By Eric Shamilov, contributing editor, Market Minute
Bitcoin headlines are funny…
They always seem to reach just a little too far.
The most recent example was the hype around El Salvador’s new law allowing bitcoin to be used as legal tender back in June.
For reference, the country’s entire GDP was about 28 times smaller than bitcoin’s market cap.
The announcement, as did the headlines, came and went.
Many chart observers thought the price of bitcoin was about to fall off a cliff…
After all, if an actual country adopted bitcoin as legal tender and it still didn’t rise… then it must be heading lower!
It took bitcoin nearly a month after the official announcement to start rebounding. In that time, it rose 70% from around $30,000 with no major headlines in sight… a level we here at Market Minute have been recommending – regardless of the news.
El Salvador finally had their big kick off on Tuesday. Due to some minor technical glitches during the rollout, the country had to shut down its official digital wallet before getting it back and running the same day.
Bitcoin then fell from $51,000 to $43,000 within 90 minutes.
Some are even beginning to wonder whether bitcoin is somehow a failed experiment – a direct cause for the plunge.
But El Salvador didn’t let the selloff go to waste…
They bought an additional 150 coins, bringing the entire country’s holdings to a “staggering” 550 coins… or the equivalent of about $26 million.
I say this sarcastically only to show that headlines matter… but only when they’re big enough to matter.
And this just wasn’t it. Think about it…
If bitcoin replaces fiat currency, that would spell the end of the grand experiment we call modern monetary theory – an experiment that all of the central banks around the world are in on, using us as the guinea pigs.
However, bitcoin can’t replace fiat because bitcoin has limited supply… while central banks don’t.
To cushion the blow of a recession, central banks print more and more fiat currency to add liquidity back into the economy. So far, it’s worked. Markets withstood both the 2008 crisis and a global pandemic.
So, the entire premise that bitcoin will replace fiat like a light switch is kind of funny to begin with.
It’ll take more than a small country adopting bitcoin as legal tender for that to happen… it’ll require a complete shift in economic thought.
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If bitcoin does eventually replace fiat, the question becomes very simple, “How do you inject liquidity during times of crisis when you can’t print more bitcoin?”
Or maybe the question is, “Do you just let the pieces fall where they may and let true capitalism do its thing?”
Truthfully, fiat and bitcoin can, for now, exist side by side…
On another note, what’s currently happening with bitcoin is much simpler than most analysts would like to believe… and that’s just a good old-fashioned consolidation.
When bitcoin hit $48,000 after bouncing from $30,000, I wrote:
Going by our volume profile indicator above, I expect it to start consolidating (or trading in a range) between $42K and $48K before it goes higher to challenge its all-time highs…
For traders that bought the lower $30K area, this could create an opportunity to take some profits.
And finally, for long-term bitcoin investors, I would wait and buy bitcoin at $42K when the chance presents itself again.
I’m not the only one taking a sober approach to bitcoin’s big rebound from $30,000…
During a recent Bloomberg interview, renowned crypto investor Mike Novogratz said the volatility had more to do with investors “having gotten a little too excited” than anything else… adding that it simply got overbought.
And that’s the simple truth of it – bitcoin got overbought.
The excitement over El Salvador isn’t really going to move the needle on bitcoin.
What it will do, though, is increase crypto’s capability of operating at scale by learning from the mistakes of this rollout.
In the meantime, I’m still looking for bitcoin to consolidate from $42,000 to $48,000, and selling out of the money calls and puts for crypto stocks like Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT).
Contributing editor, Market Minute
Happy Friday Market Minute readers. I’m back with another presentation on what’s been happening in the markets this week.
Today, I’ll be going over some international markets, tapering, and which country is more interested in having a weak currency.
Click below to start watching…
Would you like to trade your dollars for bitcoin, or are you happy with fiat currency as we know it?
As a reminder, I’d like to write a mailbag issue soon, where I answer your most pertinent trading questions. So, be sure to write in your thoughts – and any questions you have – at [email protected].