Will the Crypto Markets Ever Be the Same Again?
My landlord, Peter, is upset. The crypto market has been too cruel to him of late.
“Cryptocurrency will never be where it was before,” he insisted in a recent text message to me.
His anger is understandable. Bitcoin is down by more than half from its all-time highs last fall.
The primary reason, as I’ve previously written, is the Federal Reserve. After insisting for the longest time that inflation was “transitionary” and not a big deal, the Fed went into panic mode…raising rates by 0.5 percentage points and shocking the stock and crypto markets into a downturn.
My portfolio has been impacted just like everyone else’s. I’ve seen the value of the cryptocurrencies I own plunge.
But I have not come close to anything that resembles panic or worry.
The reason: I’ve seen this all before.
My landlord’s comment that crypto will never be where it was…
People said the same thing about crypto in 2017-2018, during the so-called “crypto winter,” when bitcoin prices experienced a big decline. I heard the same thing about real estate in the aftermath of the 2007-2008 housing crisis, back when I was working at The Wall Street Journal. And I heard it as well about tech stocks the day the music died on the original internet dotcom boom in 2000.
To be clear, I’m not comparing the current market downturn to those epic crashes. This will be a softer, more short-lived event.
I point them out merely to note that this is the common refrain you hear whenever we see a downturn. And this refrain is almost always uttered by investors who have no experience with bear markets.
They jumped in amid the euphoria of a bull market, when asset prices seemed to know only one direction—up. Then, when up turns to down, they get mad, upset, fearful, disappointed. In a fit of frustration, many will sell and console themselves with the angry refrain that “it’s never coming back.”
And they will be wrong.
Lots of people had to sell or walk away from their properties during the 2007-2008 housing crash. But lots of people also sold during the crash out of anger or fear, rather than necessity… How’d that work out for them?
It’s the same with the original tech boom… How many people sold Amazon stock when it fell from triple digits to a low of $5 or $6? Well, today it’s north of $2,300.
And of course, those who sold during “crypto winter” missed out as bitcoin recovered from around $3,200 per token to set a new all-time record in the high-$60,000 range.
Again, those are extreme examples. I don’t expect this downturn to be that severe. But the point stands…
I’ve lived through all these moments as an investor, and it reflects my strategy right now, when markets are punching investors in the gut.
I’m not selling…I’m buying.
I understand why crypto and stocks are down. There are very visible reasons for this. But those are not fundamental to the health of the crypto market.
The Fed…that’s temporary. My bet is that the U.S. economy rolls over into a recession and the Fed is forced to cut interest rates again and stimulate financial markets, which is all it really knows how to do.
More importantly, businesses globally are rushing to adopt crypto as their future, regardless of the economy.
They’re thinking beyond the moment to where we will be when the storm clouds part.
That’s where my head is at, too.
So, I am buying some major cryptocurrencies. And I am converting some of them into blue-chip NFTs, or non-fungible tokens, that I know have a long and prosperous future.
If I owned a high-quality asset at, say, $100 that’s now worth $50, well I can take another $100 and buy two more shares of that same asset. Now I own three.
When the market returns to $100, I’ve not just broken even…I am up 33% with my original $200 cost now worth $300.
To be clear, that’s a high-risk strategy. I’m not advising you do that…everyone’s risk tolerance is different.
And I want to emphasize that I’m only pursuing this strategy with a very small portion of my overall portfolio. The majority of portfolio remains in more stable assets like Swiss francs and gold.
But with high-quality crypto and NFT assets, this moment is an opportunity. I’ll tell you more about what I am buying soon.
