When to buy bitcoin stock

As Bitcoin continues to have an amazing bull run in 2021, many will surely be asking whether now is the time to buy.

Last year, after the March dip, I had written about that being a great time to increase one’s Bitcoin holding, as the market was ruled by fear. That is no longer the case in 2021, the price has risen steadily, breaking through its former all-time high in a dramatic way.

Nobody can predict Bitcoin’s price, and neither can I. Even if I had some hunch, I would not want you to blindly follow what I say, because I am against getting financial advice online.

However, I use this blog as my own small space to think about things, and writing is how I best formulate my ideas. As an added benefit, I get to interact with other investors and people whose ideas contrast mine, thus helping me further refine my thoughts.

The way I see it now, Bitcoin seems to be following the stock-to-flow model. Proponents of this model had predicted that the price of Bitcoin should reach somewhere between $100k and $200k at some point in 2021 or 2022. This is based on an analysis of the demand and scarcity of this asset, and comparing it to other assets like gold.

This is a very bullish target price, although it does seem much more realistic now that Bitcoin has broken through $40k. Irrespective of the price swings, I remain very bullish on the Bitcoin network long-term, due to the fundamentals being stronger than ever.

Read on to learn about some of the reasons why I think this is so, but if you’re already convinced and just want to get started with Bitcoin, here are some quick recommendations.

You can buy Bitcoin from these exchanges:

They are the world’s safest and most reputable exchanges and you can’t go wrong with them.

I’ve also written a guide on how to buy Bitcoin in Europe.

Once you have your Bitcoin, you can purchase a Ledger Nano to store that Bitcoin offline and away from any hackers.

If you’re more inclined to trading, you can check out platforms like eToro or Bitfinex, and if you just want to hold your Bitcoin while earning good returns, you can check out some crypto platforms that offer a savings account. My favorites at the moment are Blockfi and Youhodler, but you can learn more about those options here.

Ok, with those recommendations out of the way, let’s proceed with the reasons why I think Bitcoin is the best investment of our generation.

During bull markets, the long term Bitcoin holders hoard the supply in anticipation of a major price increase. As of November 2020, over 62% of the Bitcoin supply hasn’t moved in over one year (all-time-high). This is  a very bullish indicator.

Where is Bitcoin heading next?

All indications say we’re at the beginning of the next major bull run. Smart money is flooding in, “bad news” doesn’t negatively affect the price, and the existing investor base is hoarding the outstanding supply.

Legendary global macro investor Raoul Pal says he’s never seen a trade as dominant as Bitcoin.

J.P. Morgan, whose CEO called bitcoin a fraud just three years ago, published an in-depth feature in its flagship research series comparing bitcoin to gold, and saying its price could double or triple if current trends continue. Earlier this year, J.P. Morgan also agreed to provide banking services to crypto pioneer Coinbase, and has been getting involved in additional ways.

Billionaire U.S. investor Stanley Druckenmiller, who just weeks ago was said to be shorting the dollar, is long on bitcoin. In a Monday CNBC appearance, Druckenmiller disclosed a bitcoin position significantly smaller than his gold horde. However, he predicts bitcoin will outperform gold in the long run – largely due to millennial and Silicon Valley attraction to the crypto scene. “Frankly, if the gold bet works the bitcoin bet will probably work better because it’s thinner, more illiquid and has a lot more beta to it,” he said. Drunkenmiller made headlines last week for his bearish views on the U.S. dollar, which he suspects will decline for the next three to four years.

The interesting thing about what’s happening right now in the Bitcoin space, is that most retail investors are sitting by the sidelines at this moment, and there are relatively few new investors joining in the fun. The big reason, in my opinion, is that most people are acting extra cautious during 2020 as the reality is that a lot of jobs and businesses are threatened. If you don’t have a lot of extra cash lying around, you most likely have your money invested in assets that are hard to sell at the moment, or you’re just sitting in cash due to the uncertain situation.

While the smart money is accumulating Bitcoin, retail interest has only increased slightly. Historically, retail floods into Bitcoin after breaking previous all-time-highs. If history repeats, Bitcoin is going to be explosive over the coming 18 months.

COVID Effect

Bitcoin and other crypto-assets have taken a huge tumble in March 2020.

For the first time, we saw a correlation between the stock market and crypto assets, dealing a blow to the narrative of crypto being an uncorrelated asset and its usefulness as a hedge against the stock market.

Oil prices are tanking too and coronavirus is spreading like wildfire throughout the world.

However, we need to keep in mind that the big issue here is the global Coronavirus pandemic, and thus we are living in very exceptional circumstances. Investors are not, in my opinion, behaving in a rational manner.

