The one single thing that is driving the global markets today is liquidity. That means that assets are being driven solely by the creation, flow and distribution of old and new money. Value is toast, at least for now, and where the money flows in, prices rise and where it ebbs, they fall. This is where we sit now whether it’s for gold, bitcoin or equities.
The money has been flowing in torrents since Covid with global governments flushing their systems with huge quantities of money and credit to keep the game going. That has come shuddering to a halt with support programs ending and, at the core, the U.S. bailout program stuck in presidential politics.
If the equity markets now crash everything will go down with it. Unrelated things dive because margin calls force equity investors to liquidate positions, wherever they are, to support their losing core portfolio. Out goes bitcoin (BTC), gold and the riskier holdings in return for more margin cash to keep positions in conviction assets. This can lead to a vicious circle of collapse as we saw this year. Only injections of money from the government stops the downward spiral, and given enough new money reverse it and bubble assets like we have seen in the Nasdaq.
So here we have the U.S. markets limbering up for a correction or even a crash. They are incredibly high. Valuations are mind blowing for the tech darlings and in the background the looming election offers all sorts of worries.
That is the bear game in the short term for bitcoin. You can try and trade that or you can HODL, and if a correction happens you ride it out.
But there is a bull case. Bitcoin mining difficulty has increased by 10% as the hashrate has risen over the last few months.
Difficulty equals price. The harder it is to earn coins, the more valuable they become. It’s the same kind of logic that indicates a rise in price for Ethereum when there is a rise in transaction fees. Unlike the oligarchic system of proof of stake, proof of work defines its value through the work needed to earn the coin. While the aristocrats of proof of stake can lord it over the poor peasants and earn from their position in the wealth hierarchy with little real cost beyond extravagant clothes, proof of work has the rewards going to the hardest, smartest workers. Active work equals BTC not the POS passive position within the power money hierarchy.
Difficulty up, means value up.
So what is an investor to do?
It seems the best thing to do is hold and buy the dip, the traditional way to get rich in a strategic bull market. Where the price grinds slowly up and spikes down every now and then, you can not time the slump but you can buy the dump.
If the stock market crashes, bitcoin is extremely likely to tank for a few weeks, but it won’t break crypto. If you sell your BTC and it doesn’t fall and suddenly jumps $2,000 you will be cursing your luck. Bitcoin is going up very high in the long run but trying to catch every crash and vertical is not only the road to madness, it is a certified road to missing the upside.
It’s cheesy and annoying, to buy and hold and buy the dip, but it is worth considering how easy it is to miss buying the dip, and if you can’t buy the dip you certainly aren’t ready for the dangerous game of getting out before a crash.
We are about to enter a new crazy trend and it’s likely to be very volatile and I believe potentially very bearish, but in the new reality of broken and fixed markets almost anything is possible.
It will, however, I’m sure be a buying opportunity.
Clem Chambers is the CEO of private investors website ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide. If you want to buy him a coffee pop over to buymeacoffee.com/clemmademeabogo’stockprofits