Disclaimer: All views in this article are solely the author's opinions. You should not treat any opinion expressed in this article as a specific inducement to make a particular investment or follow a specific strategy, but only as an expression of his opinion. Before acting on any information, consider seeking advice from your own financial or investment adviser.
We live in dichotomic times of knowns and unknowns, risk and safety, fear and greed. Dickens' famous words from a "Tale of Two Cities" remind us that our world is making incredible progress in many areas. Yet, wars, pandemics, and a rise in global hunger hit us with painful realities. In financial markets, these oscillating effects between certainty and uncertainty drive the price of assets, which is undoubtedly the case for an investment like Bitcoin. We see this most obviously in Bitcoin's recent plunge to the $28,000 level.
Just around the time markets were putting in all-time highs, the federal reserve announced measures that would attempt to curb record-high inflation. They would begin to reverse quantitative easing by tapering. Tapering, in short, is the central bank lessening the rate at which they add assets to their balance sheet. On top of that, interest rate hikes have increased the cost to borrow, and thus, we've seen significant falls across many asset classes - especially those of higher "risk." Since November 2021, many investors have taken a "risk-off" approach to their strategy. Many have moved their money from high-risk buckets, like technology startups or crypto, into safer buckets, most notably, cash. At the time of publishing, the US Dollar Index is up around 15% in the last year. Bitcoin, on the other hand, is down 43% YTD. These are almost always inversely correlated. Investors feel more comfortable putting their holdings into "stable" assets, like cash, during uncertain times.
We are not offering financial advice, but we believe that a drop in the value of a cryptocurrency like Bitcoin means very little in the grand scheme of things. Large swings to the upside and downside are par for the course. Bitcoin is still one of the most secure and immutable forms of currency. The supply of bitcoin is capped at around 21 million, and this number will never change. Adoption rates continue to climb, and active bitcoin addresses continue to trend upwards. In sum, while large swings in the market can be unsettling for some, it doesn’t affect the underlying technological value of the asset itself.
The Bitcoin Fear and Greed Index is a helpful chart showing general market sentiment. At the time of publishing, the fear index is 10, with a current price of around $32,000. This shows tremendous fear. Comparatively, on Jan 1st, 2021, when Bitcoin was also $32,000, the index hit 95 - extreme greed. What does this tell us? Beyond the fickleness of many investors, Bitcoin needs time to establish new floors and new ceilings. Bitcoin, historically, trends upwards over time. When in doubt, zoom out.
Bear markets are "build" markets. These moments should remind organizations that they have not missed the crypto "bandwagon." Eventually, the market will decide that it wants to "risk-on," and asset classes like crypto will continue their upward trajectory. Per the pattern, investors will mitigate their risk by selling their gains or donating them to worthy organizations. Our advice to non-profits is this: Begin building your strategy now. The next crypto run-up could come like a thief in the night. As soon as it happens, donors will be eager to give. So, preparing your strategy and communications now is vital. If you are a paid subscriber to Engiven, we want to equip you with a booklet we put together called 90 Days to Success. If you'd like a copy, please reach out to email@example.com. If you're not an Engiven customer, you can sign up for free here.
Much like the Dickensonian 1840s, the world continues to experience a mix of the best and the worst of times. Through it all, our aim at Engiven is not to succumb to the emotionalism that easily inhibits wise decision-making. Alternatively, our job is to remain grounded in truth, fight for our mission statement, and continue to build frameworks that foster the best possible good. Join us in that call to action, and let's continue to make the world a more fruitful place. Onwards, and eventually upwards.