Down the Bitcoin Rabbit Hole
Chapter 9: I Didn't Buy the Dip, But I Have a Good Reason
Did you buy the dip? You have been waiting, watching! You have heard people call it a bubble that has to pop. Just last Friday, I told you that it had doubled in a month. There is no way it can keep that pace.
You say to yourself “the next time it dips, I am going to buy it.” The dip comes, it goes down ~25% in three days. “No way I am going to buy something that can drop that far that fast, I am not buying any. I will wait for it to stabilize. Oh wait, it’s back to where is was last Friday, that’s too high for me. I will be ready for the next dip.”
There is some version of this conversation playing out all of the world right now. It might be with another person, it might be on social media, it might be in the person’s head, but it’s happening. This is why I don’t try to time trades in bitcoin. I am long-term believer and twice a month I buy some. I am actually upset that it has rebounded so quickly because I am set to buy some today. I would much rather buy it at $30,000 than $40,000. But, I have developed my plan exactly to avoid having that conversation with myself. I did not buy the dip because I was not scheduled to buy bitcoin on Monday. At the same time, I was not one of the people who was losing their minds over the weekend because of a 25% hit. I honestly didn’t give it much thought at all. That’s not entirely true. I was paying attention to the price action. But, I have done the work and built a plan and until there is a reason to change the plan, I am not going to.
President-elect Biden spoke last night, laid out his spending plan. One point nine trillion dollars. I remember when the entire financial system was on the verge of collapse and Hank Paulson went to congress to ask for $700 billion and they voted “no” at first. Now we are talking about trillions with a T. And guess what? I am going to go out on a limb and say that Mr. Biden gets his $1.9 trillion. His timing for priming congress and the nation could not be better. Yesterday we learned that initial jobless claims were near one million again last week.
We have to begin to wonder what the permanent scarring from this will be. Are we going to be in a place where the government is continuously mailing people checks. That sounds great until you you see the second order impacts. Sure it helps in the short-term but if implemented for too long, what happens? What does our grocery bill look like? Look at the price of corn…again!
How much will it cost to fill the car with gas? Maybe this is part of the reason that EV (electric vehicle) stocks are so hot? I am asking, I really don’t know the answers. I know I want a Tesla (I own the stock).
But I think the end game is people will be penalized for holding cash through an erosion of their purchasing power. There will be an unending search for ways to protect it: stocks, scarce commodities like gold and bitcoin all make sense to a one degree or another in my mind. This probably also makes sense in light of the comments from Fed Chairman Powell yesterday. Here is quick recap from Fact Set:
Fed Chair Powell also said that the time to raise interest rates is no time soon, and that the Fed won't hike rates unless it sees troubling inflation and imbalances. He also said that the Fed won't tie itself to any particular formula when inflation rises to the 2% target.
So we have a large fiscal stimulus and spending plan and an accommodative Federal Reserve. I think it is hard to bet against that in the near-term.
PS: I did a video again yesterday. As you can see behind me, we order from Chewy for Lola. I don’t own the stock. That’s probably not smart. We love our pets, they are part of the family. That chart looks great. The product is sitting in my office. Why don’t I own this?
As always, nothing in here should be considered specific investment advice. These are just my thoughts as they come to mind. I could change my mind at anytime if something changes. Anything can happen, anything happens all the time.
Thank you for following along. Have a great weekend. Markets are closed on Monday. I will be taking the long weekend. Back on Tuesday.
If you are interested in reading what I write about the market in more detail, head over here: