Why All-Time Highs are Important

One aspect of understanding market behavior is what All-Time Highs are, and what it means for the asset and the environment it is responding to. ATH is an acronym for All Time High. ATHs occur when a stock or cryptocurrency have reached its highest value ever recorded. Corrections typically follow such grandiose numbers.

In order for investors to make savvy decisions about where to put their money, it is important to be able to read the markets. No, this is not like reading tarot cards, it is more like checking the weather before you go out in the morning. This is why to be able to invest wisely, you need to know how the markets behave, and much of their behavior depends on what is going on in the world. Markets do not act in a vacuum, they respond to other markets, products, and consumer needs.

Moreover, because in many ways smart investment strategies are like dressing for the weather, speculation also has a major role to play. Speculation plays an important role to consider if an asset is likely to increase in value over time. All investments require a certain amount of speculation, even property investments can be speculative.  While many consider the property a less risky investment, the buyer is still banking on the idea that the property will retain its value, if not increase in value over time.

So, if we want to understand what information we get from ATHs, we need to look at a few other market behaviors.

A bull market means that one’s assets are in an ATH multiple times a month, and although prices are high, investors are still trying to get in. On the other hand, in a bear market value drop to 20 percent of the recent highs. Bear markets can indicate pessimism and negative investor sentiment.

ATHs are both thrilling and terrifying for investors in any market, including cryptocurrencies. In December of 2007 Bitcoin was at an all-time high of nearly $20,000. Insane right? Well maybe not, in fact, this kind of volatility may be exactly what we can expect from a new valuable asset, like Bitcoin.

Volatility and Value

We can interpret this volatility as normal for several reasons. Bitcoin is often compared to gold. One of the reasons for this comparison is that like gold, Bitcoin is demonstrating that it is an excellent value retainer. And despite the value of gold, it is not very useful on a daily; unlike Bitcoin, which is accepted by more and more businesses.

We can make further comparisons of Bitcoin to gold if we look at a brief history of gold’s value. In 1971 Richard Nixon removed the U.S. from the gold standard. In 1979 gold had a 120% return. But just shortly afterward, in 1981, gold had a negative return of -33% and following this volatility, it steadily tapered off. Flash forward to 2018, and gold is up 56% from last year. Gold, though the standard, is not immune from volatility.

What about High Times?

What can we glean from this? I suggest that you take away two main things: The first is that even valuable assets will experience volatility. Gold is still a sound investment despite the fact that its returns have taken some very serious beatings throughout the years.

And the second thing is that the more buyers there are, the better a market behaves. This is true for all valuable markets, including cryptocurrencies. This is the simple fact that when all of the markets of economies are growing, highs will happen. It’s for this reason that wars look like they are profitable. Postwar, countries must rebuild, so it’s all hands on deck, and out of absolute need money is pouring in from everywhere and unemployment is very very low. Postwar economies are boom economies.

The second factor does not diminish the success of a market, however. More need creates more consumption and so money moves more abundantly, consequently, the market sees more highs.

Cryptocurrencies and Highs

In 2019, Cryptocurrencies are performing well again after an ATH. This is for the simple fact that they fill a market need. Are all-time-highs sustainable? Nope. In fact, as Matt Hogen argues, it is a good indication that there is longevity in the asset.

Let’s consider, when a new store begins, the price starts out low, and it moves slowly. As more people begin to believe in the value the price rises exponentially. As the store continues to prove its holding power but is no longer in such high demand, the volatility will decrease and it will find a steadier rate of return.

In this way, Bitcoin, as well as a select group of cryptocurrencies, are behaving in a similar way to gold. Both the novelty and the need are demonstrated by there volatility and consistent demand. If you take a look at the chart below, you will get a glimpse of Bitcoin’s returns between April 2016 and May 2019 from Coinmarketcap. Bitcoin is having a bullish resurgence.

After a slow slog of a start in 2008, where consumers were gaining interest in 2016 the prices steadily rise until its ATH in 2017/2018. Now, after a bearish market Bitcoin is back with a more progressive return. Although its volatility is still high, it is likely to see is stabilize in the future.

Coming Down from the High

There is, of course, a downside to ATHs, and that is the low that inevitably follows the high. Those who bought in the high will see their returns diminish, while others will take advantage of the moment and buy in the dip. But, if the asset has staying power, it is likely that over the long-term, those with holdings of volatile assets will see steady returns. However, the appearance of a bear market might straightforwardly mean that the stock is not proving its value after all. There are many factors to take into consideration because not every asset is gold.

The real problem of ATHs is just how widespread their effects are because this will determine how much a dip will impact the economy as a whole. To quote Andrew Smithers,

“The higher they go, the more they are likely to fall and the greater the negative impact on the economy. Large and fast falls in asset prices are far more damaging than slow declines.”

This is exactly what happened in 2008 with the U.S. housing market. It is no coincidence that this was the same year that Satoshi Nakamoto realized Bitcoin. Economists assert that earnings from previous years had been too high.  

All-time highs are therefore a good indicator of market activity. Using this information we can form intelligent speculations about the future of the market. Unfortunately, it is never possible to know exactly what will happen. But if you learn to read the signs and know a little about the history of the market’s behavior you might be able to come out on top.

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