Crypto or kryptonite? How to keep your cool with Bitcoin

Bitcoin crashed 73% between October 2021 and June of this year before turning to rise strongly. So, is the current rise a sign of things to come or is it just a sucker's rally?

Last weekend, Bitcoin hit a high of 25,554.38, which represents a rise of more than 36% or 1.5% per day in the last 56 days since its low on June 18.

While most investors would love to find stocks that rise at this rate, as with anything that rises at such a sustained rate, we need to accept higher levels of volatility and risk, and Bitcoin is no exception.

There is no doubt, given the lack of regulation around cryptocurrencies, that the crypto market is manipulated. As such, you would be wise to exercise extreme caution with this asset, otherwise you could expose yourself to a Pandora's Box.

That said, this doesn't mean you can't make money from crypto if you are educated.

Unfortunately many jump on the bubble train for fear of missing out, which is why those who could least afford it lost heavily during the crash into June of this year.

Smart investors know that everything runs in cycles and while Bitcoin has been bullish of late, I believe the probability of the current rise being a sucker's rally is quite high. No doubt, the Bitcoin faithful will strongly disagree with me, as they did late last year when I said it would crash and as they have done several times in the past when I predicted it would fall heavily.

As an analyst, I need to ignore the irrational points of view, which means not listening to the masses who act emotionally and just look at the data. There is an overabundance of irrational thinking in the crypto space in much the same way the tech bubble unfolded.

Right now, the data is indicating that Bitcoin is likely to fall into a low around late October or into November and it is likely to be trading below 12,000 and possibly as low as 7000. If it falls to around 7000 then this will be similar in size to the fall that occurred in early 2020 and several other times in the past.

If you educate yourself to be able to analyze the data, you will be better placed to avoid the rollercoaster ride with Bitcoin.

The best and worst performing sectors this week

The best performing sectors include Consumer Staples up more than 3% followed by Materials up more than 2% and Industrials up more than 1%. The worst performing sectors include Utilities and Energy, which are both down more than 1% followed by Information Technology, which is just in the red so far for the week.

The best performers in the S&P/ASX top 100 stocks include Brambles up more than 11% after releasing good full year results this week. Treasury Wine Estates is also up more than 6% while BHP Group is up more than 5%.

The worst performing stocks include Bendigo Adelaide Bank down more than 10% after releasing disappointing results this week followed by Northern Star Resources, Seek Limited, Evolution Mining, Block and Challenger, as all are down more than 5%.

What's next for the Australian stock market

The All Ordinaries Index has continued to defy logic rising again this week, which means it has been rising for 43 trading days or eight weeks straight without price falling below the prior week's low. We haven't seen such a sustained rise since November 2012 when it rose 18% over 113 days or 17 weeks. That said, the current rise is moving at a faster rate than the rise in 2012, as it has risen nearly 12% in under half the time.

Right now, the market is walking up a see-saw and it will hit a point where it starts to descend but the problem with this is that unlike a see-saw where we know the tipping point, the All Ordinaries Index could start its decline anytime. What I do know is that the more the market rises, the higher the probability it will fall.

Currently, there is a lot of negative news about the market and what is occurring or may occur with the US and Australia economies and how this will affect the stock market. However, investors should be very selective about what they listen to given that what is happening in the US and Australian does not really support this bearish narrative. On a positive note, the reporting season has so far delivered some great results for a number of companies, while others have reported average or slightly below par results but certainly nothing to be alarmed about.

Get stories like this in our newsletters.