The Price of Bitcoin has gone to the moon and back

Let's take a time machine back to March.

The price of Bitcoin kept rising to the moon.

• The ultimate investment influencer "Elon Musk" had tweeted about Tesla putting some investment in Bitcoin in February
• More institutional investors were endorsing Bitcoin in some shape or form
• Talks about creating a Crypto index started getting serious
• Every other tweet said some version of "Buy crypto," and if everyone was buying crypto, the most popular crypto, Bitcoin, was bound to get some action

People who had bought some Bitcoin some months before or even a year before were making BANK and were smiling to the bank.

"What goes up must come down." Newton's third law of motion

Let's go back even further in time to see a few things.

One thing Bitcoin has shown us over its relatively short history is, the price can go up really fast. Too fast. After zooming, it takes a long time to settle before taking off again.

Here are some examples:

• In January 2012, Bitcoin’s price fell 50% and took?6 months?to get back to its previous price
• In August 2012, Bitcoin’s price fell 56% and took 5 months?to recover to previous highs
• In April 2013, Bitcoin’s price fell 83% and took?7 months?to recover
• In November 2015, Bitcoin’s price fell 41% and took?7 months?to recover
• From June to August 2016, Bitcoin’s price fell 41% and took?6 months?to recover
• From June to December 2019, Bitcoin’s price fell 54% and took?2 YEARS?to recover
• From February to March 2020, Bitcoin’s price fell 64% and took?4 months?to recover

Between November 2020 and March/April 2021, Bitcoin’s price grew over 6 times in 6 months! before the crash we're now living through.

This is the sort of crazy price action that long-time Bitcoin holders and traders have become all too familiar with. The rise to the top is so fast it gives whiplash, but it spends a longer time at the bottom than it does at the top.

Why does this always happen?

Why are the lows prolonged and the highs short-lived? Isn't Bitcoin the future of money? Isn't Bitcoin a good asset?

Well, the truth is, for every person that loves Bitcoin and the general idea of a decentralized currency, there are 10 more that just want to trade it and make money off of it.

The main reason to own an asset is to gain value over time, so there is no shame in getting in just to make money.

But anyone interested in owning an asset of any kind should understand that the majority of the market is?ONLY?interested in making money.

While this is the case with all kinds of assets, stocks, real estate, Pokemon cards, etc. Bitcoin's (crypto in general) case is more extreme for many reasons. Like, it doesn't have any regulation, can be easily manipulated with a lot of money, there is no underlying asset that generates value, etc.

So, for people who have no sentimental attachment to Bitcoin, they have no reason to hold on if it seems that the value will shrink.

As such, whenever it seems like Bitcoin is nearing its peak, they start to sell-off.

The problem with this is that trying to figure out the top is a very tricky game that rarely anyone wins. It is not an exact science. The only way to see the top is in rearview, not in real-time. So people keep selling in small units till it gets to a point where there is more Bitcoin being sold than bought, and then the drop starts.

But why did Bitcoin fall this time, and when will/should I expect it to rise again?

In March/April, there was so much money chasing Bitcoin. Tesla looked like it'd start accepting Bitcoin as payment for cars, US stimulus money was coming in, and some people believed some of it could go into Bitcoin; there were talks around Bitcoin ETFs. Here's where each group stands now:

Tesla and Bitcoin

In February 2021, Musk sent the price of Bitcoin soaring when he announced that Tesla had purchased $1.5 billion worth of the cryptocurrency to hold as a reserve asset and that the company would soon accept Bitcoin payments for its electric cars. Bitcoin's price rose by more than 10% soon after, hitting a new all-time high price and continued climbing in the days and weeks after that.

On May 12th, Elon Musk backtracked on all of that positive sentiment when he tweeted that Tesla has suspended car purchases using Bitcoin, citing its energy consumption as the reason for the suspension. Bitcoin's price rapidly sank: it dropped from around $55,000 to about $48,000 within 24 hours.

And on June 13th, Elon announced that Tesla sold 10% of its Bitcoin holdings to "test the market" after claiming that Tesla would not be selling any of its Bitcoin a few months earlier. And even the financial statements for the first quarter of 2021 indicate that Tesla may have sold some of their Bitcoin holdings before that.

There Isn’t Anymore Stimulus Money Left

During the last Bitcoin Halving Cycle in 2017, it had a major run-up to December 18th, 2017 top at about $20,000. Guess what major news item was announced about 1 and a half months before that date?

The Tax Cuts and Jobs act of 2017?was announced on November 2nd, 2017. That provided a great news topic and money for folks to pour into Bitcoin as it topped 1? months later.

The 3rd stimulus cheque was announced on March 12th, 2021, and reached the first bank accounts on March 17th, 2021. Few months after that event and no more stimulus likely to come in the future takes us to where we are now.

Chinese and American Crackdown

To summarize, America's Internal Revenue Service (IRS) is now demanding that transactions of more than $10k be reported for tax purposes. For years China has signaled that it wants to ban all crypto.

