Bitcoin and other crypto-assets have taken a huge tumble in March 2020.
For the first time, we saw a correlation between the stock market and crypto assets, dealing a blow to the narrative of crypto being an uncorrelated asset and its usefulness as a hedge against the stock market.
Oil prices are tanking too and coronavirus is spreading like wildfire throughout the world.
However, we need to keep in mind that the big issue here is the global Coronavirus pandemic, and thus we are living in very exceptional circumstances. Investors are not, in my opinion, behaving in a rational manner.
There is panic in the market, and hence it’s an exciting time for the shrewd investor who is able to think with his head rather than his emotions.
In my opinion, Bitcoin at around 5,000 Euro, down from 10,000 Euro just a few weeks ago, is an awesome opportunity to stock up on this asset.
As the world recovers from the Coronavirus scare in the following weeks and months, I expect to see Bitcoin rising up again to at least 10,000 Euro and possibly beyond, giving investors who invest now incredible returns that are probably not possible to achieve anywhere else.
Apart from this general thinking that I have, here are a few more pieces of information that help reinforce my opinion.
If you’re ready to buy Bitcoin, do check out my guide to investing in Bitcoin and cryptocurrencies.
Data Shows Cryptoasset Sell-off Was Driven by Short-term Holders
On-chain data provided by Coin Metrics shows that recent price movements were likely mostly driven by shorter-term and relatively new holders. Long term holders appear unfazed in spite of the severe market downturn.
While market cap for most cryptoassets fell, the market cap for most stablecoins increased. This potentially signals that investors are piling into “cash,” or at least crypto cash equivalents.
BTC has also entered a historically attractive price zone, with a market value to realized value (MVRV) below one. MVRV compares a cryptoasset’s market cap to its realized cap. Realized cap can be thought of as an estimation of the asset’s aggregate cost basis.
Read the full report on the Coin Metrics’ State of the Network report substack.
It looks like people are suddenly more interested in buying Bitcoin after the crash. That’s good news, as more people buy then the price is bound to rise.
European countries legalizing Bitcoin
As reported by Les Echos, Bitcoin now has the official status of money in France.
Meanwhile, Bitcoin has been qualified as a financial instrument in Germany.
Is it correlated or not?
The middle of March was an extraordinary time for global markets. We saw both the largest single-day percentage gain in the S&P 500 and the second-largest single-day decline. During the most extreme week, all markets—stocks, bonds, crypto, gold, real estate—were driven by macro factors. But that tight relationship is already showing some signs of reverting to normality.
If you peel back just a little bit, the long-term noncorrelation becomes apparent. For the 12 months ending March 31, 2020, bitcoin is up 55% while the S&P 500 is down 8%. For the trailing three years, the numbers are bitcoin +463% and the S&P 500 +16%.
Bitcoin is getting stronger and stronger
The cryptocurrency market in 2020 is actually very promising. Compared to just two years ago, the technology is incredibly well-developed and attracting many institutional investors. Whether it’s Visa partnering with Coinbase, Fidelity offering a crypto mutual fund or Facebook trying their hand at a digital currency, the signs are clear that crypto is here to stay.
The future of crypto represents not a replacement to fiat currency but an alternative to those who wish to participate in a more liberating monetary system. As governments continue to lay down the regulatory foundation for this new technology, risks and volatility will eventually dissolve into a stabilized product that will bring unique innovation to the world of finance. So if you’re thinking about exiting the market for good because of market conditions, perhaps you should give that another thought. Not only is it time to HODL even more aggressively than before but it’s one of the best times in recent years to enter the market.
Fear & Greed index suggests a buy
The crypto fear & greed index shows that we are in a moment of extreme fear and pessimism with regard to crypto, which in my opinion makes it a good moment to buy.
The crypto market behaviour is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With the Fear and Greed Index, we try to save you from your own emotional overreations. There are two simple assumptions:
- Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
- When Investors are getting too greedy, that means the market is due for a correction.
Therefore, we analyze the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.
The same thing goes for CNN’s general fear and greed index, which considers the whole market not just crypto.
History shows that it can be a clever idea to buy when everybody is fleeing in fear.
May’s Bitcoin Halving
The next Bitcoin halving event is due on the 12th of May. If history is anything to go buy, the price of this asset should rise pretty strongly after halving.
In my opinion in the light of the current turbulent situation Bitcoin remains one of the best assets to purchase at the moment, and the halving event just makes that case stronger.
If it’s your first time buying Bitcoin, I would recommend taking a look at my Bitcoin resources and to learn as much as possible, but the key thing when buying and storing crypto is that you buy from a reputable exchange and then subsequently store your crypto in cold storage.
The top exchanges I recommend are:
We’ll see how the price action goes, I’m curious to see how quickly the spike will come. Although the halving event should, in theory, raise the price, in these weeks a lot of people are strapped for cash and might therefore not be thinking of putting their money into crypto, although I still believe that the halving will be a catalyst for a bull run in 2020.
Stock-to-flow ratio still consistent
The stock-to-flow ratio chart is looking good. According to the chart, the next halving which is due in a little over a month, will set Bitcoin on course to the moon, with the next stable price point being $100,000.
BeInCrypto has reported on PlanB’s popular “Stock to Flow” model for determining future prices of Bitcoin based on scarcity many times previously. The projection posits that, all other things being equal, abrupt decreases in the issuance rate of Bitcoin have a direct impact on the cryptocurrency’s price.
Given that the Bitcoin network follows a predetermined set of rules that can only be adjusted by network consensus, the only changes to Bitcoin’s issuance rate come in the form of quadrennial “Bitcoin halvings.” Every 210,000 blocks, the number of new Bitcoin issued with each block mined halves automatically. The next halving, that will see the block reward drop to 6.25 BTC, is due this May.
Previous halvings have preceded colossal gains for Bitcoin holders. The stock to flow model, shown in the tweet below, has largely fit Bitcoin’s previous price movements and, sure enough, dramatic bull market moves do indeed appear to follow the events themselves.
In the image below, the left-hand chart shows the stock to flow projected price (thin dark blue line), as well one and two standard deviations from it (lighter blue areas). Even after plunging hard to less than $5,300 at the time of writing, PlanB contends that the model remains intact since Bitcoin price did not even leave deviation bands.
Some people think S2F model broke yesterday. Of course it did not. #bitcoin oscillated nicely around model value and stayed well within model bands. The extreme volatility within the model bands shakes out the weak hands. No extreme returns without extreme risk (volatility). pic.twitter.com/6UB3hO3ZE7
— PlanB (@100trillionUSD) March 13, 2020
The analyst writes that the extreme volatility is simply another example of market players shaking out “weak hands.” They state:
“No extreme returns without extreme risk.”
A 100k price might sound optimistic, but this model has been pretty accurate in the past and the logic behind it is sound. You can listen to an interview with the guy who came up with this on the What Bitcoin Did podcast.
The Bitcoin Rainbow Chart
The Bitcoin Rainbow Chart has been around since 2014, and basically overlays coloured bands, from red through yellow to blue, over a log-scale BTC price against time graph.
Whilst the original chart was graded as simply ‘buy’, ‘sell’ or ‘average’, this has now taken on a finer delimitation. At the top end we have ‘maximum bubble territory’, going through sell indicators, building FOMO, and down to ‘HODL!’ in the middle yellow band.
On the lower end of the spectrum, the scale goes through various levels of good value, down to the final ‘basically a fire sale’ band, where it currently stands. Again, another optimistic indicator.
The Great Upcoming Wealth Transfer
Kraken Intelligence, the in-house research team at the crypto exchange of the same name, released a new report entitled “Inheriting USDs & Acquiring BTCs: How ‘The Great Wealth Transfer’ Will Fuel ‘The Great Bitcoin Adoption.’”
According to the report, if American Millennials were to invest at least five percent of their inherited wealth into Bitcoin (BTC), they could drive the price up to $350,000 in 2044. This would effectively give the generational group almost $70 trillion of value from a $971 billion investment.
2/ Assuming a 5% investment allocation and a 2% inheritance tax, by 2044 Gen X and Millennials could invest an estimated $971 billion into #Bitcoin as they inherit wealth.
World investment could make this figure much higher. pic.twitter.com/r0VV97HIgz
— Kraken Exchange (@krakenfx) March 25, 2020
With many older Americans on the verge of retirement, the report suggests those in younger generations who are not only more familiar with but more accepting of Bitcoin will have more options investing in the future.
“…a disproportionate percentage of the Millennials and Gen X will continue to be the driving force of adoption [of cryptocurrency] for the foreseeable future. While this can be explained in part by the fact that both generations harness a greater technological competence than their elders, we should also consider that bitcoin’s current volatility is unsuitable for individuals nearing or in retirement.”
