As we enter a new decade, we are presented with new opportunities for growth, exciting experiences and promising occurrences that will help bring each of us closer to our long-term goals. When it comes to investing and cryptocurrency, bitcoin by far has been the best performing asset of the decade with returns of over 9,000,000% and has solidified the fact that it isnt going away anytime soon. With major companies and governments investing in the blockchain, it is no longer a question of if mass adoption will occur, but rather when. Bitcoin and blockchain have become somewhat of a buzzword nowadays, with many people confused on its purpose and still question its value. But with 2020 being such a decisive year in terms of global markets and investments, how should one prepare to react? A looming trade war with America and China is still up in the air, Gold has reached its highest price since 2019 and there’s a large chance a war may soon ensue. Investors are growing weary as an overextended bull market seems like it could hit a reversal any day, so how to leverage your investments? Although bitcoin exemplified massive returns for its early investors, now is the time when bitcoin’s vision will come to fruition as it exposes the holes in our current financial system and government that is on the brink of collapse.
Bitcoin was initially seen as way to diversify traditional investments and create an immutable currency protected from manipulation. It is important to understand that after Nixon took the United States off the gold standard in the 70’s, it afforded America the opportunity to print as much money as it felt was needed to prop up the economy. Known as quantitative easing, this comes in handy in terms of financial crisis and there has been a strong correlation between the Fed excessively printing money and market booms. However, this market manipulation comes at the cost of the common people, as inflation continues to steal away purchasing power form individuals and forces them to keep their money in an overextended market economy. Bitcoin’s inherit value resides in the fact that no single entity owns it and can “print more bitcoin” unlike traditional fiat currency systems. This also means that bitcoin in theory and application is a deflationary asset, in which you are rewarded for holding onto it for long periods of time instead of losing value as with the traditional US dollar.
Market and Economics
- The stock market has been on a bull run for about the last 12 years while traditional bull markets last only about 4. After the recession in 2008, we should have seen a large decrease in the amount of credit and loans being poured into the system, but we actually saw the opposite. Credit card debt has continued to sky rocket, student loans are at an all time high and mortgages and auto loans have all continued to introduce enormous amounts of debt into the economy. An indicator that has many investors worried is known as the yield inversion curve which in short exemplifies the fact that short term rewards in bonds are outpacing long term investments. You don’t need to be an investor to know that doesn’t make sense economically or mathematically and is one of the evident cases that our market is overextended. Fed rates have continuously lowered as an attempt to stimulate the economy and keep people introducing more money into the market. In addition, back in September of 2019, the Federal Reserve printed in additional $161 billion dollars, continuing to prop up the drawn out economy and doing whatever they can to delay the inevitable.
- With all these uncertainties about the stock market in 2020, the only thing that is certain is that a financial crisis is coming soon and is very close to the tipping point. Whether it is through a trade war with China, international disputes or a major bank going bankrupt, the initialization of the next financial crisis will be a disastrous domino effect, and one of the worst we will likely experience. As the stock market continues to break recent highs, it is evident of a bubble in which people are neglecting fundamentals and giving into FOMO. In preparation for the financial crisis, take time to research traditional bull and bear markets, review your own financial goals for the year, and consider looking towards alternative investments that typically thrive during a recession. These include assets such as gold, silver, oil and now bitcoin. While people theorized and debated bitcoin’s real use case and where its inherit value lies, it is now becoming more evident that bitcoin represents a currency of the people, the perfect alternative to fiat-based investments when traditional systems are on the brink of collapse. In recent events we have seen this develop where countries turn to cryptocurrency-based finances and neglecting their country’s backed currency. In instances like Venezuela where inflation on their national currency is millions of percent, they acknowledge the true value of bitcoin and similar cryptocurrencies as a safe haven asset.
- In preparation for market changes in 2020 one should first and foremost not expect to see similar gains from the stock market that they experienced in 2019. The S&P 500, DOW & Nasdaq are riddled with FOMO buyers and recent events don’t support the fundamental values of these markets. In addition, fall of 2019 already saw an increasing demand for gold recently after the yield inversion curve. It’s safe to say that in 2020 many people will be looking for alternative investments after the inevitable bubble pops. The Fed will attempt to draw out the market as much as possible to extend potential gains, but it should be noted that with debt at an all time high, a looming trade war and possible war between America and the middle east, any one of these can act as a catalyst to initiate a devastating effect on today’s markets.
