BITCOIN ASSETS: IS IT TOO LATE TO BUY?

It’s not too late to add bitcoin assets to a portfolio and position oneself to benefit from the next bitcoin bull run. Actually, it a great time to invest in bitcoin. Indicators are showing the next bull run could last for the next 18 months. More importantly, this could possibly be the last time bitcoin assets can be purchased below the $10K rate.

BITCOIN ASSET: DOMINANCE

Bitcoin dominance over altcoins is around 62% which is a little lower than normal. This is why we have been seeing a nice pump in price for the alt-coins that make up the rest of the market cap sitting around $304 billion. Bitcoin’s price seemed comfortable staying above $10,000 for a period of time, but then dropped after returns of around 45% just after the beginning of the year. 2020 has been an awkward year so far, with many ups and downs for the financial markets, and that certainly includes cryptocurrency.

Signals & Hints

Large deposits into the exchanges tend to be a good hint a bull run is going to soon end as investors look to cash out profits. This bull run seemed to be a little different earlier in the first quarter of 2020. Large deposits were down and appeared to be a good indicator that investors must have been comfortable that a run wasn’t over yet. 

Missing was the extremely high volatility experienced during the last bull run. Those moves attracted many to add bitcoin assets to their portfolios for big gains. This time volatility was down to near record lows. The older more mature currency was showing it can thrive in a low volatile environment, and this began to ease institutions’ fear of investing. Bitcoin seemed to have become more legitimized and normalized.

So What Happened?

On March 12, 2020 cryptocurrency markets lost billions as the prices sank to levels not seen in over a year. This time, bitcoin’s price drop correlated with the stock market, as massive sell-offs occurred across the board. As news of the Coronavirus began to spread around the world, investors started putting their bitcoin assets into stable coin or USD cash. With a world on lockdown, businesses shuttered, consumers sheltering in place, the entire financial sphere has been affected. While bitcoin is a little less correlated currently, it still shows a correlation coefficient with the stock market of over 50% on a scale between 1100% and 100%. Consequently, it is not unusual to see a 3% move in the stock markets to be correlated to a 9% move in Bitcoin. But the debate continues and many maintain that bitcoin is a non-correlated asset.

As of this posting, Bitcoin has surged to regain some lost ground. This could be due to optimism over the progress around the world in fighting the Coronavirus, or because many are still seeking a safe haven. Regardless, traders should expect gains and losses to mimic the stock market, with swings magnified due to the higher risk profile of bitcoin assets.

Shouldn’t a borderless digital asset like bitcoin be independent of other currencies and the stock market? Perhaps in normal uncertain economic times when investors still have jobs but look for a safe place to park their assets. However, the Coronavirus situation is different and certainly not normal. Even traditional private assets like gold and silver crashed, so it stands to reason one in existence for only about 11 years would as well. Once the dust settled, so to speak, bitcoin rose in price and has held steady.

Safe Haven Assets

Of course, if not talking about the virus, many of us are talking about gold vs. bitcoin assets. As of this posting, gold is up 8.5% and bitcoin is up 24% over the same 5-day timeframe, while the S&P 500 is down 4.3% over the same period. The question is, will Bitcoin begin to show a strong correlation to the stock market, or start performing like a safe haven as this Covid-19 situation continues?

Only time will tell. In May 2020 the reward a miner receives for confirming a block (how bitcoins are created) will be automatically cut in half and go from 12.5 BTC to 6.25 BTC. This is built into the protocol to cap the supply to a maximum of 21 million and it happens every 210,000 blocks, or about every 4 years. This will be the third halving and 87% of the world’s total Bitcoin is now in circulation. With “the halving” it will become more scarce as the creation of bitcoins is instantly decreased. As the supply shrinks, demand will surely grow.

Stock is the size of the existing stockpiles or reserves. Flow is the yearly production. Gold has the highest SF (Stock to Flow ratio) 62, it takes 62 years of production to get current gold stock. Silver is second with SF 22. This high SF makes them monetary goods. Bitcoin currently has a stock of 17.5m coins and supply of 0.7m/yr = SF 25. This places bitcoin in the monetary goods category like silver and gold.

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