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Bitcoin's volatile nature has seen incredible gains since its inception in 2009. However, it has also led to dramatic price drops.
Fundstrat recommends these 5 rules for investing in bitcoin.
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Bitcoin's volatile nature has allowed it to make huge gains since its inception in 2009. However, not all investors have been able keep up with its wild price swings.
Bitcoin's growth has been 67% over the past year, despite experiencing a 54% sell-off from its peak in April. Fundstrat's Tom Lee compiled these 5 rules to help investors better manage the volatility in bitcoin.
Fundstrat's Tom Lee identifies these 5 rules for investing in bitcoin.
1. Bitcoin's future is in the USA.
According to Lee, crypto adoption will be a major focus in America in the coming years. The country is home to a large amount of global wealth.
According to the Bitcoin Market Potential Index (BIP Index), the US ranks fifth and is the only major nation in the top 10. Bitcoin must succeed in the US if it is to be successful.
Lee pointed out that the wealth transfer from baby boomers into millennials could be nearly $70 trillion over the next 20 years. Because millennials are more open than the baby boomers to crypto, some of this wealth transfer could flow into Bitcoin.
2. The consensus is often right, so you can follow the Bitcoin Misery Index.
Market sentiment and security price go hand-in-hand, which is why it is crucial that crypto investors pay attention to sentiment indicators for bitcoin. A rise in bitcoin sentiment has been associated with strong forward six-month returns. Conversely, falling sentiment can indicate that volatility will soon return.
3. Buy bitcoin when it crosses over its 200-day moving mean.
Lee says that bitcoin has always generated strong returns when it crosses above its 200-day moving mean. The average six-month forward return is 193%, and the win ratio is 80%.
Lee stated that the 200-day moving average is crucial because it reflects long-term trends in prices. It is also where most security holders obtained their security.
Bitcoin surpassed its 200-day moving mean earlier in the month. Since then, it has risen more than 8%.
Continue reading: Five altcoins that could rise by 10 to 100x in the coming "legendary" altcoin season, which outshines Bitcoin according to a crypto analyst who holds them
4. Bitcoin is a high-risk asset.
Lee says that bitcoin performs well when the S&P 500 is performing well. Investors will likely view bitcoin as a risk-on investment.
Strong years in equity market have seen the largest returns for bitcoin, which has created a positive correlation between the two asset classes.
Does this mean that bitcoin is a high-risk asset? It could be. Lee said that bitcoin is most effective when there is a clear macro trend.
5. HODL as the 10 best days are the ones that generate the most returns.
Lee stated that "buying and holding" (or HODL), makes sense for bitcoin because a few days per year account for the bulk gains for bitcoin.
Fundstrat found that Bitcoin fell on average every year, even if the top 10 daily gains were excluded.
Lee stated that bitcoin has fallen 44% between 2013 and 2019. Lee believes that buy and hold is the best strategy because it's difficult to predict the bitcoin price movements.
Lee is bullish on bitcoin and believes that the cryptocurrency could reach $100,000 by year's end.
