Now with the Bitcoin price taking a short trip to the north, many of the big Bitcoin news sites are producing technical analysis articles talking about how resistance lines are being broken and that if we can just hold to current levels and nudge a little higher, we might see another breakout in price that may, just may, be the beginning of the next bubble. Oh, they don’t call it a bubble, but that is what they are all waiting for.
The only thing we know for sure about the price of Bitcoin is that it’s going to swing – and pretty wildly. If Bitcoin becomes what we all think and hope it will, a reserve world currency on par or even exceeding gold, then we are going to need to see massive spikes in price, and those spikes are going to cause massive drops in price. The price can only stabilize at a relatively placid range once it has reached a market cap high enough for it to accommodate a role as a long-term store of value as well as a means to transmit medium to large sums of value nearly instantaneously. This will be Bitcoin’s natural price, and we are years from know what that’s eventually going to be.
Where technical analysis works: from what I can tell, technical analysis is nothing more than trying to apply mass psychology to market prediction by trying to identify where people will see something as cheap and were they will see it as expensive.
What makes technical analysis difficult: In order to make accurate predictions, the analyst needs to know about how many people are in or interest in a market, what their interests and objectives are, and what they are afraid of. The analyst also needs to know about how much money these people, individually and in aggregate, are willing to move in and out of the market at any given time. They then need to make a guess about how much money being put in or pulled out will seriously affect the market.
What makes technical analysis impossible: It’s my perception that technical analysis not a whole lot different than reading tea leaves and making educated guesses at the best of times. With a market as small as Bitcoin’s, where one moderately wealthy early adopter can decide he wants to summer house and spark a panic sell when he tries to liquidate, predicting what the market will do is a crap shoot.
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In the long-term, we are confident in Bitcoin’s potential and are sure that the price will rise to fulfill that potential. In the short-term, we feel that a prediction of the market going down is usually going to trump a prediction of its going up just because of the number of wealthy adopters willing to cash out to improve their lifestyles coupled with traders willing to use shorts to take money away from those willing to go against them.
So, when I read articles telling us that the price of Bitcoin doesn’t matter, that it’s everything, that it’s really about the blockchain, that the price is going to pop or bust, I can’t help but just shake my head. The price is going to do what it’s going to do. I’ll just keep HODLing, acquiring, donating, or using as it seems best at the time and wait for the moment when Bitcoin really does start to climb, not because of some random investor deciding it’s time to buy a few, but because a country has decided it’s had enough of its plutocracy, a banking crisis forces people to search for a safe haven, a new use for the blockchain brings it to the attention of the masses and makes the feel comfortable with it, or one of the other possible triggers that will finally make Bitcoin pop for real.
In short: HODL, spend, acquire, and wait for better times.