Why will most rush to buy Bitcoin in its ATH, and not when it’s low?

Despite a brief crash to less than $ 4,000 during the mid-March liquidity crisis, bitcoin has been on a tear through 2020. The last quarter of the year has turned out to be extremely bullish for the cryptocurrency as it is more than double in value, broken the lustful. $ 20,000 level, and new high-level painting always just above $ 24,000.

Adopted by institutions, renowned investors, and viewed by mass media as an alternative to gold, the primary cryptocurrency has become one of the best performing assets in this challenging year.

However, while this bull run is similar to 2017’s price action, one part is significantly different – retail investors seemed to be absent until recently. Nevertheless, data shows that their interest has been spiking lately with BTC cruising into uncharted territory, which raises a few questions – why is bitcoin more attractive to the mass when its price is high skyrocketing and is there another wave of retail FOMO going this way?


2020: Expectations Vs. Reality

When the new century began, the main focus in the cryptocurrency community was on the imminent halving of Bitcoin. Programmed to take place in mid-2020, it has been touted as a significant game changer, which would slow down the production of new coins even more. Relying on historical data, most bitcoin fans were expecting a significant price boost following the long-awaited event.

While the halving has indeed reached and slashed half the number of new coins created with each block, 2020 will be largely remembered with what came out of China – the COVID-19 virus.

This pandemic that spread worldwide in just a few months reached all the crucial places – human health, freedom, relationships, businesses, trivial daily activities, and last but not least global economies.

Most governments responded by initiating full locks in attempts to slow the disease. While it is still uncertain whether those extreme measures helped people or simply extended the inevitable, one thing emerged – they affected the financial lives of countless people. To ease the pain, the governments started printing too much fiat currency to distribute to their own citizens.

It is still debatable who benefited most from the trillions of fiat money that went into the world economies. However, these developments led to the unintentional promotion of bitcoin.

How did Bitcoin attract “Smart Money?”

As mentioned above, high net worth organizations, investors, and individuals seized this opportunity and started to build up. Paul Tudor Jones III was among the first. The notorious hedge fund manager bought bitcoin and opted that it will act as a hedge against potentially rising inflation rates.

More followed – through his NASDAQ-listed business intelligence company MicroStrategy, Michael Saylor bought BTC millions of dollars for the company and for himself. Big hedge funds like One River Asset Management and Ruffer Investment did the same, while Wall Street giant Guggenheim Partners filed a document with the SEC to allocate up to $ 500 million in BTC.

The so-called “smart money” – meaning organizations, market whaling, central banks, funds, and other financial professionals who manage significant capital – justified their decisions by outlining BTC’s limited supply, digital shortage , and its potential to be a store of value.

So whether it is the effect of halving, or the significant amounts allocated in BTC by large investors, or, most likely, both, bitcoin has experienced huge price growth in the past few months. The asset more than doubled in value since early October and recently charted a new all-time high above $ 24,000.

Are Retail Investors finally Getting to the BTC Train?

And while “smart money” began to enter the BTC space during the first wave of the COVID-19 pandemic, retail investors were absent.

These are individual investors who do not have the time, skill set or tools to do detailed market analysis. As such, these ordinary investors typically make financial decisions by relying on mass media attention, intuition, or simply following those heard.

Bitcoin could be a perfect example of this, and Google Trends data is typically a good indicator of their behavior. As the graphs below show, the worldwide searches for “bitcoin” and “buy bitcoin” spiked to annual highs slightly in recent weeks – when the asset skyrocketed to and above $ 20,000.

Google 'Bitcoin' Worldwide Searches 1 Year Back.  Source: Google Trends
Google ‘Bitcoin’ Worldwide Searches 1 Year Back. Source: Google Trends
Google 'World Bitcoin' Search for a Year ago.  Source: Google Trends
Google ‘World Bitcoin’ Search for a Year ago. Source: Google Trends

The cryptocurrency is a relatively new asset class that requires thorough research and understanding of its technology to understand its features and benefits. However, as most such investors do not have the time or knowledge, they turn to historically poor financial advisers – mass media or “friend.”

This motivates them to rush their decisions and buy a financial asset when it’s hot (or expensive). It was the main driving force of the 2017 BTC parabolic price rise that ended in mental distress for most and a year-long bear market for the cryptocurrency.

Google's Worldwide 'Bitcoin' Searches 1 Year Back.  Source: Google Trends
Google’s Worldwide ‘Bitcoin’ is a 5-Year Search Back. Source: Google Trends

A recent tweets by Binance CEO Changpeng Zhao is a best example of this situation – a friend who had asked CZ how to buy BTC was now relying on the news, who told him that bitcoin was crashing at $ 3,000 and exploding $ 22,000. As a result, this friend believes that now is the time to compete.

Most crypto supporters and investors have such a “friend”. I know I have been asked many times in the last few weeks. New bitcoin and crypto groups are emerging frequently on social media platforms, while traditional media is rushing to cover the next big BTC move.

In short, the reason retail investors tend to buy when the price is high is because that’s usually when the asset has come to their attention through a range of other media. It’s hard to overlook something when the biggest companies and leading influencers (regardless of experience) constantly confirm about it, while its price marks a new high always day after day. This is where discipline is played, as is the ability to be patient and ignore the urge to jump on the hype bandwagon, risking buying the top.

As such, new (and old) investors need to be wary of potential pitfalls and follow some basic investment strategies:

  • Do your own thorough research, stick to the plan, and avoid relying on emotions, social media experts, or “friends” who have recently made a lot of money with this new and hot asset.
  • Ignore any background noise (FOMO and media).
  • Invest money that you could afford to lose. If your BTC investment keeps you awake at night thinking about whether the price is rising or falling too often, it means you’ve overdo it.
  • Diversification. The oldest advice in the book – don’t keep all your eggs in the same basket.

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