goldbug1
Long

Bitcoin - What's is Your Plan If That Guy is Wrong?

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
One day Bitcoin is breaking out for the next leg higher, and the bull run has begun, two days later, the sky is falling, sell now and buy lower. You have to be kidding. The best was one group I follow on Facebook as a sentiment indicator, who sold recently and is posting "where are you adding next, I have my levels, where are yours?" Ohh brother. You think the market cares about your levels? What if it doesn't get to your levels then what?

First if you are trading that is it, fine. You are all in, all out, and at the end of the year, you made 10k, you pay your taxes on it. Fair enough, I trade, I know many that trade, and that is pretty much the strategy. Yet investing is different. If you are long term and looking to hold for the long run, or a significant level like $1,000,000 than does it matter if you bought at 4k or 5k? I know, that is not my call, Wences Casares of Xapo CEO and a director of PayPal gave it at least a 50% chance of hitting that level in 7-10 years. Hey who am I to argue with him? Sure I think it is a moonshot, I really don't have a 7-10 year target, but regardless in the next 3-5 years I believe it will be higher. Maybe 50k who knows, I remember Lennart telling me back in the day when it was $1 the thought of it hitting $100 was crazy. I guess 20k was ludicrous! One note "don't push against a bull market".

If you bought 1 Bitcoin at 3500 you might be thinking, wow now is the time to trim it off. If this was a swing trade, or a position trade where you had a specific target than fine. However if you are an investor, and you are thinking, I will sell at 5200 and buy back at 4500, you might be disappointed in the outcome.

First Taxes:

Using a moderate tax rate of 22% on capital gains, your taxable income from this trade is 5200-3500 or 1700. Multiplying by 22% your tax liability is $375. Subtracting $375 from 5200 you get 4826. So Bitcoin has to move below 4826 for the trade to actually work. Ok the initial support is at 4700 and main support is at 4500. So you have the potential of realized gains of $126 at the low end, and $326 at the high end. If you are adding inventory you can buy a whopping 0.072 Bitcoins increasing your stack from 1 to 1.072. Hey every penny counts. But lets look at the other side of the coin.

Bitcoin rallies to 6000 from here, and now you are sitting with no Bitcoin or half a stack. The Bi-Polar analysts go bull crazy and you buy in reducing your inventory to 0.80 including your tax liability. So what is your risk to reward here? You are risking 0.20 Bitcoin to make 0.08 Bitcoin , uhhhhh not so good. This is the reality and why many continue to erode their portfolio. Do not push against a bull. You either believe Bitcoin is going up in the long term or down in the long term. Position that way and build an inventory.

You can do this by position trading. Say you own 2 Bitcoin and have 5k available to trade with. You swing or position trade and the capital gains goes into buying more Bitcoin . Valid strategy, I use it, I love it! However if you are just buying and selling based on some bozo on Facebook , or TV that is telling you to get out, and claims to make 3500% a year, you might want to look in the mirror. Wait don't do that I have some cheap island, beach front property in Belize for sale, only 1 Bitcoin , call me at 1-800-4suckas. If I was making 300% every year I would not be posting on Trading View, I would be looking at that new Callaway Driver (boy its nice) and shaking hands with Tiger at the Masters. What a win, that was epic! Bottom line do not make trades investments, and investments trades. You will lose in the long term mixing strategies.

Pessimism Abound:

With so much pessimism and with so many selling their coins bragging how they are geniuses, they are now waiting for the Big Dip. What if it doesn't come?. Bull markets are born in Pessimism and die in Euphoria. Are we Euphoric yet? No we have an abundance of pessimists waiting for a dip to 4500 some even a retest of the low at 3200. Talk about waiting for a water truck in the desert. Now we have used gold as a comparison before, but lets zoom in on the dip in gold .


This was our initial pattern of which the similarities are undeniable. I know there are like 3 or 4 people who don't see it. Good luck with charting guys. Lets zoom in on the box.


