Bitcoin as poison
The views on bitcoin among various investors are quite polarized. The whole spectrum includes both people directly owning the cryptocurrency and those who seem to hate it. We have read analyses suggesting that a surprising percentage of hedge fund managers own digital coins. At the same time, Warren Buffett's investment chief, Charlie Munger, called bitcoin “noxious poison.” Do such words mean that Bitcoin is doomed? In an article on the Guardian website, we read:
Bitcoin is heading towards $10,000 again, despite comments from the US billionaire Charles Munger who described the digital currency as “noxious poison”.
Speaking at the annual meeting of the U.S. publishing firm Daily Journal, which he chairs, in Los Angeles on Wednesday, Munger said: “I never considered for one second having anything to do with it. I detested it the moment it was raised. It’s just disgusting. Bitcoin is noxious poison.”
Bitcoin is rising towards $10,000, a level it has not seen since 1 February. It hit $9,977 earlier on Thursday and is now trading at around $9,580, up nearly 1%.
Munger called for a government crackdown on the cryptocurrency, similar to the one in China, saying: “Our government’s more lax approach to it is wrong. The right answer to something like that is to step on it hard.”
Investors like Charlie Munger have tremendous expertise in picking specific kind of stocks, in particular companies which seem relatively “cheap”. This is the cornerstone of what is described as value investing. At the same time, they are not really interested in macroeconomics, technology, currencies and so on. On some level, it is easy to label something which has appreciated markedly a bubble. Our point here is not to disregard the quite worrying magnitude of Bitcoin appreciation to $20,000 and the recent slide. We do believe, however, that you can’t have a complete picture not considering the details of the currency. And so, we would like to give you just a bit of flavor why Bitcoin is not necessarily done.
First of all, the fact that something has gone up a lot doesn’t mean it can’t go further still. Look at Amazon. We heard the story that Amazon was overvalued, “a bubble” and so on back in 2014 when the stock was close to $300. Now, it’s close to $1,500. Take Facebook, Google and other major technology companies. What was dubbed “overvalued” years ago is now a lot higher. A lot. The other example is Bitcoin itself.
When the currency went down in early 2014 it was frequently described as the end of the bubble. Fast forward a couple of years and we had Bitcoin at $20,000. So much for the burst of the previous bubble. Now, we care about providing you with the details, so we have to stress that the move to $20,000 indeed looked worrying. Our point here is that you can’t slap terms like “noxious poison” on Bitcoin without considering the current emotions and trends in the market.
Risk of Missing Out on a Rebound in Bitcoin
Bitcoin is on the move up. Or is it?
The situation is still as tense as a hypothetical already profitable trade can be. The question remains whether the profits on the position will grow from here or changes to the outlook have indeed transpired. Certainly, one part of the story is that the move up has been unfolding on waning volume. This is an indication. While a move down on low volume wouldn’t necessarily have bullish indication, a move up on decreasing volume might have such implications.
In the last 10 days, we have seen a move up and the indications remain in place. The move so far hasn’t been on particularly convincing volume which is a bearish indication. Also, the currency is still below the psychological level of $10,000. An even more important point is that even if the currency moves above this level, we don’t necessarily have to see an acceleration of the rebound. This might be better visible on the long-term chart.