Hiding Behind The Sofa As The Value Of Investments Plummet!

Remember volatility can be your friend, not the enemy! 

I’m not a financial advisor and have zero qualifications. I’m an independent financial and medical researcher. If like me you have witnessed everything going up like utilities, groceries and petrol while the value of investments and pensions has plummeted this year, then you are not alone. 

The management (or lack of it) of the COVID crises has inevitably resulted in raging inflation we discussed last month in depth. However as with all financial and global meltdown of the economy, it also presents huge opportunity for those who have spare capital to deploy.

In the words of Billionaire Warren Buffet “when there is blood on the streets, even if it is your own……. “YOU BUY.” 

‘Fear’ is the one overwhelming reason most people run for the safety of the sofa when times are tough. The thought of planning your financial future in these turbulent times is alien to most. We have bleeding bank accounts thanks to inflation and the value of assets has also gone south. Incredibly the value of the world’s scarcest asset has held up well by comparison. 

The FTSE 100 index of the top 100 shares was priced on 17th December 2020 at 6603. Its peak did not come until February 2022 when it had risen to 7671. This was a rise of 16% over 421 days! It took almost 3 years compared to Bitcoins 4 months to reach its all time high. The FTSE 100 price today is 7255, a drop of 6%.

Let’s look at the US stock market S&P 500 – on 17th December 2020 it was 3721. Its peak was 5th January 2022 where over 383 days it had risen 28%. It made the UK 100 look like a real laggard. The price today is 3825 and it’s now dropped over 20%.

Gold has been compared to Bitcoin as a store of value and has traded quite flat over the period between December 2020 and at its peak, we saw it rise 6% by January 2021. It’s since dropped back to today’s price of 1815; a dip of over 10%. In terms of volatility Gold is the least volatile and has therefore held value compared to others, but on the downside has given investorslittle or no opportunity to make financial gains or any real worth. Once you factor in inflation at around 10% you will actually be worse off in gold, even if you had sold your holding at the top of the market in January 2021.

Bitcoin on 2nd July 2022 is priced at $19,200. This is the same price the asset was on 17th December 2020. The next 4 months saw the price jump 239% to over $64000! Both the FTSE and the S&P 500 took almost 3 years to reach their highs compared to Bitcoin’s 4 months to reach its all time high. Since the all-time high, Bitcoin has dipped over 70% and the new cycle is set to continue. A small investment in Bitcoin now with likely upside potential of over 200% may potentially be a far better return than any of the above models. This is due to the volatile nature of the asset. With volatility comes risk not just to the downside, but to manage profit taking at the appropriate time when the gains can be huge. 

Many people felt that the unstoppable rise of Bitcoin when it ploughed through 20k and 30k, then 40k, that 50k and 60k was a ride too good to think about selling. I was one of those and got caught up in the hype. However I will NEVER SELL MY BITCOIN.

I take a longer term view that Bitcoin over time will not only recover to new highs above 70k, but now with regulatory certainty and a framework for ease of entry, I believe Bitcoin will go on to confirm its position as the number 1 asset of all time. The most educated people in the market have predicted Bitcoin could pass well into the million dollar range by the end of this decade.  Call me crazy, but I will be buying and adding Bitcoin with any money I have spare at these prices. The downside now is relatively low and the upside, when true market adoption continues, should melt most people’s faces! 

Several years from now, buying Bitcoin at 19k (where it is now) or 69k where the peak was in November, will be irrelevant if you take a longer term view. In the same way house prices rise and fall back over time, unless you actually sell your home, then despite rise and falls you are living in an appreciating asset.  If you buy a home and keep it for 3-6 months and expect to make a killing, then you may be disappointed and the same is true of Bitcoin. No-one really knows when market sentiment will return to the global markets, but rest assured that when optimism is back, so will Bitcoin.

If your investment time horizon is 3-6 months then you may not see a profit unless market confidence returns and we are all out of recession. If, like me, you bought more Bitcoin at 50k plus, relax, it will come back. Over time you will be in profit again, but it could take a year or more. The technical indicators and charts all show we are oversold compared to anywhere in Bitcoins history. A rise in prices is far more likely over time. 

Take a look at the chart below which confirms that narrative. Remember for every ‘seller’ there has to be a ‘buyer’ and for every ‘buyer there has to be a ‘seller’. Selling pressure should slow down at these levels, meaning the market will need to reverse at some point to encourage more sellers and those vital buyers. 

It is possible for Bitcoin to continue to be sold, as fear can lead to capitulations, but historically it has always recovered and selling pressure should eventually decline. I feel that scenario is either not too far away, or by the time you read this, could already have happened. 

Below is the chart for the ‘fear and greed’ index. This chart has a scale of 1 (extreme fear) to 100 (extreme greed). It measures market sentiment in six key areas. Whenever the reading is below 15, this is a good time to possibly start entering the market. We actually got a 6 in the middle of June! We have not seen the market sentiment this low since the market bottomed in 2018. This was when Bitcoin was just below $4000, only to recover by April 2021 to over $64000. In my view the sensible approach is to buy Bitcoin on market dips to take advantage of the fear currently in every global market. You will thank me in 3 years! 

For my eBook on how I have invested into Bitcoin and the options available, email me for the free version, always available to readers of the Costa Cálida Chronicle. Remember, I am not a financial advisor and prices can go up and go down so only invest money you can afford to lose.