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Analysis & Learning

Bitcoin and ether cryptocurrencies

October 19, 2021

It is very tempting to write off bitcoin and other cryptocurrencies as wildly over-hyped speculations. Human beings often do that; it is easier than thinking. Establishment figures like the Governor of the Bank of England don’t like bitcoin and so make disparaging comments but that is hardly surprising and certainly not conclusive.

What I noticed a long time ago is that bitcoin is about the most perfect speculative instrument ever devised. The supply is fixed even more rigidly than the supply of such other famous stores of value as gold while demand is arguably related to the fast-growing amount of paper money in the world.. This is why one very simple target for bitcoin is the value of all the world’s gold, circa $7.5 trillion, divided by the maximum potential number of bitcoins, fixed by the founder at 21m. This gives a figure of $357,000 per bitcoin.

This is an arbitrary figure but not an unreasonable one if bitcoin is taking over from gold as the world’s favourite store of value and if bitcoin can reach a third of a million dollars there are going to be plenty of people targeting a million dollars to take the value of all the world’s bitcoin to $21 trillion.

One of the beauties of bitcoin is that it and other cryptocurrencies have no fundamentals which can be used to say they are cheap or dear. The right price is the one determined by the interplay of buyers and sellers at any moment in time and one thing we do know is that there is huge global interest in buying bitcoin.

My simple approach to bitcoin which has guided my strategy from the beginning is (a) to assume that the price could rise much higher. If it can go from being priced in cents to over $1,000 and now to over $50,000 anything is possible. Then (b) I use chart signals to tell me when to buy. Because of the long term uptrend these have worked so well in the past that since 2015 bitcoin has been the single best performing asset on Quentinvest.

One thing that has worked very well with cryptos, especially the main two, bitcoin and ether, has been to ride out volatility and never sell. The chart buy signals have also worked well but this is always the case when an asset is in a long-term secular uptrend which is why I work so hard on Quentivest to identify such assets.

Microstrategy and Silvergate Capital Corporation offer alternative ways to buy shares in companies whose fortunes are closely linked to cryptos.

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