Since it hit an all-time high of $67,617 last November, the world’s most popular cryptocurrency has plummeted 38%.
It’s not just bitcoin (BTC) investors who have been getting pummeled.
The overall crypto market is down 23% from its 2021 high, which it set in November.
So today, you’ll hear from Teeka Tiwari on the mindset you need to ride out the volatility and realize the life-changing gains crypto has to offer.
Teeka has been recommending crypto here at Legacy Research since April 2016.
Since then, he’s given his readers the chance to make gains of 23,743%… 35,519%… and even 51,698% on his crypto recommendations.
This has allowed those who acted on his advice to take millions of dollars in profit out of the crypto market. More on that in today’s mailbag below…
First, it’s important we put the crypto sell-off in context. Three main factors are at play…
Investors are always either building positions because they’re growing more optimistic about the future (“risk-on”)… or trimming positions because they see warning signs on the horizon (“risk-off”).
Right now, investors are becoming increasingly risk-off.
Cathie Wood’s ARK Innovation ETF (ARKK) is a useful barometer.
ARKK was one of the top-performing exchange-traded funds (ETFs) in 2020. And Wood has become a superstar as a result.
She’s packed this ETF with the most hyped tech stocks on the planet. Top names include Tesla (TSLA), Zoom (ZM), and Spotify (SPOT).
And as you can see in the chart below, ARKK has plunged 34% since the high it set last November.
Clearly, the risk-off behavior isn’t limited to crypto. It’s also showing up in stocks.
That brings us to the second factor…
That’s a headwind for both stocks and crypto.
These riskier bets become less attractive the more investors get paid to own relatively safe bonds. That’s what’s happening now…
The Fed has been discussing winding down its $80-billion-a-month QE (quantitative easing) program.
In other words, it wants to buy fewer Treasury bonds from the government using newly created dollars.
This has triggered a sell-off in Treasury bonds. And yields have spiked. (When bond prices fall, yields rise. And vice versa.)
Take the yield on the 10-year Treasury note. It’s jumped from 1.5% on December 31 to a pandemic-era high of 1.8% on Friday.
Fed rate hikes happen in steps of one quarter of a percentage point. So that’s equal to more than one Fed rate hike.
This relates directly only to bitcoin… But it’s still worth having on your radar.
These days, investors don’t just buy bitcoin directly. They also use borrowed money to make leveraged bets on bitcoin in the futures market.
Leveraged bets use borrowed money. They amplify your gains… and your losses.
So the more leverage there is in the bitcoin market, the more volatility we can expect.
Think of it like dropping a stone into a pool. The bigger the stone, the bigger the splash. The more leverage there is in any market, the bigger the price moves will be.
And figures from Blockware Solutions analyst Will Clemente show that leverage in the bitcoin market is at its highest since last July.
Eventually, that leverage will get flushed out. And we’ll get less dramatic price swings. But while leverage remains high, hold on tight.
Since Teeka started recommending bitcoin nearly six years ago, he’s been hammering on this point.
If you don’t know him yet… he worked on Wall Street and ran his own hedge fund before joining Legacy Research.
He was the first guy in our industry to dedicate a major newsletter to crypto. And he’s helped mint more crypto millionaires than any other newsletter writer.
As I mentioned above, his top open recommendations have delivered gains as high as 51,698%.
That would turn every $2,000 grubstake into more than $1 million.
But here’s the thing… The only way folks have been able to realize those gains is by having a long-term mindset. That means not panicking when volatility strikes. Teeka…
Crazy volatility in crypto is a feature, not a bug. But people new to bitcoin aren’t used to it. To them, a 30% or 40% drop can seem like the end of the world. Many just can’t handle it.
That’s why you have to pull back the camera lens and focus on the big picture. That picture is that bitcoin and crypto are shifting from fringe to mainstream assets. That means prices will skyrocket over the long run.
But if you focus on bitcoin’s daily moves, you’ll get distracted… even frightened. And you’ll do something stupid, like sell into weakness.
I’ve said for years volatility is the price you have to be willing to pay for life-changing gains in crypto. But it’s true. You won’t see these huge up cycles without some huge down cycles, too.
Since 2017, bitcoin investors have had to endure eight plunges of 30% or more.
Bitcoin: Major Corrections From All-Time Highs (March 2017–Today)
|
Correction Period |
% Decline |
% Return to New High |
# Days to New High |
|
11/10/21 to 1/10/22 |
-38% |
64% |
? |
|
4/14/21 to 6/22/21 |
-55% |
123% |
120 |
|
1/8/21 to 1/21/21 |
-31% |
45% |
18 |
|
12/17/17 to 12/15/18 |
-30% |
43% |
1,079 |
|
11/8/17 to 11/12/17 |
-30% |
43% |
8 |
|
9/2/17 to 9/15/17 |
-41% |
70% |
40 |
|
6/11/17 to 7/16/17 |
-39% |
65% |
55 |
|
3/10/17 to 3/24/17 |
-33% |
49% |
48 |
|
|
Source: CoinDesk |
They include the so-called Crypto Winter bear market – the 84% drop between December 2017 and December 2018.
But even if you bought at the pre-Crypto Winter peak, you’d still be up 496% now if you held on through all the volatility.
And resist the temptation to keep checking your crypto portfolio.
The more you check it, the more tempted you’ll be to focus on day-to-day price moves.
Instead, focus on the long-term trajectory… and Teeka’s $500,000 price target.
Just know that we’ll get bone-crunching volatility along the way as a matter of course. And remember, keep your crypto allocation at 2% to 10% of your overall portfolio.
That way, the volatility along the way won’t keep you up at night.
Regards,
Chris Lowe
January 10, 2022
Dublin, Ireland