First the economy overheats, then winter comes to Wall Street. January was especially horrible for the cutting-edge investor, and February might be even worse. At the end of last month, big tech stocks were down nearly 8%, according to the New York Stock Exchange’s FANG+ index — and that was before shares of Meta Platforms Inc. (the company formerly known as Facebook) fell off a cliff last week.
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The crypto winter has been even colder. Since the start of the year, Bitcoin (BTC or XBT if you prefer the official ticker) has fallen by 12.5%; despite a rally on Friday, it is still down 40% from its all-time high of $67,734 in November 2021. If you bought Ethereum at the top ($4,799 on Nov. 9), you are down 38.5%. Only meme stocks such as GameStop Corp. (down 31% since the year began) and Robinhood Markets Inc. (down 78% over six months) have been hit as hard. Oh, and let’s not forget Facebook — down 34% over six months.
By contrast, it’s been a rip-roaring start to the year for retro investors. Oil (Brent Crude) was up in January (+19%) more than Bitcoin was down. Long coal was one of the trades of 2021: If you bought America’s biggest coal company, Peabody Energy Corp. (BTU), a year ago, you’re up 252%. So much for COP26 and the Green New Deal. The winning trade of the post-pandemic era would seem to be long the past, short the future.
You can tell it’s a bear market for crypto because the usual suspects have been tweeting about it. (They’re always mum on the way up.) It doesn’t get better than Nouriel Roubini tweeting a Business Insider story with the headline: “Economist Paul Krugman says there are ‘uncomfortable parallels’ between the recent crypto slump and the subprime mortgage crisis.” Sorry, this doesn’t seem like the relevant historical analogy.
That’s not to say the crypto winter can’t deliver a bigger chill, if not the polar vortex or bomb cyclone of Roubini and Krugman’s imaginings. How much lower could Bitcoin go? It is worth recalling that, after the price of Bitcoin peaked during its first bubble — at $1,137 on Nov. 29, 2013 — it dropped by 84% to $183 just over a year later, on Jan. 14, 2015.
This pattern was repeated four years later, when the price peaked at $19,041 on Dec. 17, 2017, and bottomed out a year later at $3,204 — a cumulative drop of 83%. Were this historical pattern to repeat itself exactly, the price would fall to a low of $11,515 this November, 83% below its peak in November of last year.
However, such a plunge seems unlikely for two reasons. First, Bitcoin is a much larger asset than in the 2010s, with its market cap peaking at just shy of a trillion dollars last year. The process of adoption by individuals and institutions, which I forecast in the updated edition of “Ascent of Money” in 2018, continues apace. First came the hedge funds. Then came the banks. Now the sovereign wealth funds, the pension funds and the big endowments are sniffing around. Sooner or later, a respectable central bank will admit that it has some Bitcoin in its reserves, and the financial journalists will pay less attention to El Salvador’s eccentric experiment to make Bitcoin legal tender, alongside the U.S. dollar.
Read hte full article here by Niall Ferguson, Advisor Perspectives
