Gold Investors Should Pay Attention To Bitcoin
What an exciting time to be a market technician. It’s not very often we get to witness a full-blown speculative mania, and Bitcoin is just that. Prices are up 1,500% in 12-months, and everyday people are looking to buy. The lot points to a bubble and Gold investors should take note. Why? Because when you see similar behavior in the precious metal sector…it’s time to exit.
Over the last few days, I’ve been approached by several friends and acquaintances interested in Bitcoin. Most, know nothing about cryptocurrencies, but their excitement is palpable. One described reading how China was going to switch to Bitcoins and that he needed to get in before it was too late. I think he severely misunderstood the article, but I listened anyway. Sometimes you can learn a lot about market sentiment by just listening. Later, he downloaded an app and invested in Bitcoin despite my reservations.
That same day, I observed an acquaintance sit down with his friends, and they began to discuss Bitcoin. They had good questions, but I soon realized he knew little about the space. Nevertheless, his passion was contagious as he enthusiastically explained why prices would continue to rise.
The day ended with a friend rushing into our office asking if we had bought Bitcoin yet. He heard that a local business was selling them. Admittedly, he knew nothing about Bitcoin, but he wanted some and urged others to join him. At that point, I realized I needed to pen an article concerning the Bitcoin craze.
You see, human behavior never changes. Greed and fear (or the fear of missing out) form the pillars behind every market bubble. Combine that with a sexy technology story, and you have the ingredients for an explosive market move.
Here is a 2-year chart of Bitcoin. Prices are nearly vertical, and a parabolic rise is unfolding. This time last year prices were around $772. That's a 1,500% increase in 12-Months. On November 11th, 2017 prices reached an intraday low of $5,426 (now $11,821). As a rule of thumb, you're likely approaching a top when you see prices double in less than a month. A terminal, high-volume, blow-off day should cap Bitcoins impressive rally.
I often search Google Trends to gauge public sentiment towards investments. If internet searches are spiking, it’s not the time to buy. I prefer buying assets when no one is talking about them. Below is a 5-year chart depicting inquiries for “Bitcoin Prices.” As you can see, we are reaching record highs, far surpassing the 2013 surge when Bitcoin briefly exceeded $1,000. If you believe in a story, the time to buy is when popularity flatlines…not when it peaks.
Comparatively, here are the current search results for “Gold Prices.” We saw activity peak as gold topped in 2011. Search results are now at multi-year lows. Good time to buy?
Don’t get me wrong, I like cryptocurrencies and believe they are here to stay. However, Bitcoins trajectory defies logic. The chart has entered a parabolic rise, and that often precedes a blow-off top. Will prices top this week? Impossible to say, but I’d be surprised if the market maintains this level of enthusiasm for more than a week or two.
I liken Bitcoin to AOL in the mid-1990’s. AOL and Yahoo paved the way for the internet we know and love today. Bitcoin and Ethereum (among others) will do the same for cryptos. According to www.coinmarketcap.com, there are over 1,300 cryptos currently available. Are they all fundamentally sound? No. In fact, I'd be surprised if half amount to anything. They are merely a byproduct of speculative inundation. Remember the abundance of internet stocks emerging at the tail end of the dot.com bubble?
I’m not a Bitcoin expert, but I believe disruptive, blockchain technology, will drive innovation and fuel tomorrow’s economy. However, now is not the time to abandon wisdom and buy an overheated market. We believe gold is the better buy. Prices are completing a long-term basing pattern and should trend significantly higher in 2018. Furthermore, if our analysis is correct, gold could enter its own speculative mania around 2020.
Send this article to a friend: