With Bitcoin's surge above $40,000 on Monday, the bellwether crypto-coin hit its highest trading level in six weeks and pulled off a trough-to-peak gain of 37% in just six trading days.
To make sense of it all and - more importantly - tell you exactly what to do about it, I turned to my friend and Money Map Press colleague David Zeiler, a respected cryptocurrency expert who actually mined Bitcoin back when it was still possible for individuals to do so.
"The recent spike in the price of Bitcoin was impressive - no doubt about it," Dave told me in a talk late Monday night. "Think about this, Bill... just a week ago (July 20), it was trading below $30,000 - but during this recent rally, it managed to briefly pop over $40,000. That's a 37% swing in a mere six trading days. Granted, Bitcoin didn't hold above $40,000. It slipped back to $37,000 and has been whipsawing folks ever since."
The bottom line, Dave said, is that this is just "Bitcoin being Bitcoin."
And he said that you shouldn't allow this latest display of crypto-cantankerousness to chase you away from what he continues to see as a major long-run wealth window.
There are plenty of opportunities to make money. And we're going to show you some of them here today.
Here's What You Need to Know
In an interview here back in early January, Dave predicted that Bitcoin would triple to $100,000 by the end of 2021.
At the time, the crypto bellwether was trading at about $31,400.
By mid-April - just ahead of the stock market debut of cryptocurrency exchange Coinbase Global Inc. (NASDAQ: COIN) - Bitcoin had zoomed to a record high up near $65,000.
In short, the blue-chip digital currency was already halfway to Dave's target.
But that peak has been followed by twin sell-offs, the first in late May and the next one in late June - both of them wrenching. Crypto prices crashed: Bitcoin has traded as low as $29,031 - a peak-to-trough decline of 55.2% from the record peak of $64,829 hit back in April.
Last Tuesday (July 20), Bitcoin traded as low as $29,360.96. Yesterday, it traded as high as $40,245 - that trough-to-peak surge of 37% I referenced before.
Bitcoin last traded above the $40,000 level all the way back on June 16.
I once again reached out to Dave and posed the "Foremost Four" - key questions you need to have answered to position yourself for maximum long-term cryptocurrency gains.
Those questions:
- What's happening here?
- What's next for cryptocurrencies?
- How should folks identify the best profit plays to cash in on?
- And, finally, what should investors do to protect themselves?
The key takeaway from this latest talk: This truly is "Bitcoin being Bitcoin."
It's a pattern of volatility that repeats itself over and over again - one that chases away the "weak hands" (investors who aren't really sold on crypto's future)... but one that also gives long-horizon investors a "second chance" to take a stake in a tradeable asset that's ultimately headed higher.
"It's the long run that matters here," Dave told me during our late-evening chat Monday. "But it's the near-term patterns - up or down - that generate all the excitement. Every time Bitcoin drops, you start seeing a lot of 'gloom and doom' chatter - and the 'crypto newbies' dump their holdings. Veteran cryptocurrency players - and I'm talking investors like you, Bill, or traders like many of my contacts out in the marketplace - realize by now that Bitcoin and its brethren have decidedly volatile demeanors. That's their nature. Yes, Bitcoin crashes - as we've seen repeatedly. But those crashes are invariably followed by spectacular rallies. You just have to be patient - to play the long game. You have to look at corrections as a tremendous buying opportunity. That may sound a bit trite on its face, but if you look deeper, you'll understand that it's really quite shrewd advice."
Let me share the rest of my talk with Dave...
Decrypting Cryptocurrencies
William Patalon, III (Q): OK, Dave ... I joked about the "Foremost Four" - since I seem to ask pretty much the same quartet of queries for cryptocurrencies.
David Zeiler (A): That's true, Bill. Are we getting boring? Fallen into a rut?
[Silence... then laughter from both]
WPIII and DZ (Unison): Nah!
[Both laughing]
DZ (A): OK, OK... all kidding aside... it kinda makes sense that you're asking those same four questions - because the same "upside/downside" trading pattern just keeps repeating itself.
WPIII (Q): As you sagely noted... "Bitcoin being Bitcoin."
DZ (A): [Nodding] Exactly.
So it makes sense that we're answering those same questions, because what investors are really thinking (to themselves) is: "It's the same pattern... but is it headed toward the same outcome? Or are things 'different this time?' That's what I want to know. That's what I need to know."
And that's what they're asking.
WPIII (Q): Hence the "Foremost Four." In fact, by posing those same four questions - and testing if the answers we've given folks still hold true - we can revisit the "Bitcoin Baseline" we've kinda established with the answers to those queries.
DZ (A): [Nodding] Precisely.
WPIII (Q): So, let's start with that first one - Query No. 1: "What's happening here?"
DZ (A): You know, it's interesting... because I was looking over one of our most-recent talks - specifically the one that steepened back in the spring. And I noted how it was ignited by converging catalysts.
That was fascinating to me because I'm going to make the same observation about the rally we've just seen.
WPIII (Q): How so?
DZ (A): As to why this happened now, and why so suddenly, it was a combination of factors. It usually is with Bitcoin.
Many are crediting this rally to the news that Amazon.com Inc. (NASDAQ: AMZN) is considering accepting Bitcoin - and possibly other cryptocurrencies - as payment.
That speculation was triggered by an ad that Amazon posted looking for a digital currency expert to "develop Amazon's digital currency and blockchain strategy and product roadmap."
That was one trigger - Catalyst No. 1.
And there were more.
A second - Catalyst No. 2 - was a statement by billionaire entrepreneur Elon Musk that Tesla Inc. (NASDAQ: TSLA) would likely return to accepting Bitcoin as payment sometime soon. As we all know too well, anytime Musk says anything about crypto, the markets react - and can rock and roll.
WPIII (Q): But there were more triggers still, weren't there?
DZ (A): There were, indeed.
The Amazon/Musk triggers launched the rally.
To go vertical, though, the rally needed rocket fuel.
And that brings us to Catalyst No. 3 - a massive short squeeze. This has happened before, so you'd think the short-sellers would have learned their lesson. Some reports I saw said $1 billion worth of short positions were liquidated in just 12 hours. That's why the spike higher was so steep.
WPIII (Q): That brings us to Query No. 2: "What's next for cryptocurrencies?"
DZ (A): While all this is fun to follow - there's plenty of drama, and that drama is fascinating - in the big picture, it doesn't mean much. We see these rallies and plunges all the time. That's the nature of Bitcoin.
But whenever you start worrying about volatility, whether prices are moving up or down, it's important to step back and remember what really matters in the long term.
WPIII (Q): What really matters is the long term. This is really the latest step in the ongoing evolution of money itself.
DZ (A): Well said, Bill... well said.
In the long term, the Bitcoin price is up thousands of percent from where it was a few years ago. It has gone up almost every year since it launched a dozen years ago. I expect that trend to continue - well into the future. Two years from now, Bitcoin will be much higher than it is today. Five years from now, higher still. Bitcoin is the vanguard of a crypto revolution that is remaking the world of finance. That's why it will keep moving higher.
WPIII (Q): That brings us to Query No. 3: "How should folks identify the best profit plays to cash in on?"
DZ (A): What is true for Bitcoin goes for the other top cryptocurrencies as well, such as Ethereum (ETH) - which, by the way, has enjoyed a similar rally over the past week. It also goes for a crypto-based company like cryptocurrency exchange Coinbase Global Inc. (NASDAQ: COIN) - which will benefit from the growing interest in crypto from both retail and institutional investors.
WPIII (Q): That brings us to Query No. 4: "What should investors do to protect themselves?"
DZ (A): Crypto is a transformational technology that's creating value. It's a nascent investment opportunity on par with the Internet 25 years ago. You want to have at least a little exposure to it - even if it's only 1% or 2% of your portfolio.
Then there's Coinbase, an opportunity we also detailed for you.
The Coinbase offering back on April 14 was viewed as a stock-market validation of "cryptocurrency" as an asset class. And the Coinbase buzz led to a wild first day of trading: Although COIN had a "reference price" of $250 a share, the stock shot out of the gate at about $381. It briefly traded above $429 - giving the company a market value in excess of $100 billion. It finally ended that energetic first day at $328.28.
This was a long-awaited stock offering - and the interest was huge. Truly huge. I mean, almost 17 million shares changed hands in the first 10 minutes. The Coinbase intrigue is easy to understand. Cryptocurrency investing will be a growth market for years to come... for the reasons we've been talking about in these Q&A sessions we've been doing. Millions of investors - not just in the United States, but all around the world - have yet to buy crypto. As a company that's already operating in more than 100 countries, Coinbase is perfectly positioned to cash in.
Just think:
- Brand recognition is high.
- It has a dominant market position.
- And the ease-of-use advantage the company possesses really should allow it to maintain that dominant spot for a long time to come.
There are risks, to be sure. But the strengths and opportunities should pave the way for Coinbase to carry the day - at least for a while.
Again, we told readers to "Accumulate" this one, too. And we stand by that rating.
WPIII (Q): The last time we talked, COIN was down around $230. We told you folks to snag some shares back then. In fact, you specifically described it as "a terrific place to start or add to your stake." And you were correct ...
DZ (A): Nothing like a great call ...
WPIII (Q): Thanks to Dave Zeiler - Money Map's "Crypto King" - for his insights. Rest assured - as we do with all our recommendations - we'll circle back with updates.
Editor's Note: I think everyone that's read and enjoyed this interview should hear what Tom Gentile, one of America's best crypto trading experts, has to say about the crypto markets right now. He's looking at a select group of "microcurrencies" that have been seen to beat Bitcoin by 30X, 50X, even 100X at times. This small market is projected to get a $14.2 trillion economic boost over the next four years, and the windfall potential could be staggering. Here's what Tom has to say about it...
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.