No mistaking it: We're in the middle of the longest, deepest cryptocurrency pullback in more than a year.
Now, as recently as last Sunday, Bitcoin and Ether and some of the other major cryptos had settled into a classic consolidation pattern. That happens when there's not enough "juice" to continue or create an uptrend and not enough "drag" to fall into a bearish pattern. Consolidation happens with stocks, ETFs, oil, commodities - all kinds of tradeable assets - and crypto's no different.
Often, when the long-term trend is bullish - and that's certainly the case with Bitcoin - you can expect an even more powerful upward trend to resume after some time spent consolidating.
But just as the big cryptos were consolidating, Monday happened...
That's when the Justice Department proudly announced it had recovered nearly 64 ($2.3 million worth) of the bitcoins Colonial Pipeline Co. paid to the DarkSide ransomware gang last month.
That should've been good news, but a lot of retail investors immediately jumped to a conclusion: "Yikes. If the FBI got those bitcoins back, then Bitcoin must be hackable!" That fear sent Bitcoin tumbling more than $5,000 lower than Monday's midday price.
Trouble is, investors' conclusions about Bitcoin are 100% wrong here; what they think happened didn't actually happen.
I'll tell you what the feds really did, then show you where I think we go from here...
The DarkSide Seizure Wasn't a "Bitcoin Hack" at All
Right off the bat, the feds didn't hack a single wallet to get that crypto-ransom back.
For one thing, it's practically impossible for anyone, even the Justice Department, to brute-force hack a properly, fully secured crypto wallet. Wallets get compromised when users slip up with security. That said, I'd encourage anyone with a cryptocurrency wallet to take this opportunity to double-check their security settings, make sure you've got a strong password and two-factor authentication (2FA), and good physical security.
Turns out, DarkSide went and rented a Cloud-based server from a regular company - same as anyone can - and used it to stash away their haul. The feds, who, unsurprisingly, have been tracking the gang closely since they pulled off a cyberattack that almost paralyzed a third of the country, were watching all along.
That rented server was all the FBI needed to know to get an old-fashioned subpoena from a judge, and that's how they seized the DarkSide server and all the Bitcoin on it. It's not even clear if the good guys did any hacking at all.
The Secret to Crypto Windfalls
Starting with $1,000 and cashing out with potentially tens of thousands in the bank in a few short years can be very simple.
The Secret to Crypto Windfalls
Starting with $1,000 and cashing out with potentially tens of thousands in the bank in a few short years can be very simple.
It was solid detective work, and the justice system that got those coins back. So, no, you can't hack Bitcoin, even if you've got a really good reason to try.
This sell-off is just the latest market overreaction to mis- or under-reported news in crypto-world. If these folks had followed my recommendation, they would've seen the unexpected $5,000 dip as a juicy buying opportunity and not a reason to sell. It just goes to show it pays to have "diamond hands."
Because while all the FBI drama was going on, some extremely bullish developments have gone down under the radar...
There's More Reason Than Ever to Be Bullish on Crypto
So, I've said many times that we can expect volatility in Bitcoin, Ethereum, and the "altcoins" we follow in Microcurrency Trader. Volatility, even heavy volatility, comes with the territory.
But whether Bitcoin's at $32,000 or $65,000 or somewhere in between, the bullish case for owning it is the same. A really big part of that case is the increasingly widespread mainstream adoption of blockchain and cryptocurrencies. We've taken down some nice stock-market profits on companies like PayPal Holdings Inc. (NASDAQ: PYPL) that have embraced crypto and brought it to a bigger market. Crypto's that powerful. And we've seen central banks and entire countries tap into the powerful blockchain technology that helps make crypto work.
But now, like I predicted, we're seeing countries turn to crypto itself, especially Bitcoin, to help their economies grow and empower huge groups of their citizens.
At right around the time Bitcoin and Ether started selling off on news of the DarkSide seizure, El Salvador's Millennial, social-media savvy president, Nayib Bukele, said he planned to introduce legislation to make Bitcoin legal tender in the Central American republic. The country already uses the U.S. dollar. And since Bukele's party dominates El Salvador's legislature, it could very well be a slam dunk, and it could happen this month.
Bukele was speaking via videoconference to a massive crypto conference in Miami, Fla. He also announced his country would be working with a digital wallet provider to beef up El Salvador's financial infrastructure, lift people out of poverty, and make the country more attractive to a wider group of international investors.
Bukele's plan is bold, but like I've said, it's far from a crazy idea.
El Salvador, a developing country with around $27 billion in GDP, is basically a cash-only economy. Trouble is, 70% of its people don't have bank accounts or plastic. Just like Egypt, which just announced it was using Ripple's technology, El Salvador depends on foreign remittances - money folks send home - for around 20% of its $27 billion GDP. Those remittances carry fees of as much as 10% if they go through traditional money networks or "remittance corridors."
According to the World Bank, across the world, there are around 1.7 billion "unbanked" adults who don't have a bank account. On the other hand, 5.5 billion people, or nearly every adult, has or has access to a mobile phone, which means they can hold digital wallets. Cryptocurrencies like Bitcoin are a simple, powerful solution to a big, expensive problem that affects billions of people around the world, and that's why, long-term, they'll gain and gain.
Even here in the United States or in other wealthy countries, Bitcoin and crypto are a way to make an end run around the inflation that's increasingly cropping up since the pandemic.
The bottom line is, all the fundamental ingredients are there to take Bitcoin and Ether back up to highs and beyond. Most of the major coins are holding at or near important support levels, and the Microcurrency Trader readers following along with my watch list are still targeting a chance at 150%, 400%, even, long-term, 1,000% gains on some of the smaller coins. That should tell you everything you need to know: At this point, serious crypto investors absolutely need to be buying into dips like these that happen when bad information, not bad fundamentals, upsets the pattern.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.