If there’s any one sector that has resulted in premature graying for technical analysts, it’s got to be cryptocurrencies. As I write this, Bitcoin (CCC:BTC-USD) is again making another inexplicable run higher after printing some incredibly ugly chart patterns off equally terrible news items. Naturally, this has people excited about BTC, which is totally understandable. However, you might want to consider Shiba Inu (CCC:SHIB-USD).
Source: Shutterstock
Before you got out and declare that I’m a SHIB bull, rest assured that I’m not. As you’ll see later on in this article, my thesis for supporting Shiba Inu is under a narrowly defined framework.
Furthermore, the thesis isn’t just about SHIB-USD but also any popular, low-cost crypto coin or token that would disproportionately benefit from meme-ing and the law of small numbers.
In addition, I want to be absolutely clear: cryptos are incredibly dangerous. Above all the other topics that I’ve discussed – precious metals, firearms, botanical supplements, you know, Alex Jones type of stuff – I know this sector very well. It’s changed my life for the better but I’m also aware that it’s ruined others in indescribable ways.
If you want to know the dark side of what can happen regarding reckless trading on Shiba Inu and other speculative coins, check out this article from Jumpstart. It’s a story about self-harm, so only mature audiences need apply.
Nevertheless, when the bullish wave happens, I’m fully aware that my cautionary takes are often met with derision. Immediacy bias sets in, along with a massive heap of FOMO, or fear of missing out. I end up looking like a fool until the inevitable crash happens. I redeem myself only to repeat the cycle once more.
But the problem is that no one knows when – or even if – the cycle will repeat again.
Shiba Inu and the Contextually Superior Risk Profile
Personally, I’m not sure if it’s wise to chase Bitcoin under its beginning-of-October rally. Sure, it again reached $50,000, a key psychological level. More importantly, Federal Reserve Chair Jerome Powell stated recently that the federal government has no intention of banning BTC. Naturally, that sent the crypto market soaring, with downwind benefits applying to Shiba Inu.
But from a technical analysis perspective, Bitcoin has been struggling to stay above the $50,000 threshold. The longer it prints pensive action, the likelier it is that bearish sentiment will take hold. That’s the problem with having newcomers arrive to the scene: you get plenty of weak-handed investors.
However, in this case, those weak hands could instead be logical ones. In my research for the original cryptocurrency, I noticed a peculiar pattern. Starting from 2011, below are the annual returns of BTC:
| 2011 | -11% | 2016 | 122% | |
| 2012 | 2% | 2017 | 1,291% | |
| 2013 | 5,959% | 2018 | -72% | |
| 2014 | -61% | 2019 | 89% | |
| 2015 | 37% | 2020 | 302% |
Mainly, as Bitcoin steadily matures as an investment vehicle, the magnitude of its returns (during major bull markets) declines while conversely, the magnitude of its losses (during major bear markets) increases.
For instance, in 2013, BTC returned nearly 6,000% for stakeholders. In 2017, it drove home 1,291% profits. Last year, Bitcoin returned 302%. That’s an immense profit, to be sure, but well off both 2013 and 2017’s windfall.
Then, look on the other end of the spectrum. In 2011, BTC suffered only an 11% loss. But in 2014, the sector suffered a 61% loss. And in 2018, the red ink widened to 72%. Basically, the higher BTC goes, the riskier the downside gets, while the upside diminishes.
In my opinion, the better bet is to place a relatively smaller wager on Shiba Inu and leverage the law of small numbers.
I Do Not Recommend This!
Please hear me out: I do not recommend any of the above. Shiba Inu is absolutely crazy, are you kidding me? You don’t want to get involved but only for pure entertainment purposes, like a digital trip to Las Vegas.
On the other hand, I’m a realist. The mathematical trends I mentioned above regarding Bitcoin’s returns don’t lie. Unfortunately, the window for rewards is diminishing while the doorway for risks is expanding. In such a paradigm, I’d rather take the risk-reward profile that doesn’t require such a large commitment of my money.
But either way, you’re taking huge risks in such a wild, unpredictable market. Therefore, trade accordingly.
On the date of publication, Josh Enomoto held a LONG position in BTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
