Bitcoin Tested by Uncertainty …And Wins!
I probably don’t have to tell you that no matter where you turn these days there’s one thing you can be certain of.
That’s right. There’s a ton of uncertainty no matter where we turn. And that’s true as a matter of fact in our daily lives: While we try to make things as predictable and certain as possible, in the end we’re all just flat-out exposed to uncertainty.
It’s also true when it comes to our investments in gold (GC1), stocks (SPX), tech (NASDAQ) and Bitcoin (BTC). In fact that uncertainty is even more at play. See for yourself…
No matter where you turn, uncertainty is the name of the game.
As you can see from this chart of gold, stocks, and tech, every asset has had their fair share of volatility over the past year. In fact, the performance of gold, stocks, and tech have ranged from 18% to the upside (gold) to -9% to the downside (tech) during the last one-year performance period. Lumping all those assets together, that’s a net swing of 27% from top to bottom. Whew!
But when you throw Bitcoin into the mix, it’s clear that BTC makes that uncertainty look like a walk in the park. Why? Because over the same one-year performance period, Bitcoin has ranged from 13% to the upside (Nov 2021) to -50% to the downside (July 2021). That’s a net swing of 63% from top to bottom or about 2.3 times the performance volatility of gold, stocks, and tech.
Bitcoin is Maturing as a Store of Value
But here’s the best part: While the volatility of BTC is cringe-worthy, it’s also a sign that the leader of crypto is hanging in the game. And that’s even more apparent when when dial up the same chart as above but use a more recent time frame. Here’s what I mean:
BTC is maturing as a store of value.
With this chart we’re looking at the performance of gold, stocks, tech, and Bitcoin since the beginning of February. Since that starting point, stocks are down 2% and tech is down 5%. That performance differential is minor so for all intents and purposes, stocks and tech are moving in lock step.
But not so with gold and Bitcoin. In fact, while stocks and tech have moved lower in tandem, gold and Bitcoin have moved higher in tandem: Since the beginning of February, gold is up 10% and BTC is up 4%. Viewed through the lens of stocks and tech, that tells me that BTC is beginning to create a divergence from the stock market just like gold. And that’s a clear sign of BTC growing as a store of value. And that to me is a bullish indicator of a maturing market.
I picked the February 1 starting point because it marks the convergence of a ton of volatility catalysts, including the war in Ukraine, rising inflation, higher interest rates, and geopolitical unrest. If an asset is going to diverge from stocks and tech, this is the time it would do it. And this chart clearly shows that BTC is in that class.
Heed My Golden Rule
So what can we do?
When it comes to stocks and tech, I have a golden rule that’s served me well over a lifetime of investing: Buy good companies that know what they’re doing in solid markets that have strong upside. And don’t worry too much about the day-to-day fluctuations in price. Let management handle that. When you follow this method, you’ll focus on your companies’ fundamentals and let the bosses manage the uncertainty. Just make sure to check in occasionally.
And as far as crypto is concerned, it’s clear that BTC is maturing at a rate that even I’m surprised by. In fact, it’s clear Bitcoin is beginning to behave like a store of value like gold and not like the thousands of throw-away cryptocurrencies that won’t see the light of 2023, much less beyond.
The above charts also point out that there’s really no place to hide. Whether you’re invested in gold, stocks, tech, or Bitcoin, the name of the game over the last year has been uncertainty. And with major volatility catalysts likely at play over the near and longer term, that volatility isn’t going away anytime soon.
So, while BTC is still the leader of crypto and deserves a place in just about everyone’s portfolio, now is the time to be more cautious than usual. So, I wouldn’t be adding any new crypto positions or adding to existing ones right now. And like always, I wouldn’t devote any more than 1% to 2% of your portfolio to all your cryptocurrencies.
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