Bitcoin?!? Umm...No
I don’t always watch CNBC, but when I do, I usually end up shaking my head in disgust…
Because the endless stream of fund managers that get invited on the air to share their thoughts on how investors should respond to the crisis du jour are not really there to help anyone at all. It is inevitable that any advice, suggestion or insight that some talking head offers up is a thinly veiled attempt to get others to buy into and inflate the value of some asset that they already own…
This is known as “talking one’s book” – with the “book” being one’s investment book. (And yes, it’s just like a bookie has a book…)
Case in point: this morning there was some meathead on CNBC saying that the mini-collapse of oil prices means there’s a recession coming, and this is why investors should own Bitcoin and other cryptocurrencies.
The exact quote was “The oil market is telling you we’re heading into a recession. Powell should pause and will be cutting rates sooner than we think. If there was ever a time to be in Bitcoin and crypto, this is why it was created.”
My god, man, get a hold of yourself….
Let’s take this one step at a time, starting with oil prices. It is true that oil prices act as a pretty good gauge for global growth expectations. Expanding economies use more energy which supports oil prices…and conversely, contracting economies use less energy and oil prices fall…
Fine. That’s an oversimplified formula, there’s a lot more going on with oil prices than economic growth. But that’s not why this guy’s “analysis” bugs me…
If you really want to talk about recession indicators, the bond yield curve is a better place to look. The yield curve has been inverted for nearly a year and history says that always means a recession is coming.
Now I know, these CNBC fund manager-types talk about the yield curve a lot, but they don’t really explain it. Or if they do, the explanation is not very helpful. But it’s really simple. Normally, the interest that bonds pay – the yield – is related to their duration, the length of time until the bond matures.
When you buy a bond it’s essentially a loan to the issuer, and clearly, you should make more money for lending your money up for 30 years than lending it for 2. But when the yield curve inverts, it means that you make more for lending your money for 2 years than for 30 years. The yield curve inverts because of liquidity…
When the Fed is hiking interest rates, it is taking cash out of the system. So, if you need cash, well, it’s gonna cost you more to get it. Especially for the short-term. Like, would you feel confident that you’d get paid back if you lent a bank money for 2 years? Mmmm, maybe not…and you’d certainly want more reward for taking that short-term risk.
But over 10 years, or 30 years, your money is more likely to get paid back. Because a lot can change in 10 years. Like interest rates. The reason the yield curve inverts is because investors expect cash to get more expensive in the short-term because of a weaker economy resulting from higher interest rates. But in the longer-term, bond yields are pricing in interest rate cuts from the Fed as it reacts to the recession it is creating.
So maybe we can cut that guy a bit of a break and say that bond yields have been forecasting a recession for a while, and oil prices are sounding the alarm that is imminent…
That still doesn’t excuse his suggestion that investors should buy bitcoin and cryptocurrency as the economy falls into recession…
Bitcoin?!?! Ummm…No…
Look, we’ve just seen two banks fail because they couldn’t raise enough cash to meet withdrawals. And Credit Suisse (NYSE: CS) is circling the drain for the same reason…
It’s a liquidity issue. There’s not enough of it. Companies are firing people and cutting spending to save money. Meta (NASDAQ: META) just announced another 10,000 people are getting canned. Electric vehicle (EV) companies like Rivian (NASDAQ: RIVN) are scaling back spending to increase production…
And somehow it’s a good idea for investors to buy Bitcoin right now?
Absolutely not.
I want to be very clear that I have no problem speculating on price movement. I trade out of the money call options that have no intrinsic value at all (like the C3.ai (NASDAQ: AI) call options i discussed last week)…
But at least with options trading, there is a connection between the option and the price movement of the underlying stock.
There is no such connection with Bitcoin. The price of Bitcoin is not connected to any stock, or bond, or gold… Bitcoin’s only connection is to the amount of money that is buying it, or selling it. It is the ultimate vehicle for speculation.
And again, I have no problem with speculation, whether it’s with Bitcoin or any other asset.
But to say “If there was ever a time to be in Bitcoin and crypto, this is why it was created” …holy moly…you think this guy might own some Bitcoin?
Bitcoin was not created to be a safe haven for your cash. No one is saying “hmm, I’m not sure my bank is safe, I better pull my money out and buy Bitcoin…”
Bitcoin is down 5% as I write. If it’s such a safe haven, shouldn’t it be rallying?
I’ll tell you straight out: if this economy goes in the tank and we start seeing real panic selling, Bitcoin is going to lead the way lower.
A Better Plan
Like I said, Bitcoin is down 5% today, the S&P 500 is down about 1.7%. That makes total sense. Because the S&P 500 is composed of actual companies that have actual tangible assets and actual revenue and earnings. This is where investors should be focused right now.
I can’t tell you for sure what happens to the U.S. economy next. And there’s no guarantee that stocks won’t go lower from here…
But I can tell you that this is not the time for speculation. This is the time to invest, to buy shares of companies that will be able to grow when we get to the other side of whatever’s ahead, whether that’s a week from now, or a year…
Think companies with plenty of cash, companies with solid business models and attractive market opportunities.
We’ll dig into some stocks you should be targeting on Friday. And yes, I will be talking about Rivian, Fisker (NYSE: FSR) and C3.ai (NASDAQ: AI), among others. So take care, and I’ll talk to you then…
Briton Ryle
Chief Investment Strategist
Pro Trader Today
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Twitter: https://twitter.com/BritonRyle
