Buy the Rumor, Buy the News, Buy Some More

By TradeSmith Research Team

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“Buy the rumor, sell the news.”

These six words aim to sum up the difference between mom-and-pop masses and ultra-rich investment pros.

Most of the time, it’s sound advice. Buying assets ahead of bullish, one-off catalysts that few know about is hardly ever a bad idea. And most folks are simply not connected enough to routinely do this.

But today, I’m going to stick my neck out and utter the Four Eternally Cursed Words of Finance.

“It’s different this time.”

We’re on the cusp of a highly anticipated catalyst that many will wrongly interpret as a “sell the news” event. Sooner than you think, this event will instead seem an obvious “buy the news” opportunity. Down the road, it may prove to be one of the greatest wealth-creation events ever seen.

And frankly, instead of focusing on this event… you should be buying the “rumor” of a guaranteed piece of news set to drop in about three months.

And no, it has nothing to do with the next Federal Reserve meeting… or inflation report… or anything like that.

I’ll show you exactly what’s going on — and what to do — in today’s TradeSmith Daily.

Read on…

ETF Mania

All eyes are on the U.S. Securities and Exchange Commission (SEC) this week for word on whether it’ll approve the first-ever bitcoin ETFs backed by real assets. The announcement is supposed to be out sometime today.

I’ve heard excited whispers of bitcoin ETFs for as long as I’ve been buying crypto — since 2016. They’re seen, rightfully, as a key driver to taking bitcoin mainstream.

You might be confused reading this, thinking bitcoin ETFs already exist. You’d be half-right.

The Grayscale Bitcoin Trust (GBTC), which came out in 2018, sure looks a lot like an ETF. But it’s not. It’s a trust.

The key distinction is the number of GBTC shares was fixed at inception. That means GBTC often trades at a different price from its net asset value — either a discount or a premium — depending on how popular it is at any given time. It also has a 2% management fee. Suffice to say, this is no pure play on bitcoin.

Then came the ProShares Bitcoin Strategy ETF (BITO) in 2021. This is closer, but still not quite it.

BITO holds no “physical bitcoin,” strange as you might find that phrase. It simply follows the price of bitcoin futures. So by owning it, you benefit from price rises… but it doesn’t contribute at all to people’s ownership of bitcoin.

You might be thinking “who cares?” but let me tell you exactly why that’s so important…

Bitcoin is a scarce asset. Only 21 million bitcoins will ever exist. That in itself is a rare thing.

Think about virtually any other financial asset. Stocks? New shares are issued all the time. Cash? The Federal Reserve went on a legendary printing spree just a few years ago. Even commodities like gold or oil? It may not be limitless, but we’re finding new supply in the ground all the time. We don’t know how much of any commodity there is — especially when you consider humanity’s spacefaring and asteroid-mining ambitions.

Bitcoin has a fixed supply. The more demand there is for it, the higher the price will go. It’s perhaps the purest supply/demand dynamic of any financial asset in history.

That’s why you want the 100 million-plus brokerage accounts that exist to be able to easily buy bitcoin, not just bitcoin futures.

And that’s why today is so exciting for bitcoin bulls.

No less than 11 major Wall Street institutions have pending listings for spot bitcoin ETFs. There are some heavy hitters among them: Invesco, BlackRock, Global X, Fidelity, and more.

If they’re approved, which seems likely, this will be the first time that folks will be able to buy and hold a slice of the bitcoin pie without having to jump through any of the usual hoops of opening crypto wallets or using sketchy exchange accounts.

That’s why I say this is no “sell the news” event. Bitcoin may sell off temporarily once the news it out, purely out of tradition. But you should treat that moment as a buying opportunity.

And really, these ETFs are just one piece of a larger puzzle…

The Next “Rumor” to Buy

In three months’ time, you’re going to start seeing headlines about another major catalyst for bitcoin prices. But you shouldn’t wait until then to buy.

This time, it’ll be about “the halving” — where the reward bitcoin miners earn is cut in half. (Without getting too into the weeds, miners use specialized computer hardware to simultaneously secure the bitcoin network and create new bitcoins.)

Now, I’ve been using “rumor” in sneer quotes throughout today’s Daily because the halving is hardly a rumor. It’s the rare opportunity to buy ahead of a predetermined event that has a perfect track record of preceding bitcoin bull markets.

You see, like its limited supply, the gradual decrease in bitcoin’s mining output is part of its design. It’s scheduled to happen continually after a certain number of bitcoins have been mined.

The result is that, as long as people continue to buy, hold, and mine bitcoin, it will become scarcer over time.

That’s the second and key piece of the bitcoin puzzle.

When ETFs go live and investors can access this proven, deflationary monetary asset in their regulated brokerage accounts for the first time, it will drive huge demand. Just look at the market since 2021, with its high inflation and net-zero stock market returns, for the reason why.

Then, in three months, when word begins to spread that the incoming bitcoin supply is about to be cut in half, it will ignite the same excitement that we’ve seen in previous bitcoin bull markets.

I’ve shared the chart below a few times, and for good reason. Bitcoin has a perfect track record for soaring after its halving event.
In November 2012, Bitcoin ripped more than 9,100% to the peak after its first halving event.

In July 2016 — the bull market that got me and many other people interested in crypto — it ran nearly 3,000% higher to the peak from its halving.

And from the halving in May 2020, bitcoin soared more than 600% to the peak.

As you can see, we’re starting to see diminishing returns from the halving event. The second halving was roughly 30% the performance of the first. And the third was about 20% the performance of the second.

However — there are those words again — this time is quite different. If bitcoin ETFs are successfully listed, bitcoin will be much more easily accessible to the wider investing public. And that could throw the old rulebook out the window.

This time around, I think we could conservatively expect gains of 150% out of bitcoin, from the halving to the peak of the bull market — about 25% of the gains we saw with 2020’s halving.

So, here’s what I recommend…

Just Buy Some Bitcoin

Listen, I’m well aware that bitcoin naysayers are still out there. I get why.

It’s only been around for 15 years. It’s “digital gold.” And it has an unfortunate, but misguided association with the more unsavory and, frankly, ridiculous parts of the crypto world.

But bitcoin’s design makes it one of the strongest inflation hedges in existence. Over time, it has the potential to protect wealth like nothing else. You might say gold can do that, and you’re right. But gold has nowhere near the growth potential of bitcoin.

Ideally, you would buy some bitcoin from a crypto exchange and hold it in an offline wallet. That’s the most secure way to own it — like storing gold coins in your safe.

The ETFs coming out, potentially as soon this Friday, Jan. 12, are your next best choice.

After they do, I’ll share my thoughts on the various options and let you know what I think is the best place for your money.

No matter what, though, put some percentage of your portfolio in bitcoin — whatever’s appropriate for you.

The bull market is coming. Really, it’s already here. But a good chunk of the gains are still ahead.

Anyone aiming to make multiples on their money in a relatively short amount of time needs to buy some bitcoin on the ETF rumor… then buy on the news… then buy even more afterward.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily