Bitcoin Crash!
The Bitcoin crash of May 2021 has been vicious, violent and with impressive velocity. It would seem it was caused by a confluence of many different triggers. First, the SNL hosting of Elon Musk where he called Dogecoin a hustle, then China signaling their intention to crackdown on Bitcoin miners and banks that support crypto transactions, and then media influencers tweeting about Bitcoin’s intense energy usage. Just look at these drops:
Coin | May 8th SNL Price | Next Low | Date of Low | Drop % |
Bitcoin | 59,500.00 | 30,000.00 | May 19, 2021 | -49.6% |
Ethereum | 3,958.33 | 1728.74 | May 23, 2021 | -56.3% |
Dogecoin | 0.73995 | 0.21111 | May 19, 2021 | -71.5% |
These are massive, and if these happened in the stock market, they would be fully classified as crashes; especially when you look at how quickly they happened: 8-11 days! These types of drops are not for the faint of heart and will make many think twice about jumping into the cryptocurrency space.
This week, what I want to do is review strategies we can use so we can withstand this high level of volatility, and also pause to review the opportunity of Bitcoin and see if we want to continue further investing in this highly volatile asset.
Despite the Bitcoin Crash, There is Still Opportunity
One of the best attributes of Bitcoin is that it is decentralized with a deeply programmed protocol that has largely gone unaltered since the genesis block was mined back on January 3, 2009. Despite what people say, what they do, how high or low the price gets, Bitcoin will continue forward unchanged and unaltered. Yesterday 900 coins were mined and added to the total existence of all coins, and today another 900 will be mined.
It does not matter the price, the number of miners, or the price of electricity. This will continue until the next halving sometime in early 2024 when this daily supply will drop to 450. This march forward will continue until the last coin is mined sometime in 2140. It is this unshakeable stability and declining supply that makes it such an attractive investment. The volatility we see in the market is the continual struggle and speculation surrounding how such an asset should be priced.
Decentralized Downside and Upside
DEX’s Worked During the Bitcoin Crash
Bright Future for Bitcoin
Despite the recent bitcoin crash, here are some positives that help to paint a bright future for the cryptocurrency.
51 Million Millionaires
Across the world, there are an estimated 51 million millionaires as measured in USD excluding primary residence. There are currently only 1.0 to 1.5 million bitcoins available for purchase across the exchanges. As these folks capitulate and begin to adopt Bitcoin as a currency reserve, a hedge against inflation, and alternative asset, they will soon realize that they cannot all own 1.0 Bitcoins. When this group begins to fight over the remaining supply the price could rally and surge to new heights.
Deflationary Money
In a world of seemingly endless money printing and borrowing by central banks and nations, Bitcoin offers a safe haven from this by giving us an investible asset with scarcity and a dwindling supply that cannot be altered by simple price dynamics. The Bitcoin network features a perfectly inelastic long-run supply of bitcoins. Owing largely to its digital nature, the supply can be prescribed, controlled, and slowly reduced to zero. If this were a tangible good this could not be accomplished to the same level of precision and enforcement.
Institution Adoption Continues
Despite the recent bitcoin crash, many institutions have and continued to adopt bitcoin. Additionally, many hedge funds and billionaires have still signaled their intention to own the currency and take a position. Also consider that in the coming months the following banks will be making crypto available to their high net worth clients:
- Morgan Stanley
- Goldman Sachs
- JP Morgan
Why are they doing this? Because their HNWI clients are pressuring them to make Bitcoin available and easier to invest in. Refer to my first point above – these are the 51 that see the opportunity and they want in.
Green Energy Consumption
If there is one “birthmark” on Bitcoin’s back, its that it requires a tremendous amount of energy to run and secure the network. While some studies have shown the energy consumption is only half of gold mining and half of current banks, it will still be dragged through the mud until something is done to address it.
The monetary incentive is so high for this, that I believe something will be done to address it. Many powerful and influential investors such as Elon Musk, Michael Saylor, Kevin O’Leary have weighed in on the issue and are looking for ways to help and address the energy consumption issues.
In the end, it could also propel and incentivize further green energy initiatives while helping society wean off coal and fossil fuel energy consumption. For example, Bitcoin mining could provide the monetary incentive to utilize excess renewable wind energy when it is not needed on the grid by powering a mining rig until the power is needed.
The point here is there that everyone is aware of this black smoggy mark on its back, but this could be the catalyst to innovate further green energy ideas by providing the required monetary incentive. Because now, through Bitcoin, watts of electricity can be sold for dollars instead of cents.
Athletes
I’m sure you’ve heard the rumors and the news headlines of recent NFL players wanting, requesting, and now getting paid in Bitcoin. It is definitely a growing trend and more athletes and professional sports will offer this type of payment.
This is important for three reasons. Firstly, its free advertising and celebrity endorsement for Bitcoin and cryptocurrencies. Secondly, it is just another trend in adoption and another use case for crypto where large sums of money are being used for payment. Thirdly, it opens the likelihood that professional sports will begin taking payment for tickets in crypto and even issuing tickets using NFT’s
At the time of writing this article only 3 NFL athletes have been paid in Bitcoin so far. Click the link or image to get the latest numbers!
Tips for Surviving Crypto Crashes
While Bitcoin may offer a singular investment opportunity, it is not without risk and extreme volatility. Here are my top tips for buying and holding this tremendous asset.
Dry Powder
First, never be fully invested and always have some dry powder to invest. Always being able to pounce on price dips or hunting for a deal is always a good place to be. When you have all your capital deployed you are more inclined to sell. To this end, I always try and have 10% of my portfolio in cash. At this moment I’m at 6% as I’ve tried to capture these recent dips, and so I acknowledge that I need to follow my own advice and raise some cash.
2% With 6% Max Allocation
Another key is to diversify and always remember that crypto is used to diversify a portfolio and enhance returns. There is no well versed, thoroughly thought out and well planned investment portfolio that relies 100% on crypto returns. Not only is it just not prudent, its not at all required. Consider that when this crash happened the stock and bond markets crept upwards and the gold market rose sharply.
Having 2% of my portfolio allocated to crypto allows me to sleep at night and not wonder how my tokens are performing. With Bitcoin trading 24 x 7 sleeping soundly at night becomes highly valued! You could literally make thousands (or lose) while you sleep.
2030 Time Horizon
With all my investments I set goals of how long I want to hold them. This helps me hold and not sell through hard times or sharp market downturns. My goal for my Bitcoin and Ethereum positions is to hodl them until 2030 and never sell. Diamond hands with a time frame!
Acknowledge This Will Be Volatile
If you’re dipping into crypto you must first acknowledge and realize that this market is volatile. It trades world wide every hour of every day and never takes a break. There are no regulations, no rules, and often times the market is highly leveraged. So the moves can happen fast and with violence. If the volatility of the stock market keeps you from investing in equities, then steer wide and clear of crypto. This is a whole new level of ups and downs.
Closing Remarks
The recent Bitcoin crash is a strong reminder that the cryptocurrency market is a highly volatile and unregulated market that is not suited for everyone. The participants include the influential and wealthy who wish to protect their wealth and are just now embracing Bitcoin. It happens to also include would-be millionaires willing to take out 100x leverage and take a shot to the moon instead of buying a lottery ticket.
In the end, this all results in high amounts of volatility that is accelerated and amplified through the latest tweets of the rich and famous; some even hosting SNL. All the while it doesn’t detract from the fact that Bitcoin offers a singular and unique investment asset whose supply is slowly but surely dwindling to zero and many will want a piece (satoshi) of it.
As the world experiences inflation, and your favorite athlete, actor and politician begins to demand payment in bitcoin there will likely be just as much volatility going forward.
In keeping with prudent investment practices, keeping some dry powder on hand with a fully diversified portfolio of stocks, bonds, cash, and gold will help buffer the impacts and play nicely with a crypto position.
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