Here we are again. Yet another week and yet another new all-time high for the price of Bitcoin. This asset is truly on fire and is now once again entering a "parabolic" phase.
The reason for this continues to be the ever-increasing demand from institutional investors who are moving heavily into the crypto space, with Bitcoin being the natural first and main choice for many of these institutions.
But how long can these gains continue at this neck-breaking pace before one of Bitcoin’s dreaded (and frequent) crashes occurs?
Tis the Season for Bitcoin
Bitcoin has truly dominated the financial headlines the past few months, with CNBC and other financial outlets plugging the cryptocurrency over and over again.
This has led to much speculation and hype surrounding the asset class, and for good reason. The gains experienced in the Bitcoin marketplace have been truly historic.
(Chart source, coindesk)
At the time of writing, Bitcoin stands at $22,478.27 USD, moving up from a low seen on December 11th of $18,137.32 USD.
This means that in one week's time, Bitcoin has gained a stunning $4,340.95 USD per coin.
Those buying in at these prices need to have stomachs made of steel, as this is starting to look like one of the many "blow off" tops that Bitcoin has had countless times throughout the years, only then to be rebought by stronger hands at lower prices.
Many people have discovered that this is one of the most volatile and turbulent asset classes you could possibly buy into, making you fabulous gains overnight only to evaporate before you go to bed again.
However, those who have "stuck" it out for the long-term, dollar cost averaging into Bitcoin month over month, have done remarkably well, outpacing any other asset class on the market.
Practice Extreme Caution Moving Forward
For those who are new to the Bitcoin space, you may be expecting these gains to continue indefinitely. However, Bitcoin is a fickle lover—and what it gives, it rapidly takes away.
Remember, the price of Bitcoin was trading as low as $10,555 USD per coin as of early October, meaning that it has more than doubled in only two months!
Typically, this is a giant red flag for any asset, stock, or anything in general.
A large correction is likely to occur as investors who have profited wildly in the past few months take money off the table and secure their gains.
I would not be surprised to see Bitcoin suffer a retracement back to the $15,000 USD level. However, anything is possible at this point, as Bitcoin has continued to prove time and time again. The volatility is just that extreme within this space.
Gold and Silver Bullion Continued to be Underappreciated
Meanwhile, Bitcoin's older cousins—gold and silver bullion—continue to be foolishly ignored.
(Chart source, goldprice.org)
Many investors see the continued stagnation in the price of gold and silver bullion as being directly related to the meteoric rise in Bitcoin’s price.
This may be somewhat true, even if it does not paint the full picture, as precious metals and cryptos are two wildly different asset classes that serve very different purposes to those who have more than a superficial knowledge about them.
I do believe, however, that this is a trend that cannot and will not continue, as I know many investors within the crypto space who strongly believe in the fundamentals of precious metals and their necessity as an insurance policy against rising inflation and geopolitical risk.
It is very likely that if the bull market for Bitcoin continues into 2021 you are going to see some crypto investors diversify a portion of their gains out of the crypto space and into precious metals, causing the metals to play "catch up" and move significantly higher.
There simply is no replacement for physical precious metals in your personal possession, despite what some within the crypto space would try to tell you.
To make any solid predictions on what is going to unfold throughout the course of 2021 is an incredibly difficult task for even the most brilliant of financial minds. However, what is almost guaranteed at this point is that 2021 will be filled with extreme risk and uncertainty.
COVID-19 will continue to plague the world well into the new year and more financial bailouts will be needed if the system has any hopes of staying afloat until the true end of this crisis.
Money printing will continue at a record-breaking pace and inflation will follow suit.
This is exactly why you are seeing alternative assets such as Bitcoin being so heavily bought, and it is exactly why I believe we are going to see precious metals break free from its shackles throughout next year.
Until then, be safe and as always, keep stacking.