Crypto crashed: Is Bitcoin a buy or a sell? (USD-BTC)

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Why did crypto fall?

Bitcoin (BTC-USD) has been crashing over the past few months after hitting an all-time high in November. Unlike this summer’s selloff which had concrete reasons behind it (China banning BTC, high profile ESG concerns, etc.), this time the explanations are more abstract and generally revolve around liquidity, the Fed and retail investors cashing in.

I think most of us as investors understand that there is tremendous value in a global currency that is not controlled by any of the world’s more than 150 central banks. Gold has served this role for thousands of years, and now Bitcoin serves it as well. The problem is that it is quite difficult to quantify exactly what it is worth, so the price tends to be very volatile. Bitcoin’s current volatility is around 67% annualized, which is lower than it was in the days of the Wild West, but still more than 4 times the average historical volatility of the S&P 500. Additionally, many people speculate in crypto for the wrong reasons. , and the world of altcoins and stablecoins, in particular, has been a hotbed of scams and fraud. Many of these concerns are not entirely unique to Bitcoin, but apply to new technologies in general.

Data by YCharts

The consensus explanation for Bitcoin’s decline appears to be because it benefited from a lot of hot stimulus money in 2021 and people trading meme stocks and altcoins. Now that the stimulus has worn off and speculative profits have turned into losses, people are mining anything reasonably liquid to raise cash, which could very well continue for the foreseeable future. But to be clear, Bitcoin is not GameStop (GME) or AMC Entertainment (AMC), which are money-losing and heavily indebted companies. The value of Bitcoin is uncertain, while many meme names have negligible value as money-losing companies.

Some savvy readers have called me out for an apparent contradiction – how could I be moderately bullish on crypto while expecting NASDAQ to fall this year? I haven’t explained it very well, but the answer is that I firmly believe that core value of BTC is likely to increase this year as adoption continues to increase. Regarding the market price, it’s more of a dice game – so far they were right and I was wrong, although later in this article I will show some ways in which products related to crypto markets are ineffective and can help you to earn money.

Is Bitcoin currently a good investment?

For those new to crypto, oldies might seem a little jaded about volatility. This is because although Bitcoin has almost halved, it is still around 100x what it was 5-6 years ago. I think it’s safe to say that most former BTC investors have at least their initial investment on the table, with many buying cars, houses, and loads of index funds along with their profits as well. Is BTC likely to do this well in the future? No, it’s unlikely to come back 100x from here. But Bitcoin is a legitimate asset class, and I’ve covered some of BTC’s great technological improvements over the past year. I previously called BTC to surpass its all-time high and reach $100,000 per coin, but with the easy money conditions disappearing from the market, this may happen in 5 years instead of 5 months.

With BTC in the $30,000s, at least a good deal of the speculative scum has been wiped away, although more risk-averse investors may want to apply strategies such as dollar cost averaging on buys and dips. sales. Over the long term, BTC is almost certainly a relatively better investment at $35,000 than at $65,000. In the short term, however, the momentum is against the crypto, which means it can still get cheaper.

What interests a lot of people (including me) about crypto is the fact that crypto markets are quite inefficient compared to traditional financial markets. For example, there has been notable cash and carry arbitrage between the BTC futures markets and the spot price that has been traded by companies that have set up specific desks to trade it such as Goldman Sachs, RenTech, and Pimco. . Investors have given huge sums of money to the prop offices with this by not understanding how futures markets and the ETFs that track them work. One of the reasons this has happened is because investors expect markets to be efficient when they simply aren’t for products like stock options and bitcoin futures. .

Another odd discount is the Grayscale Bitcoin Trust (OTC:GBTC), which now trades at an astonishing 25% discount to its net asset value (it previously traded at premiums exceeding 100%). This YCharts data seems slightly inaccurate based on the most recent GAAP NAV data I have on Grayscale’s website, but you get the idea. Simply buy if below NAV and sell if above NAV/when ETF conversion is approved. There are other possible angles here – a good trade I’ve seen made (if you can manage the risk well) was to go long GBTC and short MicroStrategy (MSTR), both of which are linked to Bitcoin. If you want to buy BTC I would buy this because Grayscale has a pending request to convert it to a spot ETF which would immediately equalize the price to NAV through brute force making Grayscale and its shareholders a ton money in the deal. You can read my full coverage of the mechanics behind this trade here.

Data by YCharts

Will the SEC approve the spot ETF? It’s not certain, but with Grayscale’s fee at 2% per annum against a 25% discount to NAV, it appears GBTC’s price is determined by current liquidity conditions and not the odds that the SEC approves the spot Bitcoin ETF after having already approved a futures ETF. My personal opinion on reading is to expect the SEC to crack down on the rampant fraud occurring in the stablecoin and altcoin world while providing a framework for bitcoin investors to have expanded access to ETF, but there are plausible arguments for both sides.

Bitcoin Catalyst: Third World Adoption

The revolt against monetary policy confiscating public savings is not new. In 1796, French revolutionaries destroyed the money presses in a big party after widespread shortages and inflation. More recently, several Latin American countries adopted the US dollar when public confidence in their currency was eroded enough that it no longer made sense to have them. Dollarizing your country’s economy is good because it brings stability, reduces exchange fees on remittances, and can promote economic growth, but sometimes it’s bad because governments lose the ability to generate revenue by printing money. Bitcoin could do this even more and lead to a more peaceful and prosperous world.

One of the poorest countries in the Western Hemisphere and ruled by a charismatic president with an authoritarian streak, El Salvador might seem like an unlikely place to be at the forefront of the crypto world, but when you dig deeper, it makes sense. El Salvador adopted the US dollar in 2001 and also adopted Bitcoin as legal tender. One of the reasons for this is that El Salvador relies heavily on remittances from the United States, which likely incurs hundreds of millions in transaction fees. By embracing Bitcoin and the Lightning Network, El Salvador is betting that it can reduce the fees charged and improve the welfare of its population.

They have, however, done something really smart with their so-called bitcoin bonds (in fact so smart that bonds aren’t a bargain), which lower the country’s cost of borrowing while providing exposure to bitcoin. Bloomberg’s Matt Levine explained a while ago why they’re not a good deal for investors.

Why should you care about all this? The thing is, the growing adoption of Bitcoin is inevitable for the 80%+ of the world who don’t live in Western-style countries. Bitcoin offers a huge advantage over third world currencies that have been inflated in developing countries. Monetary freedom is the main reason I love Bitcoin and I believe adoption will only increase in the years and decades to come.

Is Bitcoin Buy or Sell Now?

Bitcoin is a long-term buy, but be careful as the momentum is now against risky assets and crypto, especially right now. Volatility is nothing new and I view the decline as a long-term buying opportunity. Check out GBTC for an event trade on Bitcoin, and as it has been, avoid altcoins like Dogecoin (DOGE-USD).

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