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While traditional markets are in a period of discouragement due to electoral uncertainty in the United States, Bitcoin celebrates breaking resistance. Apparently, the arrival of PayPal has brought optimism to this space. But, in addition to PayPal, state crypto projects, the DeFi boom, and Bitcoin fundamentals in general have sparked new enthusiasm among buyers.
There is never a specific reason. We can hardly find the precise explanation behind a rally. Typically, what is presented is a combination of factors. PayPal has certainly served as a catalyst for a rise in the price of Bitcoin. But, What do you breathe in the environment? What do you read in the Bitcoin press? The arrival of institutional capital.
Read on: Bitcoin: Safe Haven or Risk / Opportunity?
In 2017-2018, the future of Bitcoin was still uncertain. Now, the future of Bitcoin is inevitable. We are already in the last quarter of 2020. And Bitcoin is already a reality for the general public and for large companies. This is the perception of the moment. Due to the PayPal news, many CEOs have had to answer questions about Bitcoin in the media. And it turns out that half of the world is holding a cryptographic project. What you read is that the banks are interested. Fund managers are interested. And regulators understand that cryptocurrencies are here to stay.
Right now, boredom invades Wall Street as everyone is waiting for the outcome of the presidential election. And the Bitcoin market offers the perfect storm. Furthermore, Bitcoin can be the perfect solution for many fund managers who want to show positive numbers by the end of the year (Window dressing).
With markets obviously overrated, there is a narrative circulating that can prove extremely convenient for us Bitcoin holders. Bitcoin looks like the Apple or Google of the early days. This is spread on Wall Street under familiar names. In my opinion, this narrative is much better than the old libertarian narrative who insist on presenting Bitcoin as a “safe haven” in an anti-establishment crusade. Bitcoin: the hero of the counterculture or the next Google?
The community is changing. Institutional capital doesn’t buy much of the idea of abolishing fiat money. However, big smart money players believe in good investments. While many old school bitcoiners are convincing the taxi driver or cafe owner to adopt Bitcoin as a form of payment. Others are working with big banks to raise capital from big institutions.
The institutional capital is in New York, London, Berlin, Beijing, Hong Kong and Tokyo. They are large corporations, large funds, pensions, banks, trade unions, government bodies, family offices, venture capitalists, etc.
There are two problems with Bitcoin. The first problem is regulation. And here the key institution is the US SEC. We may have a new director next year. Change could help us. But, for now, we have to wait for the election result.
Read on: Bitcoin !: A form of payment or investment?
The other problem is the lack of liquidity. In other words, it is not easy to buy Bitcoin. Traditional investors call their broker to make an investment. They can buy millions of dollars of assets in minutes. But it’s not that easy to do with Bitcoin. To begin with, the liquidity is spread across multiple exchanges. And a major purchase can significantly affect the price.
Of course, that reality has changed a lot lately. That is, it is now easier to buy Bitcoin. And I fear that a chain reaction in that direction will soon begin. Trading is now increasingly digital. And the figure of the traditional stock broker is gradually becoming obsolete. For example, many Robinhood and eToro traders are familiar with cryptocurrencies.
During this crisis, digital took center stage and accelerated many projects. It is only a matter of time before all brokerage platforms offer cryptocurrencies. In a very short time we will be able to enter our bank and buy Bitcoin in large quantities without major inconveniences. The arrival of PayPal is not the big news of this latest rally. The big news is the arrival of institutional capital. Banks are talking about their crypto plans for 2021.
Bitcoin price is rising, as we are facing many bullish signals and buyers couldn’t wait after the election. You don’t have to look for the cat’s five legs. The current uncertainty brings with it volatility. And good news in an unstable environment can lead to a great recovery. Can we go higher? Obviously.
Many things can happen between now and the end of the year. It is still too early to claim victory, because we can go down the same way we go up. A rally is just a rally. Many analysts claim thousands of things for just a couple of weeks’ change. Many go crazy, but you have to rest assured. How many times in the past have we experienced something like this and gone back in a couple of days?
The price is experimenting, but it will eventually find a ceiling. And yet our support must consolidate more. We must await the outcome of the elections and the behavior of the S&P 500. Likewise, we must wait for the next stimuli to arrive.
These violent and unexpected excursions are not as good as you might think. Because they usually bring just as violent corrections. More gradual changes are always better. But we must remember that markets are irrational. That is, they let themselves be carried away by the emotion of the moment. And these are times of opportunism.
Read on: the role of ideology in Bitcoin. Which side do you belong to?
I would say 2021 will be packed with news of adoption by large financial institutions. And the correlation with the S&P 500 will continue. But we can’t assume that Bitcoin will mimic the S&P 500 every second of every day. To expect this is absurd and childish. Correlations don’t work that way. What this all really means is that 2021 will be a very good year for Bitcoin and the S&P 500, because the conditions are ripe for it.
What to do? At times like these, it’s best not to fall victim to greed. Now everyone wants to buy Bitcoin. Mistake. Surely the excursions are exciting. But excursions like these are often short-lived. If Bitcoin goes up a little more, say at $ 14K, it wouldn’t hurt to sell a little bit to build up fiat for a future purchase.
Common sense note: It is always better to buy low and sell high. It is important to remember the average. It is not a good idea to buy a lot with the price well above average. Markets react to news and sentiments. But it’s not always good for us to buy because of news or feelings.
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