Over the past several weeks, I have received emails and text messages from professional colleagues and friends. Despite their vast range of expertise and investment knowledge, I noticed a common theme: all of them have stated that now is the best time to buy cryptocurrencies.
Understandably, this sentiment resonates sharply with anyone interested in this sector. Throughout this year, cryptocurrencies have absorbed significant pain. However, the suffering accelerated in recent sessions, bringing bitcoin ever closer to sub-$3,000 territory.
Furthermore, contrarian investors cite Warren Buffett’s sage words: be fearful when others are greedy, and greedy when others are fearful. Needless to say, we have substantial FUD (fear, uncertainty, doubt) clouding this sector. If there’s any time to invest in the blockchain, now would be it.
Or is it? While cryptocurrencies represent tremendous value right now, that value is relative to prior performance benchmarks. Who is to say that bitcoin, ethereum, or any other digital token won’t fall further? This is contrarianism’s seedy underbelly: a good deal only factually materializes in hindsight.
But beyond this obvious statement, I’m proposing another idea: we have not yet met the contrarian threshold.
Too Many Folks are Excited about Cryptocurrencies
If indeed cryptocurrencies have reached the “deal of a lifetime,” I highly doubt that I would receive communications confirming such. Although it’s my opinion, I believe I’m quite justified in stating the following: if a trade is too obvious, don’t expect sustained success.
At this juncture, my thinking is that bitcoin has a long path of deflation ahead of it. I should clarify that I’m not talking about continued losses. What I’m suggesting is a horizontal lull that lasts at least one year, if not a couple of years.
When bitcoin first gained prominence earlier this decade, the phenomenon caught investment insiders by surprise. After briefly crossing into four-digit territory, bitcoin quickly surrendered its speculative gains. For roughly two years, the number-one digital token languished in relative anonymity. Those who initially supported the blockchain slowly faded into the background.
My gut tells me that the same dynamic most occur again before bitcoin reaches into the stratosphere. It will get there – that I have no doubts. But the markets must flush out all shaky investors.
When people stop talking about bitcoin, and instead discuss traditional investments, that’s when I’m interested. Until then, we have a long winter ahead of us.