Baby Boomers in the United States currently control approximately 57% of the total wealth, $50 trillion of which will pass to Millennials and Gen Xers in the next two years. This redistribution is referred to as the “Great Wealth Transfer”.
If younger people were to use just 1% of this wealth to then invest in BTC, the price could rise to $70,000 — if not more — in 2044. This is based only on investors in the U.S., meaning the actual numbers could easily be higher.
Bitcoin entering the Fourth Era
According to an analysis by Bitwise Asset Management, Bitcoin is entering its fourth era in which it will go mainstream, and if previous eras are anything to go by, we should be seeing a big run-up to $100,000 or more in the next 2 years.
In these volatile times, there is a big opportunity to make some money just trading Bitcoin. The idea is to buy when the price is suppressed and sell when it is rallying.
If you’re not confident doing that yourself, you can make use of a service like CopyTrading from eToro.
With CopyTrading, trades will be automatically copied to your account allowing you to manage your portfolio in a simple and transparent way. With over 3 million traders to choose from, you can interact with and copy multiple traders.
To get started, create your free eToro account. All information you submit is protected by the latest encryption technology and will not be shared with third parties. Once your account is created, select one of the available payment methods to fund it.
Use the eToro People page to find eToro’s best traders. Make sure to check the traders’ portfolios and trading stats. To base your copy trading portfolio on specific markets (i.e. crypto), use the eToro Markets page to see which investors are trading in the market of your choice.
Once you’ve found the crypto traders you want to copy, simply click on Copy to start copying their positions. You will be asked to specify the percentage of your funds you want to allocate for copying. The amounts for the copied trades will be calculated accordingly.
The trades made by those you’ve chosen will be automatically recreated in your account. You retain full control of your account and can take the trade over, or stop copying a trader altogether, at any time. Finally, always be on the lookout for new trading stars to add to your copy trading portfolio!
Here are a few more tips for trading cryptos:
- The stock market is only open less than 20% of the time when cryptocurrency markets are open
- Bitcoin is the most traded on Wednesday and Thursday and the most volatile on Thursday
- It is the least traded on weekends and also the least volatile
The average volume based on the time of the day shows that the highest volume happens around 10am ET and then gradually decreases until it peaks again around 8pm ET. Volume is the lowest from 10pm to 5am, which is usually the time when most of the people on the East Coast sleep.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Cryptoassets are volatile instruments that can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading crypto assets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.
Direct effects of COVID-19
With massive layoffs and panic around the world, the first reaction was for people to move into cash, meaning that they started to sell off any investments, including Bitcoin and other cryptos. That is also why we saw the price of Bitcoin fall together with other asset classes. The payouts that some governments have promised will eventually reach the people, and as things settle down people will start to invest again, and I think Bitcoin will be one of the asset classes that will be more successful. An interesting indication is that the trading activity on exchanges has actually increased in March even though the price went down. Historically whenever there is an increase in trading activity a pump in the price follows.
Crypto, or digital assets, are a highly correlated space. The best coins will always have the softest bear markets, and it is becoming clear that Ethereum wasn’t much worse on the COVID correction and is punching above its weight in the rally. With a network value around 15% of Bitcoin, there is the potential for a catch-up, but its network is smaller on the most important measures.
Crypto valuation is all about the network. While Ethereum processes a large number of transactions, they tend to be small. It won’t catch up unless its network sees a surge in transaction value, which means either many more transactions or to attract a greater share of the larger ones. But this is a youthful space, and anything is possible in crypto.
In the meantime, Bitcoin is heading back to $20 billion of network transfer each week. So long as this goes up, so will the price of Bitcoin.
Companies Adopting Bitcoin as Reserve Asset
MicroStrategy INC purchased 21,454 bitcoins at an aggregate purchase price of $250 million.
“This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.” said Michael J. Saylor, CEO, MicroStrategy Incorporated.
Mr. Saylor continued, “MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”
I believe other private and public companies will follow suit.
This was followed up with another purchase in September.
On September 14, 2020, MicroStrategy completed its acquisition of 16,796 additional bitcoins at an aggregate purchase price of $175 million. To date, we have purchased a total of 38,250 bitcoins at an aggregate purchase price of $425 million, inclusive of fees and expenses.
— Michael Saylor (@michael_saylor) September 15, 2020
Need Cash? Take a crypto loan instead of selling
If you need quick liquidity, you typically sell-off some of your assets. Anyone can run into an emergency situation. But there are alternatives to selling. Crypto backed P2P loan platforms are very popular, big holders of crypto prefer to get loans in fiat currency using their crypto as collateral instead of selling their crypto.