There is panic in the market, and hence it’s an exciting time for the shrewd investor who is able to think with his head rather than his emotions.

In my opinion, Bitcoin at around 5,000 Euro, down from 10,000 Euro just a few weeks ago, is an awesome opportunity to stock up on this asset.

As the world recovers from the Coronavirus scare in the following weeks and months, I expect to see Bitcoin rising up again to at least 10,000 Euro and possibly beyond, giving investors who invest now incredible returns that are probably not possible to achieve anywhere else.

Apart from this general thinking that I have, here are a few more pieces of information that help reinforce my opinion.

If you’re ready to buy Bitcoin, do check out my guide to investing in Bitcoin and cryptocurrencies.

Data Shows Cryptoasset Sell-off Was Driven by Short-term Holders

On-chain data provided by Coin Metrics shows that recent price movements were likely mostly driven by shorter-term and relatively new holders. Long term holders appear unfazed in spite of the severe market downturn.

While market cap for most cryptoassets fell, the market cap for most stablecoins increased. This potentially signals that investors are piling into “cash,” or at least crypto cash equivalents.

BTC has also entered a historically attractive price zone, with a market value to realized value (MVRV) below one. MVRV compares a cryptoasset’s market cap to its realized cap. Realized cap can be thought of as an estimation of the asset’s aggregate cost basis.

Read the full report on the Coin Metrics’ State of the Network report substack.

Companies Moving their Reserves to Bitcoin

Many public and private companies have started to adopt Bitcoin as their reserve currency. Microstrategy was the first to publicly announce their move, but others have followed hot on their heels, including the e-payments giant Square, led by Twitter founder Jack Dorsey.

This means that Bitcoin is much harder for any government to ban, plus it also means that millions of people are now indirectly invested into Bitcoin by holding shares of these companies.

New Crypto-First Banks

Less than two months after cryptocurrency exchange Kraken secured its Wyoming bank charter to start a crypto bank, a second player did the same.

Startup Crypto Bank Avanti Unanimously Wins Wyoming Bank Charter: Avanti Founder and CEO Caitlin Long, a Wall Street Veteran who used to run Morgan Stanley’s pension advisory group, expects the bank to launch sometime in 2021.

The Biggest Crypto News of 2020: PayPal Announces It’s Going All In On Crypto

Financial services giant Paypal ($250 billion market cap) announced in October that it will allow its ~200M U.S. users to buy, sell, and store cryptoassets on its platform, starting over the next few weeks with bitcoin, ethereum, Bitcoin Cash, and Litecoin.

What’s more, the firm said it would enable its 26 million merchants to accept crypto as a payment method, starting in early 2021. This news is huge. It is likely the biggest development of 2020 for crypto. It represents a major leveling-up of the asset class.

The news sent crypto prices sharply higher. Bitcoin rose more than 10% to a multiyear high above $13,000, and other assets followed, including Litecoin, up 15%.

PayPal is going to give hundreds of millions of people an introduction to crypto and an easy way to invest. Today, the largest crypto wallet, Blockchain.com, has 50 million users. Coinbase has 40 million, Square has 30 million, and Robinhood has 12 million. At nearly 200 million U.S. users, PayPal is 4x the size of the largest existing platform.

PayPal’s smaller competitor Square allows users to buy and sell bitcoin through its Cash App. Flows have been significant: In Q2 2020, for instance, CashApp users purchased $875 million of bitcoin.

In addition to demand for investment purposes, PayPal is uniquely suited to finally break down the door to the widespread use of crypto as a payment vehicle.

By early 2021, PayPal’s 26 million merchants will be able to accept payment in bitcoin, ethereum, Litecoin, and Bitcoin Cash. These merchants aren’t just large firms like eBay, but millions of small businesses processing transactions over the internet. In many ways, you could imagine they might be the most likely audience to embrace crypto.

PayPal’s initial retail push will have limitations. But if even just 0.1% of retailers start accepting crypto payments, you have the beginnings of a real commerce use case that has long been sought by the industry.

The final reason this is a big deal is simply that PayPal is a significant business; more significant than many people think.

PayPal today boasts a market capitalization of $250 billion, significantly larger than Bank of America ($208 billion), Wells Fargo ($93 billion), Morgan Stanley ($91 billion), Citi ($89 billion), and Goldman Sachs ($70 billion), among others.

They’re also a highly regulated money transmitter and financial institution. PayPal’s move shows other such institutions that crypto is now possible on the largest possible scale.

