I’ve beforehand written about Bitcoin right here and right here. This text is an replace to my earlier work.
The existence of momentum is a nicely-established empirical truth. The return premium is clear in 212 years of U.S. fairness knowledge (from 1801 to 2012) — in addition to U.Okay. fairness knowledge courting again to the Victorian age in over 20 years of out-of-pattern proof from its authentic discovery, in 40 different nations and in additional than a dozen different asset lessons. A few of this proof predates educational analysis in monetary economics, suggesting that the momentum premium has been part of markets for so long as there have been markets.
–Truth, Fiction and Momentum Investing, AQR
Since markets have existed, so has momentum, which ends up in fixed uptrends and downtrends in asset costs. Altering costs traits can lead to wild swings in worth, and for risky belongings, the fluctuations could be fast and violent.
Bitcoin is a pretty asset for development followers as a result of its uptrends are usually very robust partly because of the inherent volatility of bitcoin. When bitcoin’s worth strikes, it strikes with pressure and bitcoin bull markets are notoriously fierce.
A easy development-following technique utilized to bitcoin can doubtlessly lead to market-crushing returns if situations are favorable. Utilizing the 200-day exponential shifting common, I constructed a bitcoin buying and selling technique: maintain bitcoin when it trades above the 200-DMA, and maintain money when it trades under the 200-DMA.
After months of free fall, round 70% down from all-time highs, a sustained turnaround in Bitcoin’s worth in Spring 2019 indicated a altering sentiment available in the market. When bitcoin broke above its 200-day shifting common earlier this 12 months, I noticed it as a cue to go lengthy. I positive did not need to miss an opportunity at a possible bull market within the making.
Information by YCharts
Since then, bitcoin has considerably outperformed different asset lessons, regardless of continued volatility. The breakout in April turned out to be very bullish for the cryptocurrency.
Information by YCharts
My funding thesis is intact- maintain bitcoin so long as it stays above the 200-day exponential shifting common. Based mostly on this easy indicator, the uptrend continues to be in full swing. If the worth had been to fall tomorrow and blow previous the 200-day exponential shifting common, inflicting the place to get stopped out, this technique would have yielded a pleasant revenue.
Taking Income Off The Desk?
I stored the place measurement very conservative, as all the place might shortly turn into nugatory. Compromised exchanges, sudden lack of liquidity, and even dangerous laws might all doubtlessly lead to everlasting impairment of capital.
For those that bought bitcoin on the breakout and are sitting on income, it could possibly be tempting to money out the place. Whereas I perceive the temptation, I might be sticking to my technique and holding. I urged towards taking income earlier this summer season after the preliminary stage of the newest bull market, and I consider that recommendation nonetheless stands.
The “golden cross,” one of many holy-grails of an uptrend, is when the 50-day shifting common crosses above the 200-day shifting common. Within the article talked about above, I stated that the golden cross was doubtlessly simply days away from forming. When it will definitely did, the worth took off.
Information by YCharts
With the development nonetheless in place, my technique says to carry. For extra conservative speculators, now could possibly be the time to take out the preliminary funding and let the remaining trip as “home cash.” As a result of the worth has greater than doubled, that is simply “rebalancing” the portfolio to the unique goal allocation. There could possibly be tax related to the worthwhile sale of bitcoin relying on a taxpayer’s jurisdiction.
Bitcoin’s present uptrend could be very a lot alive, and it might have much more room to run. These trying to revenue off of this uptrend ought to hold a watchful eye on their capital and measurement their positions appropriately.
Because of the sudden, violent modifications within the worth of bitcoin, income have the potential to vanish in a second’s discover. Whereas I’ll proceed to carry bitcoin, I would not fault these promoting to trim all the way down to their authentic allocation.
Disclosure: I/we’ve got no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from Looking for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.
Further disclosure: As said within the article, I personal bitcoin.