Dale Gillham, Wealth Within : Has the Bitcoin Bubble Burst, and XAO Declines…

What does the future hold for Bitcoin speculators?

Investors will eventually wake up to the reality that crypto-currencies won’t be rising as they have in the past, and it is unlikely they will do again in the near future. The Bitcoin bubble has burst!

So, the outlook, particularly for those who entered last year, is grim. If you’ve mortgaged your home, racked up a debt on your credit card or worse, used your superannuation to invest, you need to treat this as a lesson, not wait in hope that the price will rise to justify a bad decision.

Last year, there wasn’t a week that went by without uneducated investors or traders calling to ask for information about investing education who shared their crypto-currency stories.

[sociallocker]

In each case, they focussed on what they could make, not what they might lose. Put simply, they had little clue about risk management, which is the biggest investment sin you could make.

Looking back at how the bubble unfolded; Bitcoin climbed to around US$3,000 mid-2017, before the masses jumped in and drove it to almost US$20,000 in December 2017.

The highest levels of borrowing occurred just prior to the peak, as investors scrambled to gather cash to invest in the hope of making a killing, completely unaware of what is unfolding, and with no trading plan. Bitcoin fell by more than 50 per cent from December to February.

The reality is that when a bubble bursts prices fall to between 50 and 90 per cent from the highest price. If an investment falls below 50 per cent the probability of a further fall to between 75 and 90 per cent significantly increases.

The worst thing you can do if you got caught up in the craze is to assume that a ‘buy and hold’ strategy works, when history indicates otherwise.

 

What do we expect in the stock market?

 

Following the sell-off that resulted in the XAO trading down to just below 6,000 points, which I previously mentioned was likely to provide support, we’ve seen a recovery across global markets. The All Ordinaries Index closed back above 6,000 points for the week.

While the market appears to be making a recovery, it’s important to clear non-performing stocks from your portfolio to make way for companies that are more likely to make better gains in 2018.

Australian companies move into reporting season now and some brokers are calling it ‘confession season’. If you study the market and have ‘the knowledge’, this comment is likely to make you smile, driving the message for the most important and fundamental investment of them all – investing in knowledge in yourself first.

 

Dale Gillham Chief Analyst at Wealth Within www.wealthwithin.com.au

[/sociallocker]

About the author: Andrew Beck