The cryptocurrency Bitcoin hit its most recent all-time high just over a year ago, on November 10th, 2021, at $69,000 per coin. More recently, Bitcoin was trading in the $16,000 range, that's more than a 76% decline.
Long-term Bitcoin bulls will be quick to point out that since its inception, Bitcoin has experienced other declines that fall within the same percentage drops. However, knowing that type of move has happened in the past, and the cryptocurrency rallied back probably doesn't help those who bought Bitcoin up at the highs feel much better about their investment.
But what about if you have been sitting on the sideline, waiting for the right time to buy Bitcoin? Is today a good time to buy the cryptocurrency?
For all the bulls out there, I already know I have been wrong about Bitcoin in the past, and I am wrong again this time. But hear me out before you write me off. I believe there are a few reasons why we have not seen the bottom of the current Bitcoin crash.
First and foremost, we are heading straight toward a recession. You may not want to believe it or face reality. Still, it is coming.
Just last week, Federal Reserve Chairman Jerome Powell told investors that the likelihood of a soft landing was rapidly diminishing. Inflation is still high, and Fed Members have made it clear that bringing down inflation is the most important problem to tackle now. And despite interest rates at levels we have not seen in a decade, the Fed believes we will still need more increases in the coming months.
The coming recession is important for Bitcoin's price because up until this point, Bitcoin has not proven to be a "safe haven" asset.
Furthermore, even gold, an investment that most investors would consider pumping money into during uncertain economic times, has not been rallying during this market downturn.
Many investors point to the fact that the dollar has strengthened as one reason why gold and cryptocurrencies are down. A strong dollar could be due to Treasury bonds paying higher and higher yields. The world considers the US Treasury Bond as the baseline for a zero-risk investment. And with T-Bond yields going higher in 2022, investors worldwide have been flocking to both the dollar and T-Bills.
The current economic environment is a classic "risk off" situation, which is precisely what investors are doing — running into the US dollar and Treasury Bonds and fleeing risky technology stocks and cryptocurrencies. If you could get a super safe 4% from a bond right now, why risk losing 50% investing in cryptocurrencies? It doesn't make sense, which is why Bitcoin is down and will continue to fall until the economy stabilizes.
How long until that happens? Well, for starters, the recession at least needs to begin, or economists must unanimously agree that a recession isn't in the cards. Either one of those things isn't likely to happen in the next few days, weeks, or even months.
This means you shouldn't be in any hurry to buy Bitcoin today.
Today, you could actually still be shorting it with something like the ProShares Short Bitcoin Strategy ETF (BITI) or owning puts on the ProShares Bitcoin Strategy ETF (BITO).
If you agree with me that we won't see a Bitcoin rally until we are on the other side of the recession that is being forecasted, get short now and then go long once we can see the light at the end of the recession.
I am not trying to say Bitcoin is going to zero. Or that Bitcoin will never recover. I am trying to point out that today is not a great time to be 'dip' buying Bitcoin. There are several reasons why it is not going to rally at this time and perhaps even go lower.
So don't rush in and buy today; if you are not comfortable shorting it, just sit back and watch as things play out. If you are like most of us, you probably missed Bitcoin's last rally, and you are OK. So if you miss another one, you will probably still be alright.
Matt Thalman
INO.com Contributor
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
The recession has ALREADY begun. We had two consecutive quarters of negative GDP growth. That’s the decades old definition. And we are about to record a third consecutive month soon.