In fact, a recent letter published by the Office of the Comptroller of the Currency clarified that national banks can custody cryptoassets themselves. With PayPal now leading the way, what reasons do banks and other payments companies have for not offering comparable services?

It’s a watershed moment.

Google Trends

It looks like people are suddenly more interested in buying Bitcoin after the crash. That’s good news, as more people buy then the price is bound to rise.

European countries legalizing Bitcoin

As reported by Les Echos, Bitcoin now has the official status of money in France.

Meanwhile, Bitcoin has been qualified as a financial instrument in Germany.

Is it correlated or not?

The middle of March was an extraordinary time for global markets. We saw both the largest single-day percentage gain in the S&P 500 and the second-largest single-day decline. During the most extreme week, all markets—stocks, bonds, crypto, gold, real estate—were driven by macro factors. But that tight relationship is already showing some signs of reverting to normality.

If you peel back just a little bit, the long-term noncorrelation becomes apparent. For the 12 months ending March 31, 2020, bitcoin is up 55% while the S&P 500 is down 8%. For the trailing three years, the numbers are bitcoin +463% and the S&P 500 +16%.

Bitcoin is getting stronger and stronger

The cryptocurrency market in 2020 is actually very promising. Compared to just two years ago, the technology is incredibly well-developed and attracting many institutional investors. Whether it’s Visa partnering with Coinbase, Fidelity offering a crypto mutual fund or Facebook trying their hand at a digital currency, the signs are clear that crypto is here to stay.

The future of crypto represents not a replacement to fiat currency but an alternative to those who wish to participate in a more liberating monetary system. As governments continue to lay down the regulatory foundation for this new technology, risks and volatility will eventually dissolve into a stabilized product that will bring unique innovation to the world of finance. So if you’re thinking about exiting the market for good because of market conditions, perhaps you should give that another thought. Not only is it time to HODL even more aggressively than before but it’s one of the best times in recent years to enter the market.

Fear & Greed index suggests a buy

The crypto fear & greed index shows that we are in a moment of extreme fear and pessimism with regard to crypto, which in my opinion makes it a good moment to buy.

Stock-to-flow ratio still consistent

The stock-to-flow ratio chart is looking good. According to the chart, the next halving which is due in a little over a month, will set Bitcoin on course to the moon, with the next stable price point being $100,000.

BeInCrypto has reported on PlanB’s popular “Stock to Flow” model for determining future prices of Bitcoin based on scarcity many times previously. The projection posits that, all other things being equal, abrupt decreases in the issuance rate of Bitcoin have a direct impact on the cryptocurrency’s price.

Given that the Bitcoin network follows a predetermined set of rules that can only be adjusted by network consensus, the only changes to Bitcoin’s issuance rate come in the form of quadrennial “Bitcoin halvings.” Every 210,000 blocks, the number of new Bitcoin issued with each block mined halves automatically. The next halving, that will see the block reward drop to 6.25 BTC, is due this May.

Previous halvings have preceded colossal gains for Bitcoin holders. The stock to flow model, shown in the tweet below, has largely fit Bitcoin’s previous price movements and, sure enough, dramatic bull market moves do indeed appear to follow the events themselves.

In the image below, the left-hand chart shows the stock to flow projected price (thin dark blue line), as well one and two standard deviations from it (lighter blue areas). Even after plunging hard to less than $5,300 at the time of writing, PlanB contends that the model remains intact since Bitcoin price did not even leave deviation bands.

The analyst writes that the extreme volatility is simply another example of market players shaking out “weak hands.” They state:

“No extreme returns without extreme risk.”

A 100k price might sound optimistic, but this model has been pretty accurate in the past and the logic behind it is sound. You can listen to an interview with the guy who came up with this on the What Bitcoin Did podcast.

Ultimately, as shown in the tweet above, Bitcoin is the best performing asset in recent time, and I don’t see the trend changing anytime soon.

The Bitcoin Rainbow Chart

The Bitcoin Rainbow Chart has been around since 2014, and basically overlays coloured bands, from red through yellow to blue, over a log-scale BTC price against time graph.

Whilst the original chart was graded as simply ‘buy’, ‘sell’ or ‘average’, this has now taken on a finer delimitation. At the top end we have ‘maximum bubble territory’, going through sell indicators, building FOMO, and down to ‘HODL!’ in the middle yellow band.

On the lower end of the spectrum, the scale goes through various levels of good value, down to the final ‘basically a fire sale’ band, where it currently stands. Again, another optimistic indicator.

