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 current bitcoin bull run. Actually, this current downtrend makes it a great time to invest in bitcoin. Indicators are showing the bull run is not over, and many speculate that bear cycles will continue to be shallower as the asset matures. More importantly, this could possibly be the last time bitcoin assets can be purchased below the $50K rate.
BITCOIN ASSET: DOMINANCE
Bitcoin dominance over altcoins is around 39% which is lower than normal. A measure of how much the total market cap of the crypto market is comprised of Bitcoin, Bitcoin dominance helps one understand the trends between alts and BTC. When BTC goes up, the alts as a whole lose value against it. When it goes down, the alts on the whole gain value.
Signals & Hints
Large deposits of bitcoin into the exchanges tend to be a good hint a bull run is going to soon end as investors look to cash out profits. Currently, large deposits are down and appear to be a good indicator that investors remain comfortable that a run isn’t over yet.
The extremely high volatility experienced during the last bull run also seems to be missing. 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 was affected.
Bitcoin’s rapid recovery gave mainstream financial markets a reason to start taking it more seriously following the covid crash. While there are many optimistic price predictions, a good majority agree bitcoin should hit $100,000 or higher in 2022. Adoption continues to grow, while supply continues to decrease.
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 13 years would as well. Once the dust settled, so to speak, bitcoin rose in price and reached new all-time highs.
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 down around 4% and bitcoin is up 85% since the start of 2021. 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) was automatically cut in half and went 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 was the third halving and 87% of the world’s total Bitcoin is now in circulation. With “the halving” bitcoin became more scarce as the creation of bitcoins was instantly decreased. As the supply shrinks, demand is predicted to grow and bitcoin is expected to continue to take market share from gold.
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 and places bitcoin in the monetary goods category like silver and gold.