Last week, on Friday,the stock market gave people a bit of a scare, but as I wrote over the weekend the fear and steep drop probably meant that the stock market would actually bounce this week. We did bounce yesterday and I’m still hopeful that the market can start to rally before the end of the week even with what looks like will be a tough open today. The reality is that one day does not make a new trend even if it is a big gyration. It is slow motion trends that lead to long-term trend changes in the markets and that is why I am watching what is happening in the bond market over the next few weeks very closely, more so then today’s stock market action.
Bitcoin has also made a slow motion trend change over the past few months that has huge implications for what it will do next year. Bitcoin went through a tough almost 50% decline this past May down to 30,000. It then rallied back up to a minor new high early this month and topped again to fall with the Nasdaq and broad market last week. That October rally caused Bitcoin gurus to increase their higher price predictions and make even crazier claims about its future, but there is something that they are not telling you.
Check out this chart.
Take a look at the indicator on the bottom of this chart, which is the Bitcoin/$SPX price ratio. It’s a relative strength ratio that goes up when Bitcoin outperforms the S&P 500 and down when it lags.
That ratio peaked in April and did not make a high when Bitcoin briefly made a new all-time high the other week.
This means that Bitcoin is LAGGING the S&P 500.
Since April it is not beating the market.
It also is not acting as a safe haven as it just falls more than the stock market when it has a dip.
All Bitcoin is doing is trading more volatile up and down, but it is not beating the market. It’s more like a call option on the Nasdaq.
This is a huge warning sign, because things that lag the market tend to crash when the stock market has a simple correction.
So if the market corrects next year Bitcoin will crash.
It’s not a safe haven.
It crashed in March of 2020 and the Fall of 2018 when the stock market fell during those two periods too.
Bitcoin has always crashed when the market pulls back and is now lagging the market.
That means it is only good for daytrading and jumping in and out and completely useless now from a buy and hold or investment perspective.
It’s simply high risk, and despite the claims over the years by Bitcoin gurus, it still is not used by people as money or as a store of value in the real world. It remains inferior to stocks, bonds, commodities, and real world currencies as an investment and there is no sign that this will ever change despite Robinhood guiding their customers into crypto currencies when they open an account. For Bitcoin to become money it has to be easier to use than the US dollar and less volatile.
It is neither and never will be.
I opened up a Robinhood account several years ago and put a small amount of money into it. Last week I liquidated those positions and I plan on cashing out the account and moving all, but $10 into my main account. I don’t want anything to do with them ever again, as they are hurting people! I’m keeping the $10 in just so I can see the top 100 Robinhood most owned list as it will be full of short sell candidates when the time is right.
Yes, I still think the stock market can do ok the rest of this year once things stready, and I am not thinking of short selling now, but you gotta look ahead and so many junk stocks are owned by Robinhood customers and they are likely to be weak hands on the way down, as they just buy on whims, chasing action, and message board hype.
-Mike
