Dear Member,
Things have been looking up for crypto. Bitcoin’s bull market remains strong. The bitcoin halving coming up in May should keep things going. And altcoins are finally making some upward progress.
Unfortunately, there is one X-factor I’m concerned about – the novel coronavirus. I have no idea how it will affect crypto markets.
The market reaction to the virus could go either way. We could see bitcoin rise because people see it as a flight-to-safety asset. Or we could see it sell off as investors give in to fear and sell risky assets.
The reason it’s hard to judge the potential market reaction is because there’s a lot to be worried about. We still don’t know how far the coronavirus will spread or what its overall effects will be. I suspect the epidemic’s economic impact will be far greater than most people currently believe.
Dan McMurtrie, one of my favorite people on Twitter, recently did a good job summing up the potential economic effects (emphasis mine)…
Serious Take: Base case for anyone doing any actual channel checks here should be 2 quarters of severe supply chain disruption. Media and Sell Side dripping out reality on lag because they have to maintain access. Autos, Semis, Travel annual numbers are absurd.
The coronavirus risk is not mass death. People are dismissing the idea of doing any research because that seems (rightfully) unlikely. The risk is supply chain. Specifically, the relatively high probability of Korean and Japanese disruptions in the near future.
The impacts on China both intrinsic and psychological are still vastly under estimated. This is the largest containment/effective imprisonment via quarantine of human being in world history. People are assuming no ripples from that…
My fear is the reality that paying attention to any macro issue has lost you money for years has lulled people into complete willful ignorance exactly when a real issue has come along. The risk is not the plague, it is the supply chain, which is shockingly weak right now.
He’s right. Over the last decade we’ve been trained to simply ignore bad economic news and buy the dip. This is the effect of reckless central bank policy.
Now that there’s a real global crisis, we don’t know how to handle it. In my opinion, stocks should be selling off a lot more.
But they haven’t yet. We’re still within 1% or so of all-time highs. I believe we’re overdue for a stock correction. But crypto is harder to analyze.
In my opinion, the best play here is to continue to focus on bitcoin. Of all crypto assets, it is by far the one people most use as a flight-to-safety asset. That should give it a huge advantage if the world economy gets dicey for a while.
Altcoins are a much riskier play here. And I believe we should continue to underweight them in our crypto portfolios.
Good investing,
Adam