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Sunday, January 3, 2021

Why chasing highs will do more harm than good for most people!

Bitcoin has a great run lately and as I'm writing, it is breaking the $34,000 level and may continue to go higher with new highs. It seems there is nothing that can stop it from going up and all the sudden nearly everyone is talking about it with recommendations to buy it. This is the time I, as a contrarian, start to get the feeling that a near term top is likely forming. If history can rhyme, even though not exactly repeat, itself, we may see some significant correction coming, and SOON! When I raise this caution in my group, immediately I see some feedback stating how one can be sure Bitcoin will not just go up to $100K before correction. Sure, this is a fair argument as indeed no one has a crystal ball to know what will come in the future. But does that mean we don't need to be cautious when something is clearly frothy and bubbly and should continue to chase highs like Bitcoin now? I doubt this will be a good ending for most people if they do so. 

I got the same feeling back in 2017 when Bitcoin was approaching $20K. I clearly remembered to see daily coverage with enthusiastic bullish discussions on CNBC and even had seen a report that one guy sold his house to buy Bitcoin at that time. That's the time when I called for caution, advising not to chase. Granted, I tend to be early in general and I'm not saying Bitcoin must correct immediately. All I'm saying is that chasing highs from here is very risky, especially if serious money is involved. 

The best time to buy Bitcoin, or anything for that matter, is when no one is interested and talking about it. My very first buy for Bitcoin was 2015 as I posted here when Bitcoin was cut by 80% and it was facing the existential question whether it could continue to be around for long. Looking back, this was the safest time to buy Bitcoin actually. I bought my second home also that time and in hindsight, I wish I could have the courage to just put all this money into Bitcoin which would have easily turned to be tens of millions by now. But everyone can easily be a billionaire if they can invest by looking back and following what has already happened, right? Even if I had put in hundreds of thousands into Bitcoin back then, could I really calmly go through its tumulant waves of ups and downs with several 50-80% drawdowns in between?  Rarely normal people can do that, which is just due to human nature for safety! This is especially true when one buys at a topping area by chasing highs. It is nearly a certainty that you will be among the first to be panicky and dumping when any sign of selling is coming! When no one knows what is the ultimate top for Bitcoin and for how long it will get there if there is one, how can rational people risk their life saving money that may easily be decimated by half or even 80-90% at a heartbeat?

That's why I always advise not to chase highs with the money that you cannot lose! If you have the tendency to FOMO and are determined to get on to the boat immediately when most other people have already done so, just put in some money that won't make you jump at night if something goes wrong😏 This way, you are still having your skin in it but you won't be killed if you get on the boat at a wrong time😎

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