Should you invest in Bitcoin 2019?

NOTE: This post is NOT Buy or Sell advise. Cryptocurrencies are very volatile, are subject to legal / regulatory risk and also carry a risk of permanent capital destruction.

Bitcoin went past $3000 as “segregated witness” or Segwit, the latest version of its open source code is days from locking in to the nodes on its blockchain on August 8th, 2017.

Segwit aims to solve Bitcoin’s long standing scaling problem and serves as a positive fundamental trigger to its price. For stock investors, imagine capacity expansion without the capex. True to fashion, the market bought the rumor before the news and pushed the price above the last all time high of $3019 in June.

This move caught many technical analysts by surprise, as Bitcoin – honey badgerlike – continues to shrug off bad news and humiliate market oracles. I think what is most significant is that the long-term underlying bullish trend has been confirmed this week, which means the odds of a major Bitcoin “crash” have plummeted and a $5000 to $10,000 Bitcoin price is now in sight.

Suprise! While the RSI and other momentum indicators suggested a correction the breakout in the simple moving average confirmed the direction of the trend.

So is it too late to enter? Bitcoin has no intrinsic value. The fair price is unknown. The market price is determined by demand and supply. It has gone up too much too fast. It’s in a bubble. All of this fear, uncertainty and doubt is legitimate but not in the ways one might think.

Bubble valuations (aka the Price has gone up too Fast!)

Every generation has a bubble. Tulips. Dotcom. Unicorns. Cryptocurrencies are the bubble of the coming generation. We are in very early stages of price discovery of a completely new asset class which is still dismissed by a majority of old street finance as a pyramid scheme or vaporware. Banks buy bitcoins only to pay off future ransomeware attacks. Hedge funds are only now beginning to show interest. Equity investors are still to enter. If it is a bubble, it is a bubble that is yet to grow until it floats regal and mountainlike before the thunderous pop.

Vinny Lingham
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@VinnyLingham
On reflection, I was wrong to try to prevent a #Bitcoin bubble. Missed big gains, but getting back in. Bitcoin needs bubbles & busts to win!

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8:38 PM - Aug 5, 2017
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So has the price gone up too much? Bitcoin was in a bear market from 2014 to 2016 and the anchoring/recency bias makes us fear mean reversion.

Here are Bitcoin’s historical returns since Satoshi Nakamoto wrote the famous white paper:

2011: +1500%

2012: +399%

2013: +5400%

2014: -43%

2015: +37%

2016: +130%

2017: +220%

Notice the trend? The trend is your friend and Bitcoin can be the long trade that changes your life.

What are you buying when you buy Bitcoin?

Don’t buy what you don’t understand. For the non tech savvy, the blockchain is not an easy concept to comprehend. Buying Bitcoins is roughly analogous to buying:

A share in protocol/infrastructure of the future de-centralized internet. Like buying CISCO shares in early years.
A scarce asset. Like buying Diamond before De-Beers, because there is no central authority or control on price or inflation schedule.
The energy and time units that go into mining. Mining Bitcoins gets progressively difficult as Bitcoins grow scarcer (the supply being strictly capped at 21 million). It is expensive to set up a mining rig and involves large amounts of power consumption.
Besides at just 21 million in total supply, with scope for no more to be created, Bitcoin is scarce