The crypto market is thawingar
TINA: There is no alternative. There is no alternative to shares, you often hear from share lovers. They have learned that stocks are always the best to own, especially in the long term. This is where value is created over time and trying to time peaks and troughs to create excess returns is considered impossible. There is another thaw as well; it's when crypto winter turns to spring and interest in Bitcoin and Ether increases. Today, the OMX index is almost touching the resistance of 2236, which I last wrote about as a logical target for the stock market before it turns downwards again. It was, of course, not a forecast, but only one of several possible scenarios. And there is no forecast that OMX will plummet from here any time soon.
I'm just noting that the S&P 500 is extremely expensive from a historical perspective, while the OMX and its 200-day moving average are trending down, and we're likely facing tougher economic times due to the rate hikes of the past year. The stock markets have raced upwards in November on the hope of interest rate cuts, but when they do come, the focus can easily shift to the weak economy instead. That's how it usually goes.
The price patterns, the higher interest rates and weaker economic outlook constitute a kind of long-term headwind for the stock market, but are not decisive for the development. However, it is reasonable to reduce one's shareholding from maximum exposure when Price/Sales is historically high in favor of other assets. You can e.g. buy bonds with 10% interest, or gold in anticipation of new stimulus packages. Or you take a serious look at cryptocurrencies. I covered a math example in my October 30th column (here) that showed how serious institutional interest and a Bitcoin cash ETF could argue for a price of $500,000 per Bitcoin. When I gave the example to a very experienced crypto investor, he thought it sounded too cautious, because he wondered if it was even possible to get 2 million Bitcoin off the market, i.e. 10% of all that exist, 20% of those that after all have been transacted in the past year.
There is constant work going on behind the scenes to make Bitcoin more accessible to traditional investors. In the short term, the most important holding point is to get permission to create a cash ETF in the US for Bitcoin, similar to e.g. the Canadian uranium ETF SPUT (UU: Sprot Physical Uranium Trust) or the American gold ETF GLD. Such a development is both logical and probable. Once it comes off, it could turbocharge the usual 4-year cycle of the Bitcoin price which is partly driven by the dynamics of the reward halving every 4 years. It's time again in the spring of 2024, but that doesn't necessarily mean an immediate price increase. Rather, it is usually a false spring, a body fine upwards a year before, followed by weakness around and after the halving and only six months later an upward acceleration. A cash ETF would probably accelerate the development considerably. It quickly becomes a self-playing piano when a growing ETF tries to buy into an asset with limited supply and liquidity. The purchases drive the price up, which drives increased interest, inflows to the ETF and thus further price-driving Bitcoin purchases.
Today, the price of one Bitcoin is $37500, which is well below the old peak of $69k and very far below the $500k of the calculation example. Please note that the reference points do not constitute any price forecasts, but are just a historical reference and a calculation example.
In the past year, the scandals in the crypto world have piled up, yet the price has more than doubled. It indicates a substantial underlying buying interest. As I said, I still believe, and not least hope, that there will be a better buying position this spring at around $25k per Bitcoin or $1600 for Ether (now $2100, all time high $4866). However, there is a lot of wishful thinking behind that scenario.
It is based not least on the fact that there will be a general risk-off in the financial markets this winter, triggered by higher interest costs and better alternatives to the stock market, not least in the form of corporate bonds. If history from 2001 and 2007 repeats itself, the Great Recession will begin at the same time as the Fed begins to lower interest rates. The logic is that it is only when it is fully confirmed that the economy is so weak that the central bank drops its focus on fighting inflation and instead does "whatever" to save the financial system. This time it could be completely different, perhaps the market has learned a lesson that will avoid a slump altogether. The decline was so short-lived and the rise so enormous in 2020-2021.
However the market moves in the coming year, and whether the cryptocurrencies react even more or are seen as safe haven options from the start, I expect that within two years we will have seen new price records for Bitcoin and Ether. An ETF would drive the rise further, perhaps much much more than otherwise, but I think the very usual 4-year momentum is enough to handily surpass Bitcoin's and Ether's peaks from 2021. Just like the TINA people always says about equity investments, it is best to rarely stand completely outside the crypto market, or try to be too smart in your timing. No, keep stacking sats, i.e. constantly accumulate more crypto assets during weak months and years.
Stock markets are close to all-time highs, but cryptocurrencies are trading at half price. This is when you should position yourself with maximum holdings in crypto and minimum holdings in shares, relative to your own investment strategy and preferred exposure range.
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