Is Bitcoin Finally Expensive?

The S&P 500 is up about 25% so far this year, and the JSE All Share index about 9%.

The Trump election results have pushed the USD to R18.23, wiping out South Africa’s post-election rand strength.

It’s probable that the ZAR will regain some of its losses in the next few months, which will be bullish for local stocks such as banks and retailers.

But the real story of the last week is the astonishing upmelt in bitcoin’s price to $90k. That’s a more than doubling in price this year, which – like clockwork – maintains the post-halving bull run that many were expecting.

So, is bitcoin finally expensive?

It depends on your time horizon. Five years from now you might wish you had loaded up just a tad more BTC when it was “cheap” at $90k.

The problem many investors face is a fear they may be climbing into a cyclical peak, only to watch it drop 70% as it has done before. Not wanting to look stupid, they sit on the sidelines and wait until it bottoms.

Here’s another problem: no-one knows where the bottom is until after the event. So they stay sidelined when their better judgment tells them they should climb in.

One reasonably reliable timing indicator is the Fear & Greed Index. Studies have been done showing you can vastly improve your overall returns by buying when the index is in “Fear” or “Extreme Fear” territory, and selling when it is in the “Extreme Greed” zone.

The Fear and Greed index is based on measures such as volatility, market momentum, social media trends and trading volume, and is often used by traders to identify potential market tops and bottoms.

The index has hit “Extreme Greed” but could swing even further in the same direction.

So before you start selling, understand that previous cycles show that BTC could double in price from where it is before it starts slipping back into “Neutral” territory on the Fear & Greed index. Getting out now could lead to instant regret.

The evidence shows that more and more investors are holding their BTC rather than selling – the time horizon of BTC investors has shifted to the long end. Hence the growing community of “hodlers” who advocate buying and holding forever.

That’s the fundamental change that has gripped the BTC market in the last four years. BTC is moving into ever stronger hands.