The Great Upcoming Wealth Transfer

Kraken Intelligence, the in-house research team at the crypto exchange of the same name, released a new report entitled “Inheriting USDs & Acquiring BTCs: How ‘The Great Wealth Transfer’ Will Fuel ‘The Great Bitcoin Adoption.’”

According to the report, if American Millennials were to invest at least five percent of their inherited wealth into Bitcoin (BTC), they could drive the price up to $350,000 in 2044. This would effectively give the generational group almost $70 trillion of value from a $971 billion investment.

With many older Americans on the verge of retirement, the report suggests those in younger generations who are not only more familiar with but more accepting of Bitcoin will have more options investing in the future.

“…a disproportionate percentage of the Millennials and Gen X will continue to be the driving force of adoption [of cryptocurrency] for the foreseeable future. While this can be explained in part by the fact that both generations harness a greater technological competence than their elders, we should also consider that bitcoin’s current volatility is unsuitable for individuals nearing or in retirement.”

Baby Boomers in the United States currently control approximately 57% of the total wealth, $50 trillion of which will pass to Millennials and Gen Xers in the next two years. This redistribution is referred to as the “Great Wealth Transfer”.

If younger people were to use just 1% of this wealth to then invest in BTC, the price could rise to $70,000 — if not more — in 2044. This is based only on investors in the U.S., meaning the actual numbers could easily be higher.

Bitcoin entering the Fourth Era

According to an analysis by Bitwise Asset Management, Bitcoin is entering its fourth era in which it will go mainstream, and if previous eras are anything to go by, we should be seeing a big run-up to $100,000 or more in the next 2 years.

Bitcoin Trading

In these volatile times, there is a big opportunity to make some money just trading Bitcoin. The idea is to buy when the price is suppressed and sell when it is rallying.

If you’re not confident doing that yourself, you can make use of a service like CopyTrading from eToro.

With CopyTrading, trades will be automatically copied to your account allowing you to manage your portfolio in a simple and transparent way. With over 3 million traders to choose from, you can interact with and copy multiple traders.

To get started, create your free eToro account. All information you submit is protected by the latest encryption technology and will not be shared with third parties. Once your account is created, select one of the available payment methods to fund it.

Use the eToro People page to find eToro’s best traders. Make sure to check the traders’  portfolios and trading stats. To base your copy trading portfolio on specific markets (i.e. crypto), use the eToro Markets page to see which investors are trading in the market of your choice.

Once you’ve found the crypto traders you want to copy, simply click on Copy to start copying their positions. You will be asked to specify the percentage of your funds you want to allocate for copying. The amounts for the copied trades will be calculated accordingly.

The trades made by those you’ve chosen will be automatically recreated in your account. You retain full control of your account and can take the trade over, or stop copying a trader altogether, at any time. Finally, always be on the lookout for new trading stars to add to your copy trading portfolio!

Here are a few more tips for trading cryptos:

• The stock market is only open less than 20% of the time when cryptocurrency markets are open
• Bitcoin is the most traded on Wednesday and Thursday and the most volatile on Thursday
• It is the least traded on weekends and also the least volatile

The average volume based on the time of the day shows that the highest volume happens around 10am ET and then gradually decreases until it peaks again around 8pm ET. Volume is the lowest from 10pm to 5am, which is usually the time when most of the people on the East Coast sleep.

Disclaimer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. 

Cryptoassets are volatile instruments that can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading crypto assets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.

Direct effects of COVID-19

With massive layoffs and panic around the world, the first reaction was for people to move into cash, meaning that they started to sell off any investments, including Bitcoin and other cryptos. That is also why we saw the price of Bitcoin fall together with other asset classes. The payouts that some governments have promised will eventually reach the people, and as things settle down people will start to invest again, and I think Bitcoin will be one of the asset classes that will be more successful. An interesting indication is that the trading activity on exchanges has actually increased in March even though the price went down. Historically whenever there is an increase in trading activity a pump in the price follows.

Network Effects

Crypto, or digital assets, are a highly correlated space. The best coins will always have the softest bear markets, and it is becoming clear that Ethereum wasn’t much worse on the COVID correction and is punching above its weight in the rally. With a network value around 15% of Bitcoin, there is the potential for a catch-up, but its network is smaller on the most important measures.

Crypto valuation is all about the network. While Ethereum processes a large number of transactions, they tend to be small. It won’t catch up unless its network sees a surge in transaction value, which means either many more transactions or to attract a greater share of the larger ones. But this is a youthful space, and anything is possible in crypto.

In the meantime, Bitcoin is heading back to $20 billion of network transfer each week. So long as this goes up, so will the price of Bitcoin.

