Beyond risk and money management, the essence of trading is correctly juxtaposing price and time. As traders, we’re constantly refining our actions based on what we expect in the future because of what we know about the past and present. Mostly, this means we use our own experience and education and ignore the voracious industry feeding off investors and financial advisors.
Having navigated markets for 25+ years, my best advice about these pitchmen and their products is — proceed with caution. Most of them make a living selling products, not returns. They blow up my Twitter and other feeds every day, claiming they’re crushing it in binary options, forex or mining Bitcoin. But they don’t pass the sniff test. Their profiles are plastered with doctored photos of luxury cars, bricks of cash, and beauty bought by the hour. That says plenty.
Anyone who has dipped a toe recently knows these are difficult markets with “Swim At Your Own Risk” clearly posted. The waters here are for professionals only, so you must either have a basic level of competence, or you need to piggyback with someone who does, like the pros in Crypto.IQ’s Trade Room. They were up double digits in August and September, months when the rest of the crypto markets were down double digits. That says plenty.
Once you get past the pretenders, scam accounts, the FOMO, the armchair Twitter geniuses, that general cacophony, use this nugget as your North Star: bear markets are about capital preservation, period. Yes, there are traders who are still making money on the occasional long. Yes, there are some shorts making money — and, depending on the instrument, a short here is whacking a beehive — but the rule of thumb is longs AND shorts get smoked in bear markets. Sometimes, the best thing to do is nothing.
At IQ, we’ve been positioned very defensively for some time. Yes, our alt portfolio has been hit — just like every alt portfolio — but by being Bitcoin first people (pragmatists, not maximalists), we’ve maintained a higher portion of our portfolio in the one coin we think not only survives this market but also thrives in markets to come. It also has a not insignificant chance of becoming a global reserve currency. If Bitcoin isn’t the “One Coin to Rule Them All,” it should at least become a transnational currency pricing benchmark or, at minimum, a tenacious store of value.
As I warned in March, the most painful market would be a cascade of false breakouts and false breakdowns that chew through trader capital. Markets after a boom/bubble rarely give people an easy time. Alts were in a bubble. Bitcoin was in a boom. There’s a difference. Bubbles rarely return to their prior highs, while booms work off the excess, and then resume upwards.
These markets tend to frustrate the maximum number of people, only ending after exhaustive capitulation based on either price or time.
This bear market reminds me of 2002 and 2009, and those two unearthly beatings taught me that — in bear markets like this one — you don’t worry about making money. You worry about making it out alive. Those who survive will reap the dividend on the other side of the mayhem because it’s not the victor who draws the spoils in bear markets. It’s the survivors. Capital preservation is the be all, end all in a market like this. Each day, more people throw in the towel or even worse, get the tap on the shoulder — a day and a dollar too late.
In 2002 and 2009, I was running significant money, and while both years were inordinately painful, those who survived saw 5, 10 and even 20x gains in the subsequent 2–3 years. But you had to be alive to capture those gains. And chasing rallies and punting stop loss dips will erode your capital quicker than an Upper East Side girl strolling Fifth Avenue with your Black card.
So play defense and despair not. For while this certainly has been the Summer of our Discontent for alts, there are more reasons than ever to be bullish about Bitcoin now. Among these:
- The Bitgo Custody solution
- Fidelity & Yale Committing to Crypto Products
- JP Morgan and Microsoft blessing ICE’s Bakkt platform
- Bitcoin Cash having trouble finding its legs
- Acceptance by state actors like the European Commission, Switzerland, South Korea and Canada, et al.
- Launch of the Gemini Dollar stablecoin
- Citigroup exploring crypto custody
- Nasdaq building crypto data sets into its analytics tool
- Coinbase exploring the launch of a crypto ETF in partnership with Blackrock that has $6 trillion in assets
- The biggest companies in crypto joining forces to lobby Washington lawmakers with the new Blockchain Association.
In fact, I’m going to make a highly controversial statement, and I am prepared to debate this with anyone. Bitcoin at $6200 is cheaper than Bitcoin at $250 when I was buying it in 2014, or even when it was $32 in 2013. But wait, how can that be? Is this the new government math? Dynamic scoring? Alexandra Ocasio’s calculator?
Cheap and expensive and value aren’t absolute terms. They’re relative and stand in conjunction with everything else out there that makes a market: supply, demand, price, time, expectations, elasticity, psychology, etc…
In 2013 when Bitcoin was $30, it was not only possible but highly probable that this truly was internet magic money, a brief and fantastic social experiment that wouldn’t last; that it would get forgotten, hacked away, shut down by the government the way Silk Road was in 2013, or replaced by a competitor.
So buying Bitcoin at $30 when it had a greater than 50% chance of being a zero, or that it would merely muddle along and not draw the necessary developer, consumer, or merchant interest to be a viable protocol actually made Bitcoin much more expensive and a much riskier buy than it is today at $6000. In light of just some of the bullish news I’ve mentioned along with the increasingly widespread corporate/consumer acceptance and adoption means Bitcoin is downright cheap — certainly a better value today at $6200 than it was at $250 a few years ago.
Add in the recent improvements on the custodial front, the increasing central bank printing addiction, and the spreading currency and tariff wars, and as one of the better-known Twitter personalities likes to say, the virus will spread. Bitcoin just might be the best hedge you can find against global socio-economic chaos.
From an asset protection standpoint, you’d have a hard time doing better than a mix of gold, bonds, commodities, real estate, francs, and Bitcoin as a rainy decade portfolio. And remember, you can’t send gold or real estate, and you certainly can’t smuggle $5 million in gold or real estate up your ass if you need to get out of China, Venezuela or anywhere else that becomes inhospitable to personal and property rights.
And let’s not even venture down the hallway and mention how the strongest economy of our lifetimes (Yes, thank you President Trump) is paired with the strongest labor markets of our lifetimes, and even with tax receipts at record highs, the deficit continues to blow out and explode. Ask yourself (and your financial advisor, and your political representative) what happens when things slow down or there’s a correction? What do you think happens to the deficit then (and eventually the dollar since the only way remotely possible to pay down our gargantuan debt is to print baby print and inflate it away)? In that environment, nothing does better than hard money, and, to be blunt, Bitcoin is gold on Viagra.
Just remember markets are discounting mechanisms, so when it becomes obvious that Bitcoin will be Digital Gold 2.0 (or a global currency benchmark), it won’t be trading at $6000 anymore. Just like Amazon wasn’t trading at $4 anymore once we stopped calling it ‘Amazon Dot Bomb’ and mocking the idea of using a credit card on the internet. By the time it seeped in that Amazon “might be onto something,” the stock price was 100x higher. So it will be with Bitcoin.
One Final Note…
These days, the point I hear more on Twitter and Telegram is the Nasdaq bear market analog or Bitcoin 2015 or some other bear market as a roadmap. If you garner anything from the above, it should be this: the past matters but not nearly to the degree you think. Charts and the past matter mostly because people think they matter, and that becomes a self-fulfilling prophecy based on support and resistance focus points. But in the end, it’s illusory. If you think Bitcoin can’t rally because of this chart or that chart, or because the 2013 bear market analog still has time to play out, then you’re missing the point. When it comes to Bitcoin, history doesn’t really matter. If history was what mattered, historians would all be billionaires.
This is a new paradigm, a new era. So I’ll plant my flag here, voice and defend four of the most dangerous words in investing: “This time it’s different.” Because this time it is. Be a holder. Be a survivor, and be ready to buy more. •