It turns out that summarizing the current status of cryptocurrency following the past several months is much more complicated than it looks. If one event were highlighted, it would be the November 2022 fall of FTX and arrest of its founder who was “popularly” referred to by his three initials, SBF.
As early as February 2022 during the “Crypto Bowl”, or Superbowl LVI, there were clues of cryptocurrency irrational exuberance. Since then, major cracks have revealed themselves in the crypto industry and beyond.
TGIF 2 Minutes – Crypto Quarterly for 1st Quarter 2023 will take a bit longer than previous editions. For perspective, consider several details from the December 2022 edition which concluded that cryptocurrency is not dead but on serious life support:
Hurricanes can come in various forms. Whether they be the recent Ian and Nicole or the staggering Sandy of 2012 they tend to strike in the fall season. Also, in the fall come U.S. elections and historically a bit of stock market volatility. Like the weather, markets are anything but predictable. Elections can lend themselves to predictability but there are always surprises too.
This year has had a mix of all these factors. Currently amidst high inflation the stock and bond markets are trying to digest an environment of much higher and increasing interest rates – exactly how much higher is an unknown. Also unknown is the post-election reality of future policy making in Washington, DC. Interest rates are “driving the economic bus” for the time being, and government policy making will be an ongoing force running alongside. Both will affect the markets in positive and negative ways over time.
Getting through hurricane season can be a relief – but only if it is known that the storm is over. Is the storm over or getting close to being over, and where does all this leave investors and savers?
In this issue of TGIF 2 Minutes – Crypto Quarterly, a less rosy update with the bright spot being that fees to trade crypto have gone to “free” in some cases. Binance, a world leader in Bitcoin trading volume, introduced zero-fee trading back in June. (Note that as recently as July 2022, the “CEO” of Binance still says there is no headquarters for the company, as it is “decentralized”.)
Value-wise, in a year that has been unkind to stocks AND bonds, Crypto stands out as an even bigger loser relative to traditional asset classes – by over double in a number of cases. Take for example the price of Bitcoin which started the year at approximately $46,310 as measured in US Dollars. Most recent prices of Bitcoin are around $20,098, or down over 55%. Coinbase, not a cryptocurrency but a crypto trading marketplace (among other technology functions), went public in April 2021 and is down around 78% since then. Compare these crypto-related price declines to the painful year-to-date performance of -21% in the S&P 500, -29% in the Nasdaq and -21.5% in the Russell 2000 which tracks small company stocks.
Will the Fed raise interest rates aggressively? Or will the economic threat of recession force the Fed to slow its pace of rate increases? The outcome in what is shaping up as a sort of “game of chicken” remains to be seen.
Inflation is raging – there is no question. Prices of items as basic as eggs, butter and milk are increasing at crazy high rates. This is not to mention price increases for meat and produce. Gas prices have become crippling, just as workers return to corporate offices even part-time. Restaurants are still raising prices for diners. Home prices are still going up, although the recent rise in mortgage rates may cool the craziness. Wage increases are still happening (and not keeping up with inflation but also feeding into inflation) although there may be moderation in wages coming. The list goes on.
These are crazy times, almost chaotic. Chaos is defined as complete disorder and confusion – and parts of the world and our lives may be nearing that point, or at least feel that way. How does an investor get financial satisfaction in times like these? Carefully and patiently.
“Carefully” can equate to:
having a plan that addresses saving, spending, taxes, & investments
being able to monitor and adjust the plan, perhaps with an adviser
then continually executing the plan.
The “patiently” part can be more difficult and is just as critical.
Clearly, war and invasions have far more repercussions than merely financial. But somewhat luckily, the financial toll in most cases, for us as Americans (exception September 11th), has been what hits closest to home. And unluckily financially speaking, the biggest savers and investors are then most affected by the financial toll of war and invasions around the world.
Currently, the world – most notably the Ukraine, Eastern Europe and Russia – is experiencing the effects of an invasion that (God help us) may or may not turn into a larger situation. Specifically, the financial effects of the Ukraine invasion by Russia are being felt far beyond Europe and Russia. US and worldwide stock markets are down both from late 2021 highs and most notably in late February.
In times of stock market weakness, similar to year-to-date in 2022, it is human to experience fear. Part of staying on course with a savings and investment plan takes into consideration that fear is part of life.
Most recently, a number of investors may be expecting – and would be wise to expect – a market pullback due to more than a decade of steady market gains. However, this realization does not necessarily lessen or eliminate fear. Here is where the “Greatest Chart Ever” offers needed perspective.* Over a period of more than 40 years of intra-year stock market performance, the chart illustrates valid reasons NOT to allow short-term market moves (monthly, quarterly – even yearly) to lead to poor investment decisions. Why? Please read on.
With the whirlwind of interest generated by December’s edition of TGIF 2 Minutes covering “To Crypto Or Not To Crypto”, demand exists for at least a quarterly dedicated to the topic of cryptocurrency. For those who are already crypto experts, this volume of “Crypto Quarterly” may be elementary but a great number of experienced investors admitted limited knowledge and appreciated the information.