"The best reason
to invest in crypto," says Josh Peck, founder of TrueCode Capital, is
"growth, growth,
growth." Peck explains that most investors consider crypto for
diversification. However, since crypto is highly correlated with other growth
assets, it's not a good diversification in that regard.
As for investing in
crypto as a hedge against inflation, Peck points out that Bitcoin is down 70%,
while inflation's at around 10%. "So that thesis does not hold up
either," says Peck.
What he does believe
makes a great deal of sense is for investors to peel off a portion of their
NASDAQ allocation of high-growth stocks or bonds and consider putting that into
cryptocurrency for growth.
"Anytime you
allocate to another asset class, you'll get some benefit to your portfolio and
some negatives. So the decision, in my opinion, is not whether I should invest
in crypto or not. But rather, how much should I invest in crypto? It's more of
a portfolio construction question," says Peck.
"Historically,
even a tiny percentage of crypto in a portfolio brings improvements to
return," says Peck. He points out that an investment in the S&P 500
has averaged about a 7% rate of return with about a 27% drawdown. If even a
small percent of crypto is put into that mix, the return goes from 7.02% to a
7.37%. "What excites me about this is that 1% of the portfolio is
providing nearly 5% of the portfolio’s total return," says Peck.
But investing in
cryptocurrency is not without its challenges and risks. Here is Peck's take on
the current state of crypto investing — pros, cons and takeaways.
Pros:
- To date, the crypto
market has declined by over 70%, which in past bear markets has proven to be a
good time to buy.
- Bitcoin appears to
be in week 18 of a bottoming process that lasted 20-30 weeks in past bear
markets. Crypto markets tend to go off like a rocket, then crash. "The
process does not terminate at one point," says Peck. "It sells off
and sits at the bottom for a period. We appear to be in that phase now. We
can't predict, but we can say that people who accumulate a little bit each
month have done well in the past."
- If Bitcoin returns
to the former all-time highs, it could provide a 270% return from today's
market price.
- Mastercard Inc.
recently debuted a service offering crypto trading tied to bank accounts. As
more big players get into the game, institutional adoption rises. This has
historically been positive for price. Essentially, we are inching our way
closer to people being able to buy crypto in their everyday brokerage accounts.
Cons:
- Bitcoin dominance
has begun to increase, a hallmark of past altcoin capitulations. This crash may
not be over.
- Bitcoin's 200-week
moving average has not held. Bitcoin's price is 23% below the 200-week moving
average, which historically was the bottom of past markets. Is this market
cycle different somehow? Is the crypto game over because that support level did
not hold?
- The Bitcoin crash
happened sooner during this market cycle relative to the next halving than
during previous cycles, so the bottoming process may take longer than it has
historically.
Takeaways:
- Be patient with
altcoins and focus on top-tier cryptocurrencies such as Bitcoin and Ethereum.
- The long-term
outlook is promising, but there may still be more short-term volatility to
come.
- Accumulate a
position rather than hoping to time the exact bottom.
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