In May, China banned financial institutions and payment companies from providing crypto-related services. In June, there were mass arrests in China of people suspected of using cryptocurrencies in nefarious ways. That same month, regulators increased the pressure?on banks and payment businesses to stop providing cryptocurrency services, and Weibo, the Twitter of China, suspended crypto-related accounts.

More recently, the People’s Bank of China has warned institutions not to provide other services related to cryptocurrency, including providing business premises or marketing.

Remember, Bitcoin is a decentralized currency that allows people to use money outside of government regulation. As 2 of the world's most powerful countries roll out policies that threaten crypto's primary function, it could force more people to sell and make fewer people unwilling or unable to buy.

Bitcoin ETFs are Awaiting Approval

There are almost 8 crypto ETF applications awaiting approval at the SEC. While new SEC Chairman, Gary Gensler,?is known to be crypto-friendly, these may likely take another year to get approval.

But what is a crypto ETF (Exchange Traded Fund), and why is that important?

A fund is simply a pool/collection of funds from different sources/people to do a thing. An ETF is simply a fund that is traded on an exchange like the New York Stock Exchange, London Stock Exchange, etc.

A crypto ETF would allow the fund managers to collect (pool) money from different sources towards buying crypto. Since Bitcoin is the oldest, most popular, and most expensive Crypto, Bitcoin would get a large share of whatever money goes into those funds. If the crypto ETFs were set up quickly and were now available, a large amount of money could have gone into Bitcoin, causing its price to rise like the way Tesla's stock rose after it was added to the S&P 500 .

That kind of money is what Bitcoin needs to take its price to the $100,000+ levels that Bitcoin enthusiasts have been predicting for years. That money isn't here yet.

Waning Interest and End of Bitcoin Halving Cycle Run

It always comes down to demand and supply.

If the people that are willing and able to buy Bitcoin at a price higher than it is trading in the market are less than the number of people willing to sell, then the price will drop. And it is not just about the number of people; it is about the amount of money.

Here's a simple example to explain this:

Let's assume that for Bitcoin to maintain a price of $1,000, it needs $1,000,000 of Bitcoin to be bought every day.

If on a given day, 1 person or 10 people or 1 million people (the number of people isn't really important) buy $10,000,000 worth of Bitcoin, then the price would increase because there is more money looking to buy Bitcoin than is needed to sustain its current price.

If on the next day, the total value of Bitcoin bought drops to $100,000, then the price of Bitcoin would drop because there is less money looking to buy Bitcoin.

As all the things around Tesla, China, etc., kept going on, Bitcoin started looking less attractive, and interested buyers started reducing. As less and less money is chasing Bitcoin, the price inevitably dropped.

And this is where price manipulation is likely to happen. As highlighted earlier, Bitcoin (and other cryptos) have no regulators. So, people/institutions with a lot of money can buy large amounts of Bitcoin and cause the price to rise and dump it at will, causing the price to fall, making a lot of money in the process. They typically do this while following some signs so it's not so apparent and so it doesn't completely discourage people from investing in crypto.

So, what are some of those signs?

One sign could be the end of the halving cycle. It is believed in the crypto space that 6-18 months after Bitcoin halving , the price of Bitcoin would rise several times. The last Bitcoin halving happened in May 2020. 6 months after works out to be November 2020, which was when the recent price climb started, and it lasted for another 6 months, which was longer than all other post halving runs. So that could have signaled that Bitcoin was at its peak.

Coinbase IPO

IPOs typically are a signal that a stock and/or market are reaching a top. That’s because the ideal time to go IPO is when you can get top dollar for your stock on the open market. Have you ever noticed shareholders often sell-off and many IPOs lose more than half their value after that first day on the market? That’s because the pre-IPO shareholders are "releasing the bags" to the retail market. At this current moment, Coinbase sits almost 50% below its IPO day high of $429 at $225 as of April 19th, 2021. If Coinbase was topping and they make the most money off Bitcoin, doesn’t that mean Bitcoin is topping too?

When is the next Bitcoin flight to the Moon?

The short answer is nobody knows. If Bitcoin’s history tells us anything, it might not make a huge run again for YEARS. It took Bitcoin almost three years to break its 2017 high of $19,500. When it broke that barrier, it broke it hard. But it took a long time to build the momentum.

If you stay in though, because those highs can deliver such an insane amount of growth in a matter of weeks/months, those years of uneasiness can be paid off in what feels like an instant.

Final Thoughts (What do I think you should do)

You are not right or wrong because 1,000 people agree with you neither are you right or wrong because 1,000 people disagree with you. You don't have to make money in every game. In the securities business, you literally have thousands of companies that you can invest in, you don't have to make any decisions. They may have great outcomes in the future, but if you don't understand it enough, you can pass on it

Everything is about perspective. Yes, Bitcoin is down 50% compared to where it was a few months ago, BUT it’s still 10 times higher than it was over a year ago. If you look at the bigger picture, you could still have more than double your investment, depending on when you bought.

But if you're getting into Bitcoin today, be prepared to wait for years for your investment to "double." Contrary to what the enthusiasts might say, the fast money train has long gone.

You can check out my older articles about Bitcoin basics and the 2nd article I wrote when Bitcoin hit 16k in November .