- In reality, the best option to protect your assets is to diversify them in commodities such as gold and silver as well as considering bitcoin. Your trading strategy should be laid out in anticipation of an overvalued stock market running out of steam and having alternative investments in place to prevent major losses. Observe your market entry positions, what is required for you to meet your target goals and be realistic about how long your money would need to be kept in a traditional bull market to reach those estimates. In the event that you don’t plan on closing your position in less than a year to meet your target goals, most individuals would be better off finding an exit strategy that would come close to breaking even or closing part of the position to invest in alternative assets.
- Bitcoin as an alternative asset poses some of the largest potential returns this year as we anticipate to solidify our exit of a 2-year long bear market. Accumulating bitcoin at low prices and “hodling” has become second nature to many who have experienced large losses after its all time high of around $20,000. If this is your first time investing in bitcoin, it is important to note that it is unlike traditional assets. Bitcoin was the best performing asset of the decade with returns of around 9,000,000%, but it is important to note that the high volatility of bitcoin has also caused major losses. People who take technical analysis they’ve learned into the stock market and apply it to bitcoin discouraging losses and liquidated accounts. With bitcoin being such a new asset class, there is not much price history to go off, volatility causes major losses, and investing in bitcoin in the short term exposes you to a large amount of risk. To invest in bitcoin and see the full potential of your investments, you should take the time to research bitcoin’s purpose and value. Understand why it was created, choose to believe in the vision behind it and then treat it as a long-term investment instead of way to get rich quickly.
- The best way to assume the largest ROI with bitcoin is through accumulation periods in which you treat it like a commodity such as gold or silver. Micromanaging your bitcoin account through day trading or swing trading is exposes your account to large amounts of financial risk unnecessarily. Traditional markets move money from the hands of the inpatient to the inpatient. And with bitcoin’s extreme price action, even experienced traders have a difficulty finding the best way to play the market. If you are serious about investing in bitcoin, your number one priority should be mass accumulation towards the beginning of 2020. There are many wallets and exchanges that has made purchasing bitcoin easy and accessible. Coinbase offers a periodic purchasing option that allows you to purchase bitcoin weekly in an automatic process. Robinhood is a great option for those who are considering moving back and forth between bitcoin and more traditional investments in the stock market. And apps such as Cashapp, metal and square offer a nice opportunity to invest small amounts in bitcoin with ease. Identify what your accumulation goals are for yourself, what your financial goals for 2020 and how holding bitcoin can help you reach those goals.
- For more experienced traders considering entering the market, it should be noted that while bitcoin has recovered from its yearly low in 2019, it is still in an important consolidation phase and has been for a while. Since bitcoin has hit its yearly high of $14,000 in June of 2019, it has been on a steady decline forming what appears to be a descending triangle. During this consolidation phase, bitcoin has retested lows of $6500 which are extremely important levels for bitcoin to maintain if we want to prevent re-entry into another bear market. The levels of $6500 show the most support for an integral bitcoin indicator known as the VPVR. A dip and close below this level would be a major blow to the bitcoin price causing it break out of the descending triangle formation and to likely retest yearly lows of around $3500. While this is possible, it must be emphasized that it isnt certain and descending triangles tend to have a bullish bias. A bullish break would likely ensure testing of the previous high solidifying the end of the crypto winter. However, for experienced traders and novices alike my suggestion is your best bet is to continue with accumulating as bitcoin is still extremely cheap compared to previous levels. An impending retest of the all-time high is not a matter of if but rather a matter of when. To bet if bitcoin will reach previous lows before testing or breakout sooner than expected could steal potential gains and isn’t much of a wise decision given bitcoin’s volatile nature.
Regardless of whether you decide to invest in bitcoin or not, one should take not of the overextended stock market and the inevitable reversal that’s bound to occur. Anticipating a change in momentum and market sentiment should be at the back of your head no matter where you are investing in and you should take the proper steps to hedge your investments against an ensuing recession. Especially if you consider entering positions for the long term with large amounts of capital, it is an absolute necessity to do your research and not give into FOMO at this moment when almost everyone else is.