitcoin might be headed in the weeks and months ahead.

Let me know what you think so far by emailing me here. Be sure to tell me if there are any topics you’d like me to cover in future articles.

I’ll be back on Tuesday with your next market analysis!

Greg Guenthner, CMT, is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications.

www.moneymetals.com