You might be asking this question. A lot maybe – if you hold some BTC like I do. It is an unbelievable increase in price of an asset in just a few days (not considering the massive increase since beginning of the year). The biggest question is – How long will it last? Which can be translated to – When shall I sell? Shall I sell now? Let’s try to answer these.
We have already established, that it’s a bubble and it’s going to burst at a certain point, which feels closer every day – with every crazy price increase.
How long will it last?
This is impossible to answer. With all the unknowns surrounding bitcoin, with governments, big companies, bloggers, hackers having a go at it – and influencing its price, you can’t rely on any standard analysis. You can’t run a fundamental analysis (analyze metrics like profitability, revenue etc) because there are none – it’s not a company. You can look at the hype surrounding it by measuring web mentions, social network activity etc, but that will be high whether it goes up or down – any big spike or dip will cause that. It’s an early warning that something is happening, but doesn’t tell you what to do.
Technical analysis in my opinion is worth nothing in this case too – no matter how the pattern of the chart – what if a bunch of big BTC owners decide to sell, because they think it’s the right time? Technical chart analysis is prone to the sharp shooter fallacy – forget about it generally, not just with bitcoin.
Answer: no one knows – not even the best analyst.Therefore don’t try to answer this, instead, focus on best indicators to answer the next question:
When shall I sell?
This decision is very individual, it depends mainly on
- whether you are a long-term believer and don’t care about the spikes – which would mean you probably don’t need to read this. Just hold and see.
- what profit level is enough for you – if your bitcoin have appreciated 1000% and you made $10,000 out of $1000 – that’s a very good run – it makes sense to start considering selling some of it, reinvesting to something less risky (more on that later). If you bought recently and you only made small profit, you are less likely to sell.
- how risk averse you are – in other words, how much are you prepared to lose – if you bought a few days ago at prices around $12,000 – you made some profit today. But you already see today, that the price is falling and who knows, maybe it hit the top already? If you are very risk averse, you will probably sell to protect your capital (base amount you invested). If you are less risk averse, you will keep holding hoping for better profits and you don’t mind if it drops and you lose even the base capital.
Is $16,000 a good time to sell? Some say definitely, many don’t know, some say no – that bitcoin can go to $100,000. It’s not behaving like a currency anymore – deviating from its original idea. It’s an asset – although very prone to panic selling (one big drop leads to many people selling, leading to more people selling). Why? Because it’s a speculative market – you won’t find many people buying BTC as their retirement security. Most of them are speculators and active traders trying to make the most of the bubble.
Answer: Depending on how much are you prepared to risk – but at current levels, it’s not a bad choice to sell some and reinvest into a safer option – altcoins (IOTA, LTC, ETC, ETH and many more), index funds. Basically, secure some of the profits, keep some of bitcoin for potential future growth.
This will limit your exposure to risk – whilst staying in the market. If the price falls down – you’re protected as what we currently see now is when BTC price goes strongly up, ALTCOIN prices go down. But when BTC price goes down, ALTCOIN prices go up. Should the price go up – you can still profit, as you keep some of your capital in BTC.
Guess which altcoin seems to be doing well currently? – IOTA – see the spike on 6th of december. Other good candidates are in this chart too. See my Ripple analysis.
What is your opinion on this strategy? How are you going to react today, with today’s BTC price swings? How are you going to react if it goes over $20,000?