Cryptocurrencies haven’t been immune to the carnage in the investment markets. How does this affect the upcoming halvening? Our expert, Matt McCall, weighs in
In our February 28 Digest, I wrote about the diversifying benefit of cryptocurrencies in a portfolio, highlighting bitcoin.
The point wasn’t that bitcoin was always “up,” but rather, it had a mind of its own and didn’t necessarily rise or fall in conjunction with the stock market.
To illustrate, below you see bitcoin compared to the S&P from late-March 2019 through early January. Do you see any clear correlation here?
Of course, after writing that late-February Digest, the markets decided to humble me.
Here’s how bitcoin and the S&P looked, from the beginning of March through the end of two weeks ago.
Not only did bitcoin sell off alongside the market, it did so with a far-greater fury.
Why? Aren’t these asset classes supposed to be uncorrelated?
Hold on that — we’ll return to it in a moment.
First, look what’s happened in the past week.
Though bitcoin fell some over the weekend, it’s still up over 26% over the last week while the S&P has fallen close to 5%.
Perhaps there is some non-correlation benefit after all.
***Stepping back, where are we with bitcoin and the various altcoins right now?
And how is the COVID-19 crisis affecting the upcoming halvening?
If you’re new to the Digest and aren’t sure what a halvening is, it’s a unique event in the crypto world in which Bitcoin “miners” see their reward for mining new Bitcoin cut in half. Huge gains in Bitcoin and various altcoins have surrounded the past two halvening events. The next one is occurring in May.
Below, our crypto specialist and editor of Ultimate Crypto, Matt McCall, describes why the halvening is such a big deal — particularly for elite altcoins even more so than bitcoin.
By the way, if you’re less familiar with altcoins, they’re simply “alternative” cryptocurrencies beyond bitcoin. They can be gimmicky “me too” products which are just trying to capitalize on investor interest in the space, or they can provide a unique twist on the crypto/blockchain/financial world that makes them truly unique and valuable.
Looking back over the last two halvenings, investing in specific altcoins (rather than bitcoin) would have made significantly more money.
During the same period in which bitcoin climbed 4,500% surrounding the second halving, an altcoin called Einsteinium shot up over 580,000%. That’s 129 times the gains bitcoin made investors during its massive run. For perspective, that would have turned $5,000 into $29 million. Talk about a life-changing investment.
If that doesn’t excite you, try this: Another altcoin called verge shot up over 63,000%. That’s more than 630 times your investment!
But these gains all happened in a non-COVID-19 world. How does today’s crisis environment change things? Are crypto investors still looking at the potential for life-changing returns?
To find out these answers and more, I interviewed Matt last Friday. It turns out, the crashing prices in the crypto world (prior to the recent, robust rally) have simply made Matt even more bullish on the potential longer-term gains to come.
So, in today’s Digest, let’s get Matt’s thoughts on the challenges and opportunities in the crypto space.
***”The long-term has not changed”
Jeff: Matt, thanks for joining me. Recently, the price of bitcoin and various altcoins were chopped in half. I thought that bitcoin and altcoins were considered non-correlated with stocks. What happened here?
Matt: When markets go into panic mode, investors sell all asset classes. Often the perceived riskier asset classes take the biggest hit and that is why cryptos have fallen. But this wasn’t unique to cryptos. Even gold and gold stocks have been struggling — and gold is supposed to be the asset class of choice in a crisis. But blanket-selling is just the nature of a panicked market. There are not many places to hide.
Jeff: You’re a big altcoin bull — even more so than bitcoin. When can we expect to resume the upward march in altcoin prices?
Matt: As soon as the panic subsides. That being said, we are starting to see buyers come back in this week. I think the bottom is either in or very close.
Jeff: You’ve written much about the upcoming halvening. To what extent might COVID-19 prevent the halvening-related gains investors have seen in past halvenings?
Matt: It could delay the halvening gains for a short period, but the bottom line is that the halvening will occur regardless of the virus. And the effects of the halvening will boost the price of cryptos.
Jeff: Has the COVID-19 situation affected your views of longer-term gains from cryptos in any way?
Matt: Not one bit. If anything, it gives our subscribers a chance to buy at a discounted price. The long-term has not changed.
Jeff: How do you anticipate the global reaction to COVID-19 — namely, stimulus money from governments — will affect the prices of bitcoin and altcoins?
Matt: If anything, it should help. The trillions in stimulus that will eventually get passed around the globe will lead to inflation and the likely devaluation of currencies (sans Dollar). This makes bitcoin and all cryptos attractive alternatives.
Jeff: Is now the time to add more to your crypto portfolio, or do you anticipate further declines?
Matt: I have no idea where the bottom is. My plan for cryptos is the same as stocks. If you have $10k, start to buy in $1k increments over the next ten weeks in anticipation a bottom will be in during that time.
Jeff: What are you most excited about as we look forward to the future of the crypto space?
Matt: The continued expansion of the blockchain technology and the smaller altcoins. The altcoins are the software of the 2020s and will continue to build out and power the future of technology.
Jeff: Is there one specific altcoin you’re willing to share with our broader Digest readership?
Matt: Take a look at Chainlink (LINK). I believe you’re going to see big things here.
Jeff: Thanks, Matt.
A quick word about Chainlink. Matt writes that this altcoin aims to solve one of the biggest problems holding back global business adoption of smart contracts and blockchain technologies. Namely, it provides a reliable connection between external data and the smart contract.
Despite the carnage in nearly every asset class over the last two months, Chainlink is still showing a gain in Matt’s Ultimate Crypto portfolio as I write.
If you’d like to learn more about the crypto space and access Matt’s other picks, click here.
We’ll continue to keep you up to speed with events in the crypto world.
Have a good evening,
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.