Bitcoin by Ross #10: Some Clarification and Long-Term Perspective
by Ross Ulbricht
I was glad to hear that my last post (BbR #9) got everyone thinking and talking about the future price of bitcoins. I have mentioned it before, but I just wanted to clarify why I am doing this series in the first place. As everyone knows, I was one of the first to recognize the potential of Bitcoin. I was a bit preoccupied at the end of wave ③ (I saw a chart of that peak for the first time at my own trial). But later, I saw that wave ④ was over before wave ⑤ had progressed more than 1%. And finally, I called the wave ⑤ peak on the nose, though I was unsure if it was (5) of ⑤ or (3) of ⑤.
Until that last call, I had kept those insights to myself, not wanting to mislead anyone, especially because my access to information is so limited from within prison. However, it felt good to help someone lock in profit at $20,000 and avoid the brunt of wave II. So, cautiously, I decided to start this series so that I might be able to help others navigate what is an extremely volatile market. It may be that I even have an advantage being in prison because I am less influenced by day-to-day events and can take a detached, long-term perspective.
Speculative markets like bitcoin are psychological traps. In hindsight, anyone can look at the spectacular rise of Wave I and say “if you just buy and hold, you’ll get fabulously rich,” but to actually do this is not easy. Those primary-degree waves (circled numbers and letters) end with extreme psychological consensus. The $20,000 peak was not that long ago. Do you remember what the consensus was like? Extreme optimism reigned. Six- or seven-figure prices were just over the horizon. Every alt-coin was the next big thing. Everything pointed to one conclusion: buy now! Anyone issuing warnings to get out were ignored, laughed off stage or buried with a thousand “good” reasons why prices could only go up.
The sad thing is the exact opposite will be true at the bottom of wave II. There will be a thousand reasons to sell, and anyone calling it a huge buying opportunity (as I have) will be ignored or worse. Or, if wave II drags on long enough, it could be that Bitcoin just becomes uninteresting, like yesterday’s news, with wave I feeling like a hype cycle that has played out. That is also a hard environment to hodl through or buy into, but to get the most out of wave II, one must.
Of course I could be wrong. No one knows the future, and no one controls this market. What I am trying to do is merely map out the most likely scenarios as I see them, so if they play out you won’t be as easily caught up in the drama of the moment and can act instead of react. Are there still short-term bullish possibilities? Yes. No view of the market is ever 100% certain, and you never bet the whole farm on it. That’s the nature of forecasting. And you must be ready to adjust your view as new information comes in.
Thankfully, you don’t need to be right 100% of the time to be a profitable investor. In fact, you can be wrong more often than not, so long as your winners are big enough and your losers small enough. I recommend “Trade Your Way to Financial Freedom” by Van Tharp for the fundamentals of risk management and systematic investing, and “The Elliott Wave Principle” and “The Socionomic Theory of Finance” by Robert Prechter for an intro to Elliott Wave and its broader socionomic context.
For those of you upset by my short-term bearish forecast, I want to reiterate I am still bullish long-term. It is possible that wave III will be even more impressive than wave I, as 3rd waves often are. If we consider $0.06 to be the start of wave I and $20,000 the end, then wave I drove prices up by 333,333x. If wave II takes prices down to $1,000 and wave III is as big as wave I, then wave III will drive prices to $333 million. Assuming 21 million bitcoins, that’s a market cap of $7 quadrillion. That’s more than ten times the current GDP of all humanity. So the point is — long term — the sky is the limit. The remainder of wave II and the start of wave III will seem like insignificant fluctuations by the time wave III is under way. Decades from now, anything below $20,000 will seem cheap.
With all that being said, what you can count on from me is my honest view of the market, regardless of how popular that may be. As noted above, it will often be most unpopular at just the times when it is needed most. In fact, if I find everyone agreeing with me, that will be a red flag and I may be in the market’s psychological trap and need to consider other possibilities!