The Wolf Den #537 - How To Beat A Recession
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In This Issue:
How To Beat A Recession
Bitcoin Thoughts And Analysis
Legacy Markets
Ape Now, Pay Later?
Celsius Pays Off Bitcoin Loan
Mt. Gox Coins To Be Released?
My Recommended Platforms And Tools
How To Beat A Recession
How should the average retail investor assess risk and navigate these rough seas?
First, it is important to remember that we have been here before. While the reason for the economic crisis is different this time, recessions, depressions and corrections are a part of natural market cycles. To that end, the first thing to remember is never to panic or make decisions out of fear.
The stock market has always recovered in the past - in fact, there has never been a time in the history of the market that stocks have been a bad investment over a 10 year period. Equities have yielded at least a 7% gain over that time frame at every point since inception.
To state it plainly - dips have always been for buying on stocks if you have a long time horizon as an investor. Even the Great Depression was a buying opportunity for savvy investors.
This will likely prove true moving forward for the crypto market as well, assuming you buy strong assets.
1. Keep investing for retirement
Anyone who is not yet retired should maintain the same strategy that they had before the crisis, passively investing and dollar-cost averaging into the stock market in a tax-deferred fund like a 401K or IRA.
While it is scary to see your net worth dropping, your retirement fund is focused on growing your capital over many decades. An economic crisis is more likely a buying opportunity than a selling opportunity when viewed with a long time horizon. Just imagine, in 10 years, this downturn will likely be a blip and the equities you purchased will have been obtained at a significant discount.
Focus on the fact that stocks will recover, without worrying about when.
2. Increase your emergency fund
Having emergency savings is always crucial and general financial guidance suggests that everyone should have cash set aside to cover at least 3 to 12 months' worth of living expenses in case one loses their job.
Such a fund is even more essential during a time of global economic crisis. Assuming you still have income, it's a good idea to set some of the money aside to increase your cash savings for further emergencies.
3. Cash is king
As an investor and trader, I always keep at least 15% of my portfolio in cash - this is different from my emergency fund. Cash is an essential part of any portfolio and risk management strategy because it’s value increases during a downturn.
If you have cash in your crypto portfolio and treat it as an asset, you will notice that the cash value of your portfolio rises when Bitcoin price drops - because the cash is “beating” Bitcoin. You need to cash to be flexible and able to buy dips. Never be fully deployed.
In times of trouble, people want dollars. The dollar is still the only true safe-haven asset regardless of how many the Federal Reserve continues to print. It is the world's reserve currency. This is even true with record inflation, although it could change depending on that rate.
4. Buy Bitcoin
Any hedge fund manager or individual who performs a risk assessment of their portfolio should come to the same conclusion - buy Bitcoin. Bitcoin and crypto in general, is arguably the only truly potentially uncorrelated asset in the world, meaning that its future value is not determined by the same underlying factors as everything else. This offers potential idiosyncratic risk in your portfolio, as opposed to the systematic risk from every other asset.
In the past year, Bitcoin has traded like a correlated asset, so this has been temporarily put to the test. However, over time Bitcoin has offered idiosyncratic risk and should do so again in the future.
I personally believe that everyone should have a small investment in Bitcoin because it offers insurance against inflationary currency and bad actors. This is crucial for proper risk management.
5. Crypto investors should diversify
Nobody should be 100% invested in anything. Period. Even the most hardcore Bitcoin maximalist should have a diversified portfolio with exposure to multiple assets.
Bitcoin Thoughts And Analysis
WEEKLY CHART
A test of the 200 MA as resistance was somewhat inevitable and took a few weeks to happen. It was slightly front run here, for now, meaning that price stopped just short of testing the line.
Nothing bullish here yet, but you can't turn bullish without testing resistance first. Price remains trapped between the 200 MA and the 2017 highs at $19,666.
DAILY CHART
Nice breakout, invalidating the bear pennant narrative. That doesn't mean price won't still go down, it simply means that structure is not valid and that the 10K target that came with it is also gone. This was a somewhat weak breakout, on minimal volume. We are already seeing a potential ugly candle to follow up today, but it's too early to judge.
This is a step in the right direction, but not a truly bullish move as of yet.
4-HOUR CHART
Low time frames already look exhausted. The 4-hour hit overbought on that small move, and formed slight bearish divergence to boot.
To be quite honest, if you were trading this and watching, this was a text book short at the top - low time frame bearish divergence at macro resistance (the weekly 200 MA).
At the end of the day, we are still just ranging here, with people turning bullish right at the range highs. Tale as old as time.
Legacy Markets
Some of the main moves in markets:
Stocks
Futures on the S&P 500 fell 0.4% as of 5:37 a.m. New York time
Futures on the Nasdaq 100 fell 0.5%
Futures on the Dow Jones Industrial Average fell 0.3%
The Stoxx Europe 600 fell 0.2%
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.4% to $1.0119
The British pound fell 0.6% to $1.1945
The Japanese yen was little changed at 135.89 per dollar
Bonds
The yield on 10-year Treasuries declined two basis points to 2.98%
Germany’s 10-year yield declined five basis points to 1.27%
Britain’s 10-year yield was little changed at 2.13%
Commodities
West Texas Intermediate crude fell 0.4% to $102.35 a barrel
Gold futures fell 0.2% to $1,735.90 an ounce
Ape Now, Pay Later?
You can now finance a Bored Ape.
Whether you should or not is an entirely different question.
Here's how it works: if an NFT is listed on OpenSea, a user can use Teller's marketplace to secure financing for an NFT. The user establishes a down payment and is matched to a lender who matches the desired terms. The NFT is bought and then placed in an escrow wallet until all payments are made.
It is not a bad idea in a vacuum, although the volatility of the crypto used for the loan makes it very risky. NFTs are the future, and lending makes sense here... but the timing is terrible. NFTs are getting crushed and the last thing 99.9% of people should be thinking about is how they can finance an expensive NFT.
Celsius Pays Off Bitcoin Loan
Celsius has officially paid off its Bitcoin loan and in return has received 21,962 Wrapped Bitcoin (BTC). The payments on the loan took nearly a month to finish. So what does this additional liquidity do? It gives Celsius optionality for meeting creditor demands and allowing withdrawals, and also eliminates the much hyped narrative of Celsius being liquidated. Their liquidation price is now... zero.
I will leave it to those more knowledgeable to determine what this means for customers moving forward, but it's certainly a step in the right direction for the company itself.
Mt. Gox Coins To Be Released?
In a sea of bad news, it's going to be a good day soon for Mt. Gox victims that "lost it all" back in 2014. Just a couple of days ago, creditors were sent an official notice asking if they wanted to be repaid in Bitcoin, Bitcoin Cash, or USD. Of the 700,00 coins that were stolen, 150,000 have allegedly been recovered. Considering the value of Bitcoin then and now, this is good news for most people. Why? Because very few would have realistically held their Bitcoin for the past 8 years without finding an excuse to sell at some point.
The slightly bad news is that the recipients may dump their assets, although it makes little sense to take the payment in Bitcoin rather than cash, only to sell it on the open market.
There are reports that recipients of coins may have to wait in order to interact with their funds, which could stave off immediate selling.
This will hopefully put an end to one of the worst chapters of the Bitcoin story.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
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