Are we slated for a crash in Bitcoin?
There is no doubt the run up, post-US Presidential election, was strong. However, there are headwinds that could warn everyone of a tough few months.
Trump is being called the "crypto-President". Long term, his administration might do some beneficial things for cryptocurrency. That said, markets tend not to operate with an extended vision for the future.
Is it possible that we could see a pullback of 50% or more? This is not unprecendented for BTC so we must be prepared.
Uncertainty is in the air which does not bode well for Bitcoin (or the rest of crypto).
Contrary to what the maxis espouse, Bitcoin is not a hedge against inflation. Nor is it a flight to safety.
Bitcoin is the epitime of a risk on asset. That means, when investors are willing to take on more risk, Bitcoin is the logical choice. It can outpace the rest of the market, at least this was the case historically.
What we are left with is the situation where people have to decide what is coming up, especially with regards to Trump. He is coming in like a ball of fire, something that does not promote stability.
So what could unleash such a massive decline.
The threats of tariffs by Trump are leading to a great deal of uncertainty. We already see actions in Canada and Japan with regards to these threats. Countries are having to plan of how to counter whatever policies Trump implements.
Trump is stuck in the past. During his campaign, he mentioned how the US was able to fund its spending through tariffs. He was citing the late 1800s. It is evident that he does not realize how much the economy changed since that time.
We are not reverting back to the 1970s. The United States will not have a strong base of manufacturing jobs. We are entering the age of robotics. Any manufacturing that does return will see mostly machines in the plants. The days of 10K workers per shift, with 3 per day, are long gone.
Another issue is Trump's belief that countries pay tariffs. This is not the case. Buyers pay tariffs.
For example, if there is a $10K tarriff on a Mercedes that is imported, Germany is not going to send the US the money for that vehicle. Mercedes idoesn't pay either.
Instead, the price of the vehicle will be increased by $10K, hence the buyer is the one who suffers.
This is nothing more than a tax, causing prices to go up.
When this is implemented on a global scale, it can set of recessions in certain areas. If it becomes widespread enough, that will be global.
Jermone Powell made news this week with the forecast that the Fed will reduce the number of interest rate cuts next year. Markets hated this news and the thrashing started.
This is evident in the crypto markets as well as many stocks.
Why did the Fed takes this step? Like their counterparts at the Bank of Japan, they see what could be brewing if these threats are realized.
Regular readers know my stance on the Fed and they are nothing more than a propaganda machine. While their policies do not solve anything, Powell needs the ability to stand up and say "we are doing something". If things get very bad with the economy, he needs the proverbial powder in the keg.
Bitcoin is a high flying asset. The volatility is enormous. This means that, especially in the near term (6 months or less), things can get very wonky.
Is it possible to see a 50% drop in 3 or 6 months? Sure. Again, we saw this historically.
All eyes might be on the US but it is not the only game in town. Other countries are affected, dealing with both domestic and international decisions. As much as countries want to shut themselves off from what takes place elsewhere, it is not possible.
The automitive industry is already suffering. We see the European, Japanese, and American automakers in trouble. The headlines are very concerning. We cannot overlook the impact from this single industry on national economies. Both Germany and Japan realize this.
If things go south, Bitcoin is going to lead the charge. We know it tends to shoot up with more velocity than anything else out there. However, the flip side is also true.
People need to be aware of their time frame along with risk tolerance. Are you willing to ride the market down 50%? Will you need to make a move in the next 6-9 months? Or are you looking out 5-10 years with your BTC holdings?
Each individual has to ask these questions. It is easy to get caught up in the euphoria of the moment. Unfortunately, there is where people are often caught off guard.
