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Bitcoin And Gold: Denial Ain't Just A River In Egypt

|Includes: Bitcoin USD (BTC-USD), GLD
Summary

Bitcoin is potentially in a bear market.

It's important to be cautious here going forward.

Mr. Market will tell you what to do if you listen.

First off, full disclosure: I have been long Bitcoin since 2014 and I am still holding some cryptos, but I sold all my Bitcoin today just moments ago. I significantly reduced exposure in January because I felt it was time to take profits and let the house money run. One of my biggest weaknesses as an investor and a trader has been to let my winners run. That's why I decided to keep some.  

Second off, I am not yet fully bearish on Bitcoin and cryptos, but I am turning cautious/near bearish so I sold more into the recent “lower high.” And I literally just took a break from writing this analysis in order to sell more.

Now, before I explain why I turned cautiously bearish, I want to share a story about a mistake I once made. This story is crucial to understanding why I am now cautiously bearish on Bitcoin and cryptos. I have no ego when it comes to the markets so I am not ashamed to share this story. I hope that it will help people to be wiser and smarter investors and traders.

Once upon a time ago, around 2012, I began my journey into the world of financial markets. That journey began with a cult-like belief that the economy was on the brink of collapse and that hyperinflation would lead to precious metals continuing to go up after the insane rally that they had into 2011. There was absolutely nothing that anyone could have said to shake my belief. I knew that I was right and that the market was wrong, and that precious metals markets were “manipulated.” I knew they'd break free from the "manipulation" and head higher. 

What happened next? In April 2013, Ben Bernanke announced the Fed’s plans to end QE. Gold and Silver crashed through a key support level that had held since 2011. They went on to make new lows and have been range bound ever since.

I’ll never forget that day in April. It was the greatest mistake I ever made because I learned so much from it. I was psychologically crushed. All of the “I told you so’s” from market pundits did not help either. I was an emotional wreck and I completely lost confidence in myself. I blamed Bernanke, the Fed, and I made excuse after excuse. I also had some personal and internal conflicts I needed to address. Luckily, I hadn't done anything crazy like leveraging up on margin or using credit cards. 

What changed? It was simple. Through all of my agony and self-anguish, I came to realize that all of the pundits and critics were not happy because of my agony and anguish. They were happy because they could now believe that they were “right” and the gold bugs were “wrong,” and there was no counterpoint in the world that could save me. I had to shed my ego and accept that I was wrong, but freedom was the reward that I received in return for taking on the risk of investing on dogmatic beliefs that were at variance with what the market was saying. What I’m trying to say is that those pundits were not “right.” Mr. Market was right, and I was wrong. Me! Me!

Once you accept the fact that Mr. Market is the final arbiter in this game, you can fully shed your directional bias. Then, it becomes so much easier to cut your losses quickly. You must not feed into your own defeat!

Once I accepted that I was wrong, I immediately short sold silver at around $22.50 and rode the trend down into the $18.50 area. In retrospect, I could have held that short even longer and gained a lot more, but I was comfortable with the gains I made on the short relative to the losses on my longs.

The point I’m trying to make here is that there is no place for ego if you want to be successful in the market. In the real world, politicians, colleagues, pundits, etc. can all blame others for certain outcomes, or they may blame life for dealing them the cards they’ve been dealt. In the real world of financial markets, you can only blame yourself. You can try to blame the market, but that is an impediment to your progress. Avoid it like the plague. 

How does this all relate to Bitcoin and why am I cautiously bearish? The charts say it all:

Gold and BTC

Gold and BTC 2
What do we know about true bull markets and true bear markets? I learned it in the collapse of the precious metals in 2013. True bull markets go up in the face of bad news or good news. If gold was still in a true bull market at the time, it should have continued higher on the bits of good news that came out. It never did. None of the so-called fundamentals that gold bugs believed would drive the price higher provided rallies. Instead, they provided weak bounces that produced lower highs. They just couldn’t get up off the mat. The action was simply not indicative of a true bull market. Rather, it was indicative of a bear market that was developing. 

On the other hand, true bear markets fail to rally on any good news. They may bounce, but typically it’s a dead-cat bounce that ends up being a lower high. 

This is why I took most of my profit and turned cautiously bearish. If I'm wrong, I have no problem accepting it, and reassessing if I want to add more. If I'm right, I would have lost the opportunity to protect gains. What's the better choice here? Being "wrong" or being "right?" Personally, I don't care about being wrong or right. All I care about is protecting my gains and not repeating the past mistakes I made in that state of denial. 

Good luck to all. I honestly hope I'm "wrong" because this could get really ugly. I can't imagine how much supply of mining hardware would get dumped on the market if this thing tanks. 

Disclosure: I am/we are long BTC-USD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I'm actually only long LTC, XRP and some others, but I think BTC is the only symbol on here unless I missed them. I just sold the last of my BTC. I'm still long precious metals and preparing to possibly add more or other commodities within the next few months or so. All depending on what the markets are doing as a whole.