How to buy Bitcoin
If it’s your first time getting into Bitcoin, I recommend buying from these exchanges:
You could also use your crypto to earn interest using platforms like Youhodler.
Or maybe Gold?
The gold vs Bitcoin debate is still ongoing, and gold bugs like Peter Schiff think that gold will be the winning asset in the coming crisis.
Gold is falling because investors are clueless as to what is coming. Their mindset is similar to that of central bankers. They have no idea how bad the consequences of the current monetary & fiscal policy mistakes will be. When they figure it out en masse, #gold will skyrocket.
— Peter Schiff (@PeterSchiff) March 16, 2020
If you were to ask me, I would rather bet on Bitcoin than gold in 2020, but who knows…
If bitcoin isn't gold 2.0, then what is it? The fact that it's not acting how you might expect only underscores just how early it is.
— Tyler Winklevoss (@tylerwinklevoss) March 14, 2020
Other Ways to Make Money with Bitcoin
While buying and holding has traditionally been the easiest and probably best way to profit from the Bitcoin boom, there are several other ways to make money by getting involved with Bitcoin.
Cloud mining consists of contributing fiat money to join a mining pool. Genesis is probably the only mining pool that I would trust as of 2020, however profits are far from guaranteed and I think it’s still too risky a proposition compared to just buying and holding, so I have so far avoided getting involved in mining.
You could, of course, also set up your own mine, but at this stage, you would need a big investment and be very technical to even have any chance of successfully doing this. Unless you’re a mining expert, don’t even think of setting up your own mining setup.
Arbitrage Trading Software
A common scam – avoid outright. There are many websites that promote their software that purportedly generates insane daily profits through some proprietary genius trading and arbitrage techniques.
Predictably, they are all scams and ponzi schemes, and you are sure to find a referral program meant to be the main driver of any returns. Examples include Bitconnect, Arbistar, Mind Capital and Kualian.
I hope that this crisis drives people to look at Bitcoin as an alternative to the current shaky banking system.
In the meantime—despite its price taking a tumble—Bitcoin remains fundamentally unscathed. In its ten-year lifespan, BTC has crashed and recovered in countless cycles, been declared dead 380 times and counting—and yet somehow, has managed to prevail time and again.
When this is over
➡️The fed will have printed trillions
➡️USD will have lost value
➡️Leaders will have lost credibility
See you on the other side!
— Lina Seiche (@LinaSeiche) March 13, 2020
I think we should focus on the long term, the big picture. If you have faith in this technology you know this is the worst time to panic sell and the best to keep hodling, or better yet, buy more crypto.
The other alternative is to engage in trading, if you have the right skills to do so. In shaky times like these when the price tends to be quite volatile, trading can be a very profitable endeavor.
When trading, keep in mind that you can’t be always right. Even the best traders are happy if they are right slightly more than 50 percent of the time, I consider that good. On a long-term basis there are always some good periods and some bad periods as the market will catch you unawares and surprise you with sudden unexpected shifts up or down.
It doesn’t matter how many times you’re right and how many times you’re wrong; it matters how much you make when you’re right and how much you lose when you’re wrong.
You have to have that ratio right. You could be right only 30 percent of the time and still make a lot of money as long as you make three times more on your right predictions as you do on your losses.
Given the huge upside potential and promise for Bitcoin, I think that the easiest and most fool-proof strategy right now is to just buy Bitcoin and store it safely. Wait a few years and if all goes according to the ideas exposed above you will be sitting on a nice increase in your net worth.
If Bitcoin can remain decoupled from US Equities & the market treats it as Digital Gold, 2020/2021 should be an amazing cycle for BTC. Always follow the present strongest force as that drives market direction – Presently, that is the Demand Side fueled by Funds & Retail Money.
I like to use the Whatifihodl tool to figure out how much a current Bitcoin stash will be worth in the future based on price projections. You could also use Hodlcalc to see how much Bitcoins bought in the past would be worth today. It’s a great tool if you fancy ending up kick yourself for not getting involved earlier than you did 🙂
Alternative Currencies to Buy
While there are many hardcore Bitcoiners who think that all other cryptocurrencies are rubbish, I would disagree. I’ve written about a number of other cryptocurrencies that are worth looking into, and due to the growth of DeFi I would say that Ethereum is one, in particular, to keep an eye on.
What are your thoughts?