For nearly 5 years Gold traded between 260-330 not really doing much, but towards the end of the 4th year it started rallying. I remember when gold hit 400 again and everyone was selling, thinking "I'll buy the dip back at $300, after all you sell the highs right? But was it really a high? Nope the previous high in 1980 was nearly 900 and for years I heard "gold is dead, just a shiny pet rock. Thank God they sold in the nick of time, or so they thought. It proceeded to move higher and I heard, it will pullback, nothing goes straight up. Sure there were some minor pullbacks or pauses, but guess what it didn't pullback.


In 2002 the US mint sold about 300k ounces of gold eagles at around $300 each. Not bad, but fast forward to 2008 780k ounces at around 700-800. In 2011 at the high 910k ounces. The market never turned back and the higher it went the more jumped in. Those that were trying to time the market with gold , ended up buying higher numerous times. I remember a guy that started buying in 2004 and lost money by 2015 buying and selling gold . How does that happen? Well trying to time the markets with long term holdings.

If you notice on the chart, it never but once, pulled back enough to touch the previous high during that 10 year rally!

Now this does not imply Bitcoin won't pullback, maybe it does, but again maybe it doesn't. Gold is the perfect example of trying to time a run, and unlike Gold , with Bitcoin all transactions are taxable, at least with gold , transactions under 10k are not reported. Your losses can not be claimed if you buy the same equity within 3 months, and all gains are taxable events. This can erode a portfolio quickly or leave you with a huge tax bill at the end of the year, requiring you to sell your crap at the wrong time.

Qualcomm Rally

Look at Qualcomm yesterday. Everyone was hating on Qualcomm , short interest was at 22 million shares. Out of the freaking blue, while they were in court, they settled and Qualcomm rallied 25%. You can't catch that move, and only if you were in it did you benefit. You think a Bitcoin ETF can not be released out of the blue? Your kidding yourself, and with the float very low, the move is going to be vertical. Do you want to chance missing that move, or being the sucker that sold a week before it happened? Or better yet that guy leveraged short? Talk about wanting to kick your computer.

Summary:

If you believe in 3-5 years Bitcoin is going to be higher, don't mess around with your inventory. Yes I do trade, but that is a separate strategy and the profits go into adding to my inventory. I keep that money separate. I have no intentions of selling my inventory and will only be looking to buy the dips, no matter how shallow they seem, and no matter how many bozos on social sites are claiming 3500% profits YoY.

In the end whether Bitcoin pulls back or rallies from here is insignificant. Just like the pessimists in 2004 who were waiting to buy $350 gold again, they waited until..... umm they are still waiting. Why be that guy just waiting? This market is far from Euphoric and there are too many pessimists still calling for 3k or lower! The key is do you have a plan? Easy to guess the next direction of the market, what is difficult is having a plan regardless of where it goes. Remember most of the "analysts" do not dictate whether they are trading or investing, they just blast out there buy, sell, I crushed it. Having no Plan is simply Having a Plan to Fail. If you are following "that guy", what is your plan if he is wrong?

6200k here we come!!!

Well maybe or maybe not. The market doesn't care what I think either. In the end we have a plan either way, we will be acting on the opportunity, not reacting and blaming the market who gives not a dam about yours or my feelings.








In retrospect your mindset was right. Never trust the crowd
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Nothing but great wisdom here.
Right on logic for crypto and taxes, it’s not what you make as much as what you can keep. Thank you
+1 Reply
Great articulation on an important perspective. Thanks for writing this up.
+2 Reply
Awsome Post
+1 Reply
I was thinking exact the same thing last few weeks. The problem is that the market is full of hope too. I see it everywhere, especially on YT with predictions like $1M BTC in 5 years, 10K next month, bull market just started... and so on. F that. The greed is everywhere again... At least it's super risky to buy right now :/
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very bullish post ... and looks hopefull but as we all know both asset types are quit different in nature and one taking significantly longer time to grow not to mention that unless gold BTC has been growing alot more then gold since the last couple of years not sure if the same rules will apply but we shall see
Reply
Great post!
+1 Reply
I have different view on the short side with potential BAT formation

Reply
Gold comparisons are useless, too many variables to create any type of prediction analysis, use volumes, charts, watch sentiment read news. There are enough tools to make educated decisions. Bitcoin is not like gold in fact its like nothing we have seen on a global scale. It will make corrections and it will rise in time. Don't forget the Futures and shorting that will effect the market greatly reducing volatility.
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