Monday’s sell-off sparked a panic among the financial talking heads as fears of Round 2 of the pandemic ran rampant. But I didn’t — and still don’t — think it was a big enough concern to warrant that kind of reaction.
Lo and behold, the next day, after going down on volume, the markets are back up on air… so does our strategy change? I don’t think so. Stagflation is still my primary concern.
Which leads me to the only thing I found remotely interesting: an article about the ultra-rich turning to cryptocurrencies, which comes after Bitcoin tanked in May. Will this signal a crypto crash recovery? And why do we care?
Because a crypto crash recovery — or downturn — tells me everything I need to know about the markets this year.
So let’s start with Bitcoin (BTC), as it guides the entire crypto space
Source: Bloomberg
It hit its peak in April after it started trending upward in November, but now seems to be testing a new support level around $30,000. As we see family offices move into the space, I expect it to provide some support for a crypto crash recovery, but I remain skeptical.
It’s hard to be optimistic in the near term. But in the future, if it can get back to a certain level, I may nibble again.
One thing to note: If rich people are going to play in the crypto space, inflation is still a factor.
Why the Crypto Crash Recovery Matters
As my readers know, we look at Bitcoin as a commodity because, well… it is.
And you should hopefully know that the primary area affected by inflation is commodities.
Let’s look again at Bitcoin’s movement. As we said above, it went on a huge run from November to April before pulling back. When prices go through a huge run like that and then correct, they pull back to one of a few key levels:
-
A “halfway” point.
-
Somewhere on the golden ratio, AKA the Fibonacci sequence.
-
Flat, round numbers.
Just look at the chart below.
Source: Bloomberg
At the tail end of the initial pullback, Bitcoin had a small uptick at $37,546 — the blue horizontal 50% line. It is now trending down and testing new support at a round number, the $30,000 mark.
But look even further back and notice which lines it bounces between prior to its pullback. Those three lines? Its peak, the 23.6% line and the 38.2% line… which are part of the golden ratio.
For those who haven’t taken a math class in a while, the golden ratio is a “magic” number that is approached by dividing the numbers in the Fibonacci sequence — 1, 1, 2, 3, 5, 8, 13, etc. The theory is that all of nature subscribes to the golden ratio. The number of petals on a flower, for example, are often Fibonacci numbers, as noted by National Geographic.
And like it or not, humans are part of nature, so when we look at prices and numbers, they will subscribe to the golden ratio as well.
And I know you’re thinking… What does any of this have to do with Bitcoin, a crypto crash recovery or the economy?
I’ll tell you.
Bitcoin as an Indicator
So if Bitcoin is a commodity, then we should expect other commodities to behave similarly during the same economic period, right?
Let’s look at oil.
Source: Bloomberg
Oil looks to have peaked at the end of June or beginning of July, whereas Bitcoin peaked in April. But look at the lines it bounces between… the 50% line and golden ratio numbers.
What about copper?
Source: Bloomberg
It peaked between Bitcoin and oil — in May — before beginning to come down. But what ranges was it moving in? Oh, 50% lines and golden ratio numbers?
It’s almost like there’s a pattern…
It’s significant that these commodities all behaved in similar patterns, but what is even more important is that Bitcoin peaked first.
So I can’t help but think that what happens to Bitcoin, and thus all cryptos, is the future of most commodities.
And as we await gross domestic product (GDP) numbers to measure our economic growth, which I can almost guarantee will show signs of slowing…
We need to pay attention to commodities. And whether or not there’s a crypto crash recovery might be all the indicator we need.
I expect inflation to continue and lead us to a period of stagflation, so I’ll be looking at Bitcoin to see if I’m wrong. Which is something I never thought I’d say.
If Bitcoin keeps dropping, we could see the downturn of the business cycle, which isn’t the end of the world. It will make the rest of the year choppy, however.
And if there’s a crypto crash recovery, we could very well enter stagflation if there’s not enough money at the top of the wealth ladder to carry asset prices. Which is why the rich folks entering the crypto space is so intriguing to me…
In the short term, I think there is. But long term? Probably not.
So hello, stagflation.
But no matter what, my advice is this: Keep an eye on the crypto crash recovery and Bitcoin. And make sure to keep a short-term view on things right now, because we could be in for a ride.
All the best,
Matt Warder
P.S. Future of Wealth Head Trader Lance Ippolito just revealed how he spots trades with the potential to return upward of five times his initial investment every single month.
Not only does this strategy protect his portfolio from long-term volatility, but it gives him the chance to bank massive winners in just 24 hours.
We’ve never seen anything quite like this before.
With Lance’s Weekly Blitz Alerts, we can throw old buy-and-hold strategies out the window. And forget spending hours reading through pages of earnings reports and squinting at stock charts.
