Latest downturn the latest warning for those trying to time Bitcoin’s bottom

Just ten days ago, Bitcoin was creeping towards the psychologically important $25,000 level. Today, it’s back to $21,300.  

It reads as a cautionary tale for investors who were beginning to allow just a modicum of optimism to creep in. With 2022 having been hell for crypto investors. thus far, July had provided a rally.

Stock market dips

However, with the stock market dipping over the last week off – you guessed it – macro concerns, Bitcoin followed right along for the ride. As it tends to do.

The below chart is a simple one, but it’s ever-so-powerful in the current climate. I plotted Bitcoin against the S&P 500 year-to-date, showing just how in tandem the duo have been. In other words, if the stock market has moved, Bitcoin has followed.

As much as I love on-chain analysis, studying moving averages or staring at areas of resistance and support, the reality is that in the short term, Bitcoin is simply following the market. It has been established as a risky asset, and in risk-off environments, those risky assets are not where investors want to be.

I wrote during the bear rally recently assessing whether it was a good time to buy. My main conclusion was that I had no idea whether we had bottomed and that there could easily be more pain to give. Despite this, I concluded that with a long-term investment horizon, it was nonetheless a good time to buy into the stock market.

We have the weight of history on our side and, while I am increasingly negative about the economy’s prospects for the winter, I don’t think the Federal Reserve will allow a recession to get too ugly without resisting the urge to flick the money printer back on, as well as easing off on their hawkishness with regard to interest rates.

If it makes sense, I am bearish on the economy, yet think if you can bear to swallow the volatility over the short-term, it’s not a bad time to start dollar-cost-averaging in (buying stocks at regular intervals going forward).

Bitcoin

For Bitcoin, it’s a little trickier. It’s a much more volatile asset and we don’t have the long sample space on our side – Bitcoin was only invented in 2008. Moreover, it’s only in the last few years that it can be studied as a mainstream financial asset, so any price history prior to that is pretty much moot.

Those who are familiar with my writing understand my long-term bullishness on Bitcoin. I believe it has a place in everybody’s portfolio – as a hedge against “financial Armageddon”. But in the short-term, it’s simply following macro. This means that if stocks drop, Bitcoin drops further – as the chart in the above paragraph shows.

For me, I’m focusing on adding to my stock positions here, although that comes – again – with the caveat that I already hold enough Bitcoin in the context of my portfolio. Looking at the overall expected return/risk profile of my portfolio, stocks are the prudent play for me here.

And at the end of the day, that is what it all comes down to: taking a holistic portfolio view and trying to remain steadfast to your investment goals and time horizon, while keeping emotion out of it.

Of course, that’s easier said than done, especially in the world of Bitcoin. But let the last week be yet another warning – as if we needed one – that things aren’t always what they seem. Make no mistake, we are still in a dicey situation, and Bitcoin is as vulnerable as any asset right now.

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