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Bitcoin is making a storming comeback

What goes up must come down. After rising 1,800% in a year to hit a mind-boggling $20,000, crypto-currency star bitcoin duly crashed, and digital currency mania collapsed overnight. However, now it is showing signs of life. Is this the buying opportunity you missed last year?

Falling down

The crypto crash was brutal, especially if you came to the party late. By 6 April, bitcoin had slumped to just $6,620, shedding two thirds of its value. Other alt-coins such as bitcoin cash, ethereum, litecoin, ripple by XRP and dogecoin also plummeted.

Everyone had their own theory for the crash. Some said it had been over-bought. Others blamed new measures allowing investors to short cryptos. Another theory was that the Chinese were selling up, to fund new lunar New Year festivities. The so-called Tokyo whale also took the blame, as administrators of the collapsed Japanese Mt. Gox exchange started selling coins to refund stricken investors. 

Back to life

Nobel prize-winning economist Nouriel Roubini’s claim that bitcoin was the “mother of all bubbles” and its value would fall to zero was starting to look prescient. Then on 12 April, it sprang back into life, soaring $1,000 in an hour.

Everybody had their own theory for the rebound. Some said it had been oversold. Others said short sellers were covering their backs after it dipped below $7,000. Another theory was that investors were treating it as digital gold, a bolthole against Syrian and US trade war fears. Or that the Muslim world was piling in after Indonesian sharia adviser Mufti Muhammad Abu Bakar published a research paper stating that bitcoin is ‘halal’.

Bit of uncertainty

It may be a combination of all these things, but what I find interesting is that bitcoin has continued to rise, slowly and steadily by its standards. Yesterday it stood at $8,175. At time of writing you pay $8,315. Its more sober behaviour may lure back investors who ran in fear.

Where will bitcoin go next? Nobody knows. Just as nobody really knows why it crashed and bounced. There is a large and enthusiastic community of believers out there, and they reckon the underlying blockchain technology will change our world.

However, the alt-coins market remains vulnerable to intervention from suspicious governments. The regulatory authorities will be reluctant to allow anonymous currencies to grow too large, and previous threats to rein them in have punished prices. But you can beat bitcoin if you try.

Digital dread

There is a danger of getting sucked back in to what may be a dead crypto bounce. I tried my hand at trading ripple but found it emotionally gruelling. Remember Warren Buffett’s advice about being “fearful when others are greedy and greedy when others are fearful”? Not so easy in practice, when you are making large profits or losses in a matter of days or hours. There are other ways of getting seriously rich.

I sold most of my holdings near the recent bottom, fearing total collapse. I am holding on to the remnants, but not adding. Losing money hurts too much. My advice: stick to stocks and shares.

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Harvey Jones holds bitcoin, bitcoin cash and ethereum. The Motley Fool UK has never recommended crypto currencies. Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.