As spoken about in previous articles, bitcoin was due for a violent price breakout after months of inactivity. At the time of writing, price has surged from $9,200 to $11,200 over a 13 day period.
The incredible price rise has reignited several bullish prognostications similar to 2017 with several high profile pundits staking their claim, including Michael Novogratz of Galaxy Digital, expecting “bitcoin to hit $20,000 by the end of the year, fueled by a global liquidity pump and an influx of retail investors.” Novogratz’s declaration flies opposite to the long-held view that institutional demand will lead the next bullish wave similar to 2017.
However, anecdotally, Novogratz’s assessment seems marginally validated according to acclaimed financial advisor, Tyrone Ross. Tyrone Ross notes a recent uptick in calls from new retail investors and fiduciaries asking about which “hot” digital asset to acquire. He further notes the “Robinhood’fication’ of investing has led to a change in the retail mindset from dutiful long-term investing to quick home runs, i.e. risky speculation.
Additionally, the implementation of another Stimulus package is likely to further embolden these newfound speculators with a fresh $1,200 burning a hole in their pockets. Tyrone Ross comments that during the previous Stimulus package he received similar calls asking about which digital assets and stocks to speculate in, despite several individuals needing the cash to finance living expenses.
In theory, the combination of surging digital asset prices and new Stimulus checks provide the perfect concoction of FOMO that could drive a new influx of retail demand.
However, this speculation frenzy does not come without severe risks. For example, the entire crypto market experienced a substantial flash crash over the weekend, resulting in $1.3 billion of liquidations across top exchanges, not to mention the numerous investors that are underwater on their investments at $12,000.
The most recent example of this dynamic with a lasting effect was seen in early summer-2019, post-Facebook Libra announcement.
Nothing is certain, nor does history repeat itself exactly. However, tempering one’s irrational exuberance while differentiating between long-term investing and speculation seems prudent for new retail participants.
Disclosure: the author owns bitcoin and ethereum.
Not investment advice, educational purposes only.