Bitcoin Breaks $60K! What Should You Do? YOLO Buy? Sell?

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Market News and Short-Term Predictions

We need to talk about crypto this week because people may be feeling FOMO (skip to the lessons to be learned if you want to know how I deal with it). I am going to go through my thought process and how I plan to maneuver through this bull market.

Bitcoin recently crossed the psychological level of $60k. The previous all-time high was established in November 2021 around $69k and that will be the next big level to pass. If it breaks all-time highs, we are entering a whole new world of price discovery.

That may occur sometime after the halving cycle which occurs in April of this year. If you're not familiar with Bitcoin halvings, read this article.

The last halving event occurred in May 2020 and coincided with a small bump in BTC's value. It wasn't until late 2020 that Bitcoin saw a huge rally, seeing its value climb from around $11,000 in October 2020 to around $60,000 in March 2021.

So how high will it go this cycle?

Bitcoin is still extremely speculative in my eyes as it is a relatively new asset class, doesn't have cashflows, and the volatility is insane. I'll admit it is hard to invest with an intrinsic value in mind, it is more so that I believe the value will increase over time due to an increase in demand (ETFs/store of value/technological improvements) paired with supply shock (halvings).

Due to this nature, I apply an allocation rule to cryptocurrency as an asset class. Everyone is going to have a different tolerance for risk, or they may view crypto as an insurance policy against the current fiat system. Either way, I select a % of my net worth that I am comfortable with owning in crypto. I have a lower limit and an upper limit. If the upper limit is breached, I start to trim my crypto positions. If the lower limit is broken, I add to my crypto positions assuming that we are in a bear market and that over time the markets will recover (based on both returning demand and technological developments).

This week I triggered that %, so I went ahead and trimmed some positions. I take the proceeds and put them into my Ally HYSA account and set aside money for taxes I'll need to pay on the gains next tax season. The proceeds I either deploy in other investable opportunities or leave as cash ready to buy back during a crypto bear market.

In terms of value projections for bitcoin, it is mostly an art and not necessarily a science. I'm not going to bullshit you by saying bitcoin is 100% going to $100k...know one knows the future, but we can take educated guesses.

Based on history, past cycles, and the continuation of demand through institutional investors and the need for a non-fiat-backed currency/store of value I think the trend continues. If the cycle breaks, that is where it needs to be investigated. 

With all that said, $100k is achievable based on history.

In previous cycles, I looked from the previous all-time high to the last all-time high to see the multiple it usually moves. The chart below shows previous highs going back to inception. If we take the last cycle high of $69k, it is about 3x the last high. 

The amount that bitcoin goes up over the last all-time high has gotten smaller and smaller over time. The theory there is the law of large numbers. I don't expect Bitcoin to 10x in a halving cycle in its current mainstream state. So to be more conservative, let's say it will go up 2x from the previous all-time high. 

Again this is all speculative, but that would put Bitcoin anywhere from $100k-$150k in this next cycle. 

I've been in Bitcoin since 2015 and this is the approach that has worked well for me (both emotionally and monetarily), so I'm sticking to the same game plan. 

Over time, I'll most likely lower my upper limit of Bitcoin as the % gains to the upside will be less asymmetric and it will act more and more like gold (flat to small growth). But until it reaches global adoption (for storing value/currency), I plan to implement an allocation % approach.

Even if Bitcoin went to $0 (highly unlikely), I would have derisked through the years and still come out ahead!

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Now back to the regular programming. What is going on in the stock market?

The Federal Reserve’s preferred gauge of underlying inflation rose in January at the fastest pace in nearly a year, helping explain policymakers’ patient approach to start cutting interest rates.

The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.4% from December, data out Thursday showed. From a year ago, it advanced 2.8%. Economists consider this to be a better gauge of underlying inflation than the overall index.

You also had The US economy expanding at a slightly slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment.

Gross domestic product rose at a revised 3.2% annualized pace in the fourth quarter, compared with a prior estimate of 3.3%. Consumer spending advanced at a 3% rate, faster than initially estimated, Bureau of Economic Analysis figures showed Wednesday. Inflation was revised higher.

For both inflation/GDP, I would say they came in as expected so not too much volatility from the markets.

Looking at the graph below, Weekly RSI still stands at higher levels (76), so I wouldn't be surprised by a pullback of 5-10% for no other reason than the markets need a breather. When exactly, it's hard to say but after the latest earnings season, there is lots of expectation for growth returning to the market (aka valuation multiples are expanding).

Lessons to Be Learned

I'll admit that from time to time I get FOMO :)

I'm only human and although I've been investing for over 15 years, I still get bit by the FOMO bug occasionally. 

Maybe by talking through my experience, you can learn from me or see how you can try to wrangle it in (Or not haha, you do you). But for those struggling with it, let's discuss how I try to handle it.

There are 2 different forms that I have dealt with.

1. The "OMG I just missed investing in XYZ stock and of course, it rockets 50% higher in 6 months"

And why yes, the only reason I am writing this section is that this very thought popped into my head today as I saw CELH continually rip 60% ($50 to $80) higher in a month when I almost established a position at the beginning of February at $50. I waited for a pullback and never got one.

But that thought process isn't healthy. The "what if" game is dumb. 

I could have also bought NVDA call options a year ago and been chilling on a yacht with Nancy Pelosi, but I digress. The only thing we can control is the present moment. Would I buy the stock now, if yes "cool", if not "move on". No need to torture yourself (unless you're into that sort of thing).

The second thought to help you is not all of your decisions when it comes to investing are going to be perfect. Investing well is a sum of all your decisions and making sure you exercise a mix of logic and risk management. Over the long term, this is how you don't blow up your account and can guarantee your wealth grows.

Making enough "winning" rational decisions in those "now" moments is how you win long term. You'll have losers in the portfolio, but the winners will outweigh the losers.

2. The "I have no idea what this investment is, but I see everyone making money so I'm buying some"

This is easier to think around a concept like crypto. 

If you understand the tech, and the risk (speculative), have a game plan, and keep up to date with the development/news cycles, you are less likely to panic when you experience volatility. 

You can even apply the same logic to a stock. If you have done your homework and the stock goes down, you don't freak out. If you just copy-trade others and the stock goes down you may panic because you don't have the confidence of what the value of that stock is so you are more likely to panic sell.

To apply these concepts, you do need to recognize when you're having feelings of FOMO. Key in on that feeling to recognize it. If you can identify the trigger, you can practice ways to avoid the trigger or apply logical thinking when you go down the FOMO rabbit hole.

Now I feel like a therapist lol, anyway hope that helps!

Portfolio Update

Stock Watchlist

Stocks: TSLA, LLY, ADSK, SBUX, NOW, CELH

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