Bitcoin crosses $70k & Gold at All Time Highs

As at the time of writing this, Bitcoin is trading at US$72,085. Everyone who has ever bought Bitcoin (and not sold) is currently in profit.

Bitcoin has been enjoying a proper surge. If you’d bought it a year ago, you’d have tripled your money by now.

Why is Bitcoin soaring?

• One reason is Bitcoin ETFs have gained a lot of traction. When I wrote about Bitcoin ETFs in January, they were off to a slow start, but have picked up quite nicely since then.

According to Morningstar Direct, the 10 spot bitcoin ETFs the SEC approved earned net inflows of about $7bn combined from their mid-January launch through the end of February. The recent Bitcoin rally has pushed BlackRock's ETF over $12.7bn in total assets in just 2 months!

• Another reason could be that Bitcoin usually does well when tech stocks do well
• Another driver could be the April halving event which has historically pushed Bitcoin's price to new highs
• Bitcoin is also benefitting from pure momentum – Bitcoin price rises beget more rises till they don't

What about Gold?

Gold also hit an all time high of US$2,152 per ounce last week.

What's interesting is, unlike Bitcoin, gold tends not to be a “risk-on” speculative asset. It’s usually the opposite.

At least one reason people buy Bitcoin is because they see that assets in general are going up. By contrast, gold is more typically used as a shelter when you’re worried that everything else is going down.

This is clearer when you look at the ETFs. Bitcoin ETFs are popping.

But gold ETFs are not. People have been selling, not buying.

So what’s going on?

In the past, gold has generally correlated well with “real” interest rates. In other words, gold has done well when interest rates net of inflation are going down.

But that’s not what's happening.

As Charlie Morris of the Atlas Pulse newsletter points out — we are now in a very different market environment from the one we’ve been in since 2008 (and indeed the one we’ve been in since about 1981).

Could gold’s strength be a signal that the market is expecting the Federal Reserve to cut interest rates or could it have something to do with geopolitics i.e. China, the Middle East, Russia-Ukraine etc.? Keen to read your thoughts in the comments.

How to Overcome the Bitcoin FOMO

Every time Bitcoin is on the rise, a new level of FOMO hits. I talked about this in my most recent tbt post. How can you overcome it?

Let's get 1 thing out of the way

Bitcoin could rise to $100k by the end of this year or it could fall to $20k. Heck, this analyst, Stony Chambers Asset Research, predicts that bitcoin will reach $175,000 before 2026!

I could not compute the odds of Bitcoin going to $20k or $100k by any rational framework. But I know there is a non-zero probability either or even both scenarios play out 😅

Now that that's out of the way, let's talk about the Fear of Missing Out (FOMO)

The problem with "assets" driven primarily by FOMO is, you never know when to buy or sell them (don't believe the "technical analysts", they don't KNOW either).

However, if it's an asset that you can (with some degree of confidence) estimate the fair value, you can know when to buy it.

You simply assess the value, wait for it to fall below that price, buy it and wait for the asset to return to what you think it's worth and sell it.

As this little book (I enjoyed and highly recommend) says, buy a dollar for 66 cents.

If you think an asset is worth $1,000, and it's selling for $660, buy it and hold till it (hopefully) returns to fair value.

That solves the problem of buying.

With Bitcoin, it's hard to form this compass. Some people said they'd buy Bitcoin at $20k, when it was at $60k, but they probably didn't buy when it fell to that price. Now they're revisiting the thought.

However, my hot take is:

You shouldn't feel sad about missing out on something you weren't confident in.

Opportunities volatile enough to make you rich in a short time are also volatile enough to turn your capital to $0 in record time.

“The first rule of investing is don't lose money" - Warren Buffett

The higher the risk, the higher the reward and the higher the chance of loss.

Oh, but you might think "I don't mind losing 50% if it gives me a chance of doubling my money."

WRONG!

Consider 2 scenarios.

Scenario 1

Imagine you have just been given $1,000 and have been asked to choose between:

Option A: Another $500 guaranteed

Option B: Chance to flip a coin. If it's heads, you receive another $1,000. Tails, you get nothing.

Which would you choose?

Scenario 2

Now Imagine that you have just been given $2,000 and presented with 2 options:

Option A: Lose $500 guaranteed

Option B: Another coin flip. If it's heads, you lose $1,000. Tails, you lose nothing.

Which would you choose?

Most people will choose option A in scenario 1 (a sure gain of $500) but in scenario 2 will choose option B (a chance to lose $1,000 or nothing at all).

Why?

Due to loss aversion, most people would be much more averse to gambling in the 1st scenario, where they risk losing half of the gift, while in the 2nd scenario, they'd take the gamble to avoid losing the same half.

The psychological pain of losing $500 feels much greater than the pleasure of gaining $1,000, illustrating how losses loom larger than gains of the same value.

By the way, option A in both scenarios yield the same result of $1,500. Option B yields the same result too. A 50-50 chance of getting $1,000 or $2,000.

Specific steps to help you overcome FOMO

No need to be afraid of missing out, you are and will always miss out on something

Bitcoin has grown by 249.14% in the last year.

Here is a non-exhaustive list of stocks that could have increased your money by more than that in the last year

1. Supermicro - 1,176.89%
2. Viking Therapeutics - 581.67%
3. Vera Therapeutics - 501.90%
4. AppLovin Corporation - 411.04%
5. Vertiv Holdings - 401.59%
6. Abercrombie & Fitch Co - 363.08%
7. Coinbase - 333.70% (and should continue to rise with Bitcoin)
8. Nvidia - 281.12%
9. Even Trump's SPAC, Digital World Acquisition Corp, returned 275% as at mid Feb
10. Modine Manufacturing 267.32%
11. Also, in 2022 (one of the worst years for investors), a stock grew by 32,000% in THREE weeks

I don't know about you, but I've only heard about half of the names on the list above. Even Nvidia that's been topping the news is closer to the bottom than the top.

1. Point is there are opportunities everywhere. You'll always be missing something. Focus more on what you can control rather than what you can't. Focus on opportunities you are confident in rather than those you're afraid of missing.
2. Remember that losing money is more painful than making the same amount
3. Ignore Bitcoin (I promise to help with that by not writing about it for the next... month or 10 😅)
4. If you must, only put money you can afford to lose
5. Invest for decades not months: If you do this, your decision criteria will always be "will this asset be worth more in the next decade?" not what's the next hot pick
6. Past performance is not a guarantee or indication of future performance

Final Thoughts

It only took about 2 years and half, but crypto winter is over... for now. Congratulations to all who held through the winter. I hope you're smiling to the bank now.

One final story

Onome is waiting in line at a cinema. When she gets to the ticket window, she is told that as the one hundredth customer of the cinema, she has just won $100.

Ebere is waiting in line at a difference cinema. The man in front of her wins $1,000 for being the one millionth customer of the cinema. Ebere wins $150.

Who would you rather be? Onome or Ebere