Bitcoin Allocation during the Bear MarketJuly 9, 2022
The ebb and flow of the crypto markets mean that often, the same values are either very positive or very negative. When the gauge turns to the negative side and the loss of both market capitalization and token price begins to go down, many decide that now is the right moment to do a big victory lap. These are usually individuals, think tanks, and organizations that have been against bitcoin for years. Often, the same come from the academic background and involves individuals who staunchly believed that bitcoin was a scam when its price was 100 USD. Now, when the price of the BTC token reaches below 20,000 USD, the same individuals are quick to assess that they were right all along.
However, the same approach is ladened with irony. The truth remains that there is a lot of potential in the bear market as well, especially for those who are neither fully geared for bear or bull market action. They can profit immensely from storing value and investing in bitcoin and other established digital currencies during the hardest of times in terms of market movements. When math is introduced to the same equation, there is a level of clarity that is hard to get in many other domains – cryptocurrencies are able to generate money for anyone willing to invest in them using a slow and steady approach.
All financial advisors by default preach an approach that favors long-term investments. Warren Buffett famously said that if a person is not willing to own stocks for 10 years, they should not even think about owning one for 10 minutes. Bitcoin and other digital currencies often overlook this approach and that is why many measures return not on a yearly but quarterly basis. The same numbers show however a skewed perspective.
They, for example, now show that bitcoin is down some 60 percent in comparison to its highest ever price. Yet, at the same time, bitcoin investment over a period of two years surpasses the same investment in S&P 500 that lasted for eight years. Of course, there are numerous factors related to risk and insurance in the case of both these investment possibilities. But, it clearly shows that BTC’s long-term potential is most definitely there, the question is just how to calculate it in a sustainable manner?
The numbers show clearly that even during one of the biggest drops in value in the history of the bitcoin network, it still seems a lot less risky than bonds over a period of up to five years. The same goes in a way for gold which also showed better potential during the same period. However, while many esports players and other crypto enthusiasts would be quick to point to the same fact, it would be difficult to find a financial advisor that would argue that their clients should own only bitcoin and gold, but steer clear from owning bonds.
This calculation only shows that anyone who is staunchly for traditional carriers of value – like stocks and bonds – would also be hard-pressed to present them as the ultimate form of investment. In other words, even with the full weight of the traditional financial system, these still failed to deliver in this particular period. There is no guarantee that they would not fail again and again in the coming periods as well. Here, they are basically the same as any cryptocurrency out there.
If all of the elements mentioned have a benefit to them – in other words, bonds, stocks, cryptocurrencies, and gold have an advantage over one another at some point in time or in some specific situation, why not own all of them? The answer is simple and a perfect solution to the dilemma of the bear market in the crypto space – absolutely everyone should own a mixture of all of these. A blend of bitcoin, bonds, and stocks was able to outperform only bonds and stocks.
They are also a more potent mixture than any S&P 500 investment and did especially well in the fallout period of major market turbulence. That in itself could be the biggest benefit of the holistic mixture approach that sees holding all of these carries of value together as the best way forward. Finding oneself in the midst of a bear market is nothing that should negatively influence the same overall potential. Instead, the way these supplement each other is even more pronounced when the entire financial system is losing value and seems to be shaking violently like it is at the present moment.
Many approach bitcoin as a so-called YOLO stock (you only live once stock) where huge risks are a basic part of the game. That idea sees any investment in BTC, or basically any other digital currency as something an investor does on a whim and plays double or nothing, just like in any regular casino. That mindset does not believe that bitcoin is a scam or a joke, but it also does not see it as something worthwhile for any serious investor. Yet, the crash of March 2020 shows that while crypto will slide down like anything else, it will not stay down necessarily along with it. Instead, in the wake of the same crash and the rampant COVID-19 pandemic, the digital currency space managed to rebound faster and with more energy than the traditional financial space.
The same rebound eventually led to the biggest value for the digital currencies ever recorded, all while the regular economy was still in pandemic mode and no macro factors were in place to show a big uptick in productivity, trade, or anything similar. This is why no serious investor can no longer simply ignore the crypto space and that rebound potential, especially during the bear market. Yes, the crypto prices are low and they might slide lower, but the way they can bounce back is just as dynamic. In the bear market, that means that crypto can be purchased cheaply and sold with a huge ROI only a year later. No stock or bond offers anything like that.