Bitcoin has crashed. Yesterday’s high was $7,969 and the low was $3,596, which amounts to a 55% fall, epic by any market’s standard.
I have bought. This sounds more grand than it is as my doctrine on this is to buy a chunk every $1,000 down, which saw me buy three chunks at $7,500, 6,500, 5,500, missing $4,500 and $3,500 because I was asleep. When I awoke it was a little above $5,000.
That is a shame but in these kinds of markets you simple have to forget a tight view on price because the markets are malfunctioning and in a way rightly so.
They are behaving like this because a lot of people are getting margin calls on their borrowings and are liquidating their uncollateralized liquid assets. That will be crypto for some. This is why gold fell yesterday, too. Gold is the classic haven asset and of course if your banker is banging on your door you have to sell it to cover your margin because the fancy car, yacht and houses are already standing as collateral for your borrowings.
I wrote earlier here that the market would be the thermometer of the virus because of China. This would be driven by the demand for flight capital there. The need has gone because there is no possibility of flight because no one will accept you at the other end. What is more, the need for cash not just for margin, but for propping up business, is now acute. The driver of the trade war is also moot because who knows if the Chinese currency is going to be relatively weak or strong in a world where every government is going to be hosing cash at this problem to bridge the “demand shock” that will be shaking the global economy as the developed world goes into lock down.
So what to do now?
The critical call is, are you a crypto believer? If you aren’t, stay away. No matter what bitcoin does, up or down, if you don’t believe in bitcoin in your gut and marrow, do not get involved. This is the most volatile of assets even without the ability to halve overnight. If you don’t believe, this is not the game to play.
If you believe, it is simple. You buy the dip and you buy the crash and you acquire bits and bobs as if you had a special savings account. This is a kind of ultra-extreme “buy and hold” dynamic.
In this construct, you aren’t looking at making money in the short or medium term, you are simply looking to acquire as much bitcoin as is sensible without a broader portfolio of long-term investments.
To do this you have to believe in the asset and have to be comfortable with being potentially utterly wrong. That means having the right amount of exposure to it among your other investments and having a clear and simple plan.
If you believe, you have to buy this crash. But how?
Here is a guide:
This is the best way to buy any crash. Crashes can be V bottomed but they are rare. The best way to buy a crash is to let it run its course and buy on the last leg of the W or buy across the base of what you think is the bottom.
So here we are:
The first leg of the W is in, it might not be all of it but if you are a believer you can see it’s time to be dipping in to buying. When the W starts forming as time passes, the certainty that the bottom is in increases and with that it increasingly becomes time to buy the crash.
If you are not a bitcoin believer you should stay away because in this all market crash, cash is king and playing is not for the faint-hearted.
Whatever market you are in the key is to buy the crash by buying the recovery. Don’t try to get the bottom of the first leg because no one knows where that is going to be.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.