Is Bitcoin Back From the Dead?
Dr. R. Buckminster Fuller once said that when change went invisible, the speed of that change would increase exponentially—what he called accelerating acceleration.
In his lectures, Dr. Fuller talked about the pace of technology and how we were “entering the world of the invisible.” To him, technology was advancing so rapidly that many people were blind to it…and would be blindsided by it.
He was worried that millions of people would not see quickly enough the changes technology brought to the world and that they would, as a result, be put out of work by technology and inventions that operate well outside their vision. He said, “You cannot get out of the way of things you cannot see moving toward you.”
I believe that cryptocurrencies, especially Bitcoin, are the technologies that Fuller predicted. As such, those that aren’t paying attention will get left behind.
As many of you know, I believe in Bitcoin. Unlike most believers, I am not using Bitcoin to make millions. I’m using Bitcoin as a hedge against the falling dollar.
But this summer was rough on those that invest in crypto just for the huge gains.
If you recall, this year’s bear market started when Elon Musk tweeted that Tesla would stop accepting Bitcoin due to environmental issues and China banned Bitcoin mining.
However, this month Elon outlined a path for Tesla to start accepting Bitcoin again. While this wasn’t the main reason for the current crypto market recovery, it was one of the first catalysts.
What is interesting is how most crypto follows the path of Bitcoin. If Bitcoin is falling, most coins will fall too. As Bitcoin rises, most coins will rise with it. This is why tracking Bitcoin is so useful; it signals when the crypto market will be entering a bull or a bear market.
Bull or bear market indicator
Investors are driven by two emotions: fear and greed. Too much fear can tank stocks while greed drives prices up.
I’ve written about this before, but as a recap, there is an index that measures what emotions are driving the market right now called the Fear & Greed Index. On a scale of “extreme fear” to “extreme greed” the index measures using these indicators:
- Market Momentum
- Junk Bond Demand
- Market Volatility
- Put and Call Options
- Safe Haven Demand
- Stock Price Breadth
- Stock Price Strength
Right now, according to the index, fear is driving the market and it’s the same emotion that was driving July’s market, and the same for June.
Fear exploded in May as China’s crackdown began on Bitcoin and public figures’ support waned. The bottom of the market appeared to be when the Fear index hit 9, but another positive sign that Bitcoin is gaining is that Bitcoin bottomed out multiple times but never below $29k.
So why do I talk about emotions driving the market?
Warren Buffett, the world’s richest investor, says, “If you cannot control your emotions, you cannot control your money.”
Controlling the highs and lows of my emotions, and delaying short-term gratification, was essential in developing my financial intelligence. In other words, emotional intelligence is essential to financial intelligence. In fact, I would say that when it comes to money, emotional intelligence is the most important intelligence of all. It is more important than academic or professional intelligence.
For example, many people fail to chase after their dreams because of fear. If they start, they quit when they fail, and then they blame others when they should be taking responsibility for their failures.
Use the index to your advantage
Study the Fear & Greed Index and you’ll learn:
- Fear = prices falling
- Greed = prices rising
This is how I predicted the 2008 crash. For years, I knew a real estate crash was coming. The greed was growing. Not only could you feel it, but people with no income and no jobs were buying homes at prices that far exceeded their ability to pay it back. My apartment houses were running high vacancies. Tenants who could not afford their rent were suddenly buying luxury homes.
I knew the end was near when the cashier at the grocery store handed me her card and said, “Call me. I have some properties you may want to invest in.” To seal the deal, she added: “Prices are going up, so act quickly.”
So when China announced its crackdown, people began to sell. When Musk tweeted the Tesla would no longer accept Bitcoin, people began to sell. When people sell, and prices tank, that’s a great time to take advantage of their fear.
When it comes to risking money, we all experience fear, even the rich. The difference is how we handle that fear. For many people, that emotion of fear generates the thought: “Play it safe. Don’t take risks.
Back to the quote from Warren Buffett, who said, “If you cannot control your emotions, you cannot control your money.” Handling fear, greed, and delayed gratification are indicators of very high emotional intelligence. Employees do not need high EQ; Investors do.
After reading Emotional Intelligence by Daniel Goleman, I came to realize that financial IQ is 90 percent emotional IQ and only 10 percent technical information about finance or money.
Goleman quotes 16th-century humanist Erasmus of Rotterdam, who wrote in a satirical vein of the perennial tension between reason and emotion. In his writing, he uses the ratio of 24:1 in comparing the power of the emotional brain to the rational brain. In other words, when emotions are in high gear, they are 24 times stronger than the rational mind. Now I don’t know if the ratio is scientifically valid, but it does have some usefulness to show the power of emotional thinking over rational thinking.
When it comes to investing, I’ve seen people do some crazy things. Money is an emotional subject, most people cannot think logically about money. In most markets, there is no logic, only the emotions of greed and fear.
If people want to be successful in the Information Age, the faster they develop their financial and emotional intelligence, the faster they will find financial freedom.
Play it smart,
Editor, Rich Dad Poor Dad Daily