February, 1 2022
If you were listening to the Bitcoin pundits in October of last year, you would have assumed it was on a rocket path to $100K by year end. That dream died the day after Thanksgiving, which we touched on here. The long +700 day bull market cycle has changed course, and we foresee a possible scenario where the next hundred to two hundred days will become more of a boring market where BTC swings between low $30Ks to upper $40Ks. Each time BTC trends down, the altcoins without substance will have their market cap reduced aggressively. The crypto market can stay oversold longer than most buyers can stay solvent. Bitcoin cleans out the system.
Crypto veterans are all too familiar with the Bitcoin cleansing cycle. In 2018 when Bitcoin dropped 80%, alts followed. Most were down 90%+ with “best” performers only down 50%. While Bitcoin recovered and prospered the alts haven’t been so lucky. In fact many on the list are irrelevant today. Why? They were projects whose teams created a token just to cash in on the craze without having a thought-out value proposition. Developers and insiders hoped the public would fall for their buzzword-filled tweets, the price would go up, and they would cash out. Easy as 1,2,3. Another factor is lifespan. This space is constantly changing and innovating, if you can't keep up you get left behind in a flash. The altcoins from 2018 that are irrelevant today already had a few years under their belt before perishing, but when the Crypto Winter came, their chance to catch lightning in a bottle left. Their cash reserves disappeared and developers quietly exited their positions and looked for new more exciting projects to join. As we outlined above, another cleanse of the system is needed. Projects with weak teams looking to cash in on hype without good fundamentals cannot have sustained thousands of percent returns.
So if the bears are coming, should you be running? We don’t think so. As we have said in the past, “time in the market beats timing the market.” This is true in traditional markets and is even more important for Digital Assets. Investors are often scared away by the volatility in the crypto markets, but we feel that it is something to be embraced over the long term. Yes there are large short-term drawdowns but if you stay in it for the long haul you will find yourself in the upper right hand corner of a graph showing your portfolio's performance. The compounding effects of Crypto’s best performing days can drive portfolio performance for years.
To illustrate this idea we ran a model showing what would happen if the average investor bought a Bitcoin on 1/1/2014 and missed out on the best 7,14,21, and 28 days of the last 7+ years. The idea here is to show that not being invested in Bitcoin continuously drastically reduces wealth. The likelihood of someone being out of the market for a few weeks and missing the best 7 days are extremely slim. But if you sit on the sideline for months or move in and out for weeks at a time you will experience the opportunity cost of these days with sizable gains. We will also note that we could have done this experiment with the 7,14,21, and 28 worst performing days. However Bitcoin, in its history, has shown strong positive, asymmetrical returns. The allure of dodging large drawdowns can lead investors to miss out on large portions of bull markets and fail to experience the positive wealth compounding that the asset provides over the long term.
We began our analysis with Bitcoin at $767.74 on 1/1/2014. Had you bought and held one unit until 1/26/2022 your investment would have been worth about $37,000. Bitcoin trades 24/7/365 but if you missed just the best 7 days during that time period your Bitcoin on January 26th of this year is only worth $9,847.72. As you can see below it gets worse the more green days you miss. In fact if you missed the best 28 days of the last 7 years (which is about 2500 days) your Bitcoin investment loses you money!
So the message once again is to be patient, stay invested, and let these assets work for you. As we showed it only takes 7 days in an 8 year period to 4x an investor’s portfolio. We know it can be difficult to weather the volatility but it does pay off long term and we will be here to help guide you through the tough times if you ever have doubts.
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