Bitcoin prices exploded in 2017. The cryptocurrency began the year near $1,000 and hit a high around $20,000 in December. For the investors that caught a bulk of that ride, those one-year returns are enough to be a serious game-changer for the entire life of their portfolio.
It’s not just Bitcoin prices though, but all sorts of assets in the crypto space. Ripple, ethereum, litecoin and others have all burst higher as well. Heck, even regular companies have enjoyed a crypto bump.
Square Inc (NYSE:SQ) began a pilot program on its Cash app allowing users to buy and sell Bitcoin. It has since opened that program to more users and will likely incorporate more Bitcoin functions in the future.
Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) have seen GPU sales rise thanks to cryptocurrency miners buying their equipment.
Despite this sudden bump in GPU demand, both management teams have been cautious about its sustainability. Some thought the big fall in Bitcoin prices might deter miners. But keep in mind, near $9,000, Bitcoin is still up almost nine-fold over the last 14 months or so.
As long as crypto prices remain elevated, mining efforts should keep GPU demand steady.
Is Bitcoin for Real?
I think Bitcoin prices are a bubble. But that doesn’t mean the asset is not legitimate. Consider that the real estate market in Toronto is in a bubble. The U.S. housing market was in a bubble in the mid-2000s and before that, there was the dot-com bubble.
Companies like Amazon.com, Inc. (NASDAQ:AMZN), Intel Corporation (NASDAQ:INTC), Cisco Systems, Inc (NASDAQ:CSCO), Qualcomm, Inc. (NASDAQ:QCOM) and tons of others all saw their stocks explode higher. It didn’t mean that the underlying asset — the businesses in this case — were illegitimate. Only that the stock prices were in a bubble.
I don’t know the future of Bitcoin — not by a long shot. However, it’s hard for me to imagine investors throwing out their gold hoards in place of Bitcoin. It’s hard to picture Bitcoin replacing the U.S. dollar as the world’s reserve currency and ultimately replacing all fiat currencies. We can’t say it’s impossible because we never know how quickly technology will develop and what form it will take in the future.
But at least we know the foundation that Bitcoin is built on — blockchain — has a serious place in our future. Be it in finance, logistics and supply chains, blockchain has proven its value.
It’s no wonder banks are picking up on it and International Business Machines Corp (NYSE:IBM) is working on extracting its value. The latest company entering the mix? Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Trading the Bitcoin Death Cross
Whenever I think of where Bitcoin prices are going, I think of Didi Taihuttu. Taihuttu is the one who, with his wife’s agreement obviously, sold all of their family’s belongings and put the money into Bitcoin. House, cars, everything. He made the all-in move a while ago, so if Taihuttu has stuck with his outlook on cryptocurrencies, he’s made an absolute killing.
What’s that? A death cross is a technical term in trading when the 50-day moving average crosses below the 200-day moving average. It signals that the longer-term trend is no longer bullish. With the 50-day now below the 100-day moving average, the 200-day moving average could be next.
The Bitcoin death cross hasn’t happened yet, and it may not happen anytime soon. If Bitcoin can piece together a decent rally, it should put the Bitcoin death cross worries at ease. The cryptocurrency has a tendency to rally, then consolidate. After its monstrous move into year-end 2017, this prolonged “cooling period” is no surprise.
Note that its last consolidation level occurred between $4,000 and $5,000. So resting between $8,000 and $10,000 isn’t exactly bearish. Use caution with Bitcoin if prices break below the 200-day moving average, and especially use caution if the Bitcoin death cross forms.
The payoff of Bitcoin can be lucrative, but for me personally, I’ll stick to cash flow statements and balance sheets.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a long position in NVDA.