Why Bitcoin Could Be the Unlikely Saving Grace for Investors Right Now
As the crypto market burned, triggering mass hysteria and widespread selling off, many commentators were quick to sound the death knell for crypto. As the viewer says, “Crypto is Dead”.
Despite the recent fall from grace of crypto, if investors are looking to diversify their portfolios, bitcoin remains one of the most asymmetric investment opportunities, especially as inflation soars and experts talk in an increasingly loud voice of an impending recession. Amid the understandable panic, investors aren’t seeing things clearly, stepping back at a time when they should choose to strike. They need to be reminded of Warren Buffett’s maxim, “be fearful when others are greedy and greedy when others are afraid.”
A recent Financial Times poll found that almost 70% of 49 economists surveyed expect a recession next year. Many say this could lead to a broader financial crisis and sink the S&P another 20%.
Traditional havens for investors are becoming fewer and fewer these days. The dollar remains significantly overvalued against all other fiat currencies. Currency markets around the world are expected to fare poorly as real yields remain deeply negative. In the United Kingdom, for example, the Bank of England estimates that inflation will reach 11% in the near future. When a British 10-year gilt yields only 2.08%inflation doesn’t need to be this high for too long before investors face major paper losses.
Stocks are also a risky bet. The tech-heavy Nasdaq stock market fell 22.4% this quarter, with some experts predicting prices won’t bottom out until 2023.
Commodities are also an unattractive alternative. While oil is currently on the rise due to the war in Ukraine and supply-side constraints, it has fallen 30% from its highs and prices will likely fall even further if the conflict in Ukraine escalates. easing and the global economy continues to slow. According to diplomatic sources, it is increasingly likely that the war in Europe will end sooner than expected.
Given the potential damage to traditional assets – where should investors go?
Bitcoin should perform well in the current economic environment. First, because of its rarity. Its supply is constrained to a ceiling of 21 million bitcoins, its value should remain stable or improve over time.
Second, the value of bitcoin is not tied to the monetary and fiscal policies of sovereign governments. Fiat currencies are designed to be the worst form of money.
Given the recent widespread sale of cryptocurrency assets – including bitcoin, many may be scared. Bitcoin’s value reached $68,000 as recently as December 2021. Therefore, there is significant upside room at the time of writing Bitcoin’s valuation sits at $20,841 and forecasts the most bearish are targeting USD 10,000 (7/1 risk/reward ratio).
The recent crypto crash has led to more urgent calls for greater regulation. Recently, US Senators Kirsten Gillibrand and Cynthia Lummis introduced legislation that would create the first comprehensive federal framework for regulating digital currencies. In doing so, the likely outcome will be increased confidence in digital currencies, encouraging more institutional investors into the space as it begins to satisfy previously skeptical portfolio and compliance managers.
Bitcoin offers a store of value – similar to gold – in a high inflation environment where the value of more traditional asset classes is rapidly eroding. Rather than pulling out of crypto, investors should recognize the significant opportunities that bitcoin continues to provide, both in the medium and long term.
Instead of being a ticking time bomb, bitcoin might just be the saving grace for investors.
Edward Hindi is chief investment officer at Tire Capital