Companies Adopting Bitcoin as Reserve Asset

MicroStrategy INC purchased 21,454 bitcoins at an aggregate purchase price of $250 million.

“This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.” said Michael J. Saylor, CEO, MicroStrategy Incorporated.

Mr. Saylor continued, “MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”

I believe other private and public companies will follow suit.

This was followed up with another purchase in September.

Bitcoin is the result of many previous projects and research

Need Cash? Take a crypto loan instead of selling

‍If you need quick liquidity, you typically sell-off some of your assets. Anyone can run into an emergency situation. But there are alternatives to selling. Crypto backed P2P loan platforms are very popular, big holders of crypto prefer to get loans in fiat currency using their crypto as collateral instead of selling their crypto.

How to buy Bitcoin

If it’s your first time getting into Bitcoin, I recommend buying from these exchanges:

You could also use your crypto to earn interest using platforms like Youhodler.

I would recommend storing your Bitcoin and other crypto-assets offline using a Ledger Nano or Trezor. You should store the 24-word seed phrase on a Billfodl.

Or maybe Gold?

The gold vs Bitcoin debate is still ongoing, and gold bugs like Peter Schiff think that gold will be the winning asset in the coming crisis.

If you were to ask me, I would rather bet on Bitcoin than gold in 2020, but who knows…

Other Ways to Make Money with Bitcoin

While buying and holding has traditionally been the easiest and probably best way to profit from the Bitcoin boom, there are several other ways to make money by getting involved with Bitcoin.

Cloud Mining

Cloud mining consists of contributing fiat money to join a mining pool. Genesis is probably the only mining pool that I would trust as of 2020, however profits are far from guaranteed and I think it’s still too risky a proposition compared to just buying and holding, so I have so far avoided getting involved in mining.

You could, of course, also set up your own mine, but at this stage, you would need a big investment and be very technical to even have any chance of successfully doing this. Unless you’re a mining expert, don’t even think of setting up your own mining setup.

Arbitrage Trading Software

A common scam – avoid outright. There are many websites that promote their software that purportedly generates insane daily profits through some proprietary genius trading and arbitrage techniques.

Predictably, they are all scams and ponzi schemes, and you are sure to find a referral program meant to be the main driver of any returns. Examples include Bitconnect, Arbistar, Mind Capital and Kualian.

Concluding Thoughts

I hope that this crisis drives people to look at Bitcoin as an alternative to the current shaky banking system.

In the meantime—despite its price taking a tumble—Bitcoin remains fundamentally unscathed. In its ten-year lifespan, BTC has crashed and recovered in countless cycles, been declared dead 380 times and counting—and yet somehow, has managed to prevail time and again.

I think we should focus on the long term, the big picture. If you have faith in this technology you know this is the worst time to panic sell and the best to keep hodling, or better yet, buy more crypto.

The other alternative is to engage in trading, if you have the right skills to do so. In shaky times like these when the price tends to be quite volatile, trading can be a very profitable endeavor.

When trading, keep in mind that you can’t be always right. Even the best traders are happy if they are right slightly more than 50 percent of the time, I consider that good. On a long-term basis there are always some good periods and some bad periods as the market will catch you unawares and surprise you with sudden unexpected shifts up or down.

It doesn’t matter how many times you’re right and how many times you’re wrong; it matters how much you make when you’re right and how much you lose when you’re wrong.

You have to have that ratio right. You could be right only 30 percent of the time and still make a lot of money as long as you make three times more on your right predictions as you do on your losses.

Given the huge upside potential and promise for Bitcoin, I think that the easiest and most fool-proof strategy right now is to just buy Bitcoin and store it safely. Wait a few years and if all goes according to the ideas exposed above you will be sitting on a nice increase in your net worth.

If Bitcoin can remain decoupled from US Equities & the market treats it as Digital Gold, 2020/2021 should be an amazing cycle for BTC. Always follow the present strongest force as that drives market direction – Presently, that is the Demand Side fueled by Funds & Retail Money.

I like to use the Whatifihodl tool to figure out how much a current Bitcoin stash will be worth in the future based on price projections. You could also use Hodlcalc to see how much Bitcoins bought in the past would be worth today. It’s a great tool if you fancy ending up kick yourself for not getting involved earlier than you did 🙂

2020 Recap

Alternative Currencies to Buy

While there are many hardcore Bitcoiners who think that all other cryptocurrencies are rubbish, I would disagree. I’ve written about a number of other cryptocurrencies that are worth looking into, and due to the growth of DeFi I would say that Ethereum is one, in particular, to keep an eye on.

What are your thoughts? 

Further reading