While Fear Is at an All-Time High in Bitcoin World, It Is the Perfect Time to Be Greedy
Never forget the famous quote from Warren Buffett.
Bitcoin does not leave you indifferent as you read this story. I bet you’re even very interested in Bitcoin. So I think you have a minimum interest in the economy and the financial markets. If my deductions so far are correct, you probably know who Warren Buffett is.
Warren Buffett is one of the greatest investors of all time in the world of traditional finance. His value-oriented philosophy has allowed him to achieve consistent success for over 50 years. Through wise choices, but more importantly through the application of simple principles, Warren Buffett has managed to build a fortune of over $80 billion.
I know that Warren Buffett hates Bitcoin, and cryptocurrencies in general.
Nevertheless, some of the principles behind his immense success deserve to be studied closely for application to Bitcoin world. Among these principles, I find the following one totally relevant in the current situation:
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”
— Warren Buffett
Throughout his career, Warren Buffett has endeavored to act based on his sense of logical reasoning, not on his emotions.
This has allowed him to never make investments by following the general trend, but simply by making his own decisions. So he was able to be greedy when everyone else was afraid.
This principle is simple to state, but it is extremely hard to put into practice.
In order to do so, you have to have complete confidence in your decision-making power, but also in the asset in which you want to invest. If these two conditions are not met, you will not be able to apply this principle.
Since the dramatic drop in Bitcoin price on March 12, 2020, the prevailing sentiment in the Bitcoin market is one of extreme fear:
While Bitcoin had started the year in the best possible way by taking more than $3K between January 1, 2020 and February 10, 2020, everything has changed since the beginning of March 2020 with the sharp acceleration of the coronavirus spread around the world.
Prior to this acceleration of coronavirus spread, sentiment in the Bitcoin market was clearly positive. And then everything changed.
Within days, the general sentiment shifted from greed to extreme fear. I would even go so far as to say panic when you see that some Bitcoin owners did not hesitate to sell what they owned more than $500 below the average price at that moment.
As a result, the price differences for Bitcoin between trading platforms reached record highs on March 12, 2020.
All of this brings us to a feeling of fear at its highest level since this index was created in early February 2018:
This extremely rapid change in sentiment around Bitcoin is an incredible opportunity in my opinion, because the fundamentals of Bitcoin have clearly not changed since March 1, 2020.
Bitcoin Price Has Changed, but Its Fundamentals Have Not Changed
The economic crisis is taking hold, but Bitcoin’s fundamentals remain unchanged.
Concretely, Bitcoin’s monetary policy, which is its great strength, is always the same.
No more than 21 million will be put into circulation at most. The annual inflation of the Bitcoin supply will slow down further from May 2020 when the third Bitcoin Halving will take place.
Bitcoin is still the most secure decentralized network in the world. Let me remind you that Bitcoin has never been hacked in more than 11 years of its existence. For a permissionless and trustless Blockchain, you have to admit that this is something remarkable.
In today’s uncertain world, Bitcoin offers you essential guarantees, but more importantly, it allows you to choose what you want to do.
At the height of the liquidity crisis on March 12, 2020, when everyone started to panic, Bitcoin never halted trading. Its users were able to recover their liquidity as they wished.
This is clearly not what happens on Wall Street, which uses circuit-breakers when stock drops are too strong. A drop of 20% in a single day even means de facto the end of trading for the whole day.
So Bitcoin is still the only true free market in the world.
It belongs to everyone. As such, Bitcoin leaves it up to its users to find the real equilibrium price.
On March 24, 2020, the Federal Reserve has just announced that it will conduct a program of unlimited quantitative easing to support the financial markets, banks, and the U.S. economy as a whole.
This unprecedented decision of the Fed will lead to a severe currency devaluation of the U.S. dollar.
Since this announcement, most investors are rushing back to gold and Bitcoin. Now that the panic is gradually fading, these two assets will be able to start playing their role as a safe haven.
Gold price has risen more than 10% since March 19, 2020, and continues to rise strongly today:
For Bitcoin, it’s exactly the same thing since its price has increased by almost 9% in the last 24 hours:
Remember what Bitcoiners said when Bitcoin price dropped to $4K on March 12, 2020: this is a unique opportunity to buy more Bitcoins.
Many thought that Bitcoin was going down, but in the midst of the panic, it stood firm once again proving that it was like a phoenix that always rises stronger after failing.
Now that Bitcoin price is around $6.7K, and the Dow Jones on Wall Street continues to be just around 20,000 points, you should finally be able to see more clearly in my opinion.
The extreme fear still present in the Bitcoin market is something that should make you greedy as Warren Buffett said in the past when talking about traditional financial markets.
If you believe in Bitcoin, or if you want to use Bitcoin as a hedge against the risks of devaluation that the current monetary and financial system is putting on your wealth, it is a unique opportunity to buy them.
As always, the final decision is yours, but it is essential that you understand why the current situation with Bitcoin is a unique opportunity.
Through this story, that is what I hope I have been able to demonstrate to you.