Bitcoin Price’s Volatility Can Be Your Best Ally, or Your Greatest Enemy
Strategy exists to make this volatility your best ally.
Bitcoin price’s volatility is well known. I will even go a step further and say that Bitcoin price can be extremely volatile. I think it’s important to remember this because the recent sharp drop we’ve seen on the Bitcoin market is mainly due to new entrants.
Different analyses of the peak of transactions that we saw on March 12, 2020 clearly show that the majority of Bitcoins that were traded were sold by addresses that had been holding them for less than a year.
A majority of the people who sold their Bitcoins abruptly on March 12, 2020 had therefore probably bought them in the second half of 2019 when the price went above $10K.
These people who had bought Bitcoin above $10K made a sudden decision to capitulate when Bitcoin price dropped more than 50% on March 12, 2020.
Some even decided to sell their Bitcoins well below the market price as we saw at one point on Coinbase where the Bitcoin price spread with other platforms reached record highs.
While the average price of Bitcoin was still $4.4K on the other platforms, people in total panic sold their Bitcoins around $3.8K. All this shows that managing emotions is a key to making a winning investment.
This unfortunate episode is also there to remind us that the extreme volatility of Bitcoin price can be your best ally, but also your greatest enemy. In what follows, I will discuss with you the strategy to make this volatility your best ally.
Bitcoin Price Volatility Is an Assumed Choice
The first thing to understand is that Bitcoin price’s volatility is an assumed choice. Bitcoin was designed to work continuously. Transactions can be conducted 365 days a year, 7 days a week, 24 hours a day.
Whatever happens, Bitcoin continues to add blocks of transactions to its Blockchain.
Bitcoin belongs to everyone, and therefore has no leader who can make arbitrary decisions to influence its operation.
As such, Bitcoin is the only true free market in the world. Unlike Wall Street, which will halt trading as soon as the market loses more than 7% in a single day, Bitcoin will continue to function whether its price loses 10% or 50%.
Bitcoin allows its users to find themselves the equilibrium price.
When Bitcoin loses $60 billion in capitalization in a few hours, as it did on March 12, 2020, no Bitcoiner will require a bailout or outside help.
When Wall Street loses 30% as it has done for the past month or so, all traders are calling on the Federal Reserve for a massive support plan for the U.S. economy.
The Federal Reserve always ends up giving in because it is the ultimate guarantor of this system which benefits only a minority of people.
The solutions generally consist of using the monetary stimulus to inject more and more liquidity. However, this seems to be working less and less as we can see at the moment.
On the other hand, Bitcoiners have accepted this sharp drop in Bitcoin price without fear. The rebound that followed allowed Bitcoin price to go back above $5K.
So its current price is really what its users are willing to pay for Bitcoin.
You Have to Believe in Bitcoin Before You Buy Bitcoin
People who buy Bitcoin when its price exceeds $10K unfortunately do so too often because they follow a FOMO (Fear of Missing Out) feeling that develops as soon as its price exceeds this psychological threshold.
In fact, they own Bitcoin even though they don’t believe in the revolution that Bitcoin is building for the future.
Owning Bitcoin without having understood how it works, and what it’s supposed to achieve is the most risky thing I can think of.
It then results in people capitulating when Bitcoin price drops sharply as it did on March 12, 2020. In the past, we had already experienced the same situation in 2018 during the very strong bear market that affected Bitcoin price.
Overall, people who buy Bitcoin without understanding how it works are the most likely to lose money on Bitcoin.
People who truly understand Bitcoin become HODLERS no matter what it takes.
Truly believing in Bitcoin is what will prevent you from making bad choices guided solely by your emotions when the Bitcoin price’s volatility is at its top.
In times of high Bitcoin volatility, HODLERS defer to the fundamentals of Bitcoin. And those fundamentals remain excellent.
With Bitcoin, You Have to Think Long Term
Once you understand how Bitcoin works, you have two options in my opinion:
- Choose to totally believe in the Bitcoin revolution.
- Choose to doubt that Bitcoin can never be an alternative to the current monetary and financial system.
Whatever happens, your options are limited to these two choices.
Some people believe a little bit in Bitcoin, but they hesitate. These people fall into the second category.
If you have any doubts about Bitcoin, the wisest thing for you to do is not to buy Bitcoin. This will prevent you from losing money by giving in to your emotions.
Not everyone has the ability to be a Bitcoiner, and to hold up in the face of such price volatility. If you can’t, you are in your absolute right. Nevertheless, stay away from Bitcoin for now.
If you believe in Bitcoin, you must take action.
People who fundamentally believe in Bitcoin become Bitcoiners who understand that there is a long way to go for Bitcoin to complete its revolution.
Like all great successes, Bitcoin’s success will not happen overnight. It will take time, a lot of time.
By committing to Bitcoin, you are making the choice to simply bet on the long term.
Having this in mind will allow you to avoid focusing on the short term with Bitcoin. When Bitcoin price goes down, or up, you will be able to control your emotions.
If Bitcoin Rises or Falls Sharply, Keep a Cool Head
Controlling emotions is the second key to having a winning strategy with Bitcoin. This famous strategy that will make the volatility of Bitcoin your best ally.
When Bitcoin sees its price soar or fall sharply, stay calm.
You know that Bitcoin, because of its youth, is subject to these sharp fluctuations. It’s always nice to see Bitcoin go above $10K or $15K, but its ambitious goals are long term.
So get on with your life and don’t make the mistake of selling Bitcoin purchased at $5K.
Be patient and continue to believe in Bitcoin. Bitcoin always rewards those who truly believe in it sooner or later. The longer you wait, the greater the reward.
When Bitcoin drops as sharply as it did on March 12, 2020, take a step back.
You will be able to see the bigger picture. The fundamentals of Bitcoin remain excellent, and it is only a matter of time before all the disappointed in the current system join the ranks of Bitcoiners.
In such moments of panic and fear like we live currently, you must choose to be greedy.
Being greedy means seeing a $4K or $5K Bitcoin as a unique opportunity to buy more. Again, if you don’t really believe in Bitcoin, you won’t be able to do this.
Only Bitcoiners are able to do this because they are certain of the future success of Bitcoin. So a $5K Bitcoin doesn’t scare them, and it is precisely the best strategy to make its volatility a great ally rather than an enemy.
Bitcoin price’s volatility is well known, but as soon as its price exceeds $10K, many people forget this fundamental truth. They then buy Bitcoin without really understanding how it works, and what are its ambitious goals.
Unfortunately, these people are the first to pay a high price when Bitcoin price goes sharply down, because they tend to capitulate very quickly.
Once again, this is an essential lesson that recent events remind us of. To make Bitcoin’s volatility your best ally, you must absolutely believe in Bitcoin. This total belief will allow you to keep a cool head when its volatility is at its peak.
You will then be able to see this as an opportunity, and you will be able to take full advantage of it.