This year has been a tough one to be in the stock market while the crypto market has been on fire. Although both markets recovered off their December 2018 lows, the stock market stalled after February while the crypto market blasted higher.
Since the end of February, when the S&P 500 index (SPX) closed near 2,800, it has gone nowhere. After this past week’s gyrations, the SPX closed again near 2,800 on Tuesday, June 4th. For two months now it has shown zero progress.
In contrast, during that same period BTC rallied from about $3,800 to near $7,700 (its June 4th’s close), a 103% increase. BTC doesn’t respond to economic reports, earnings reports, or other financial market data. It does its own thing, often responding more to global events and speculation about the future for crypto.
Bitwise, a leading provider of cryptocurrency index funds, provided some research data to highlight the importance of adding just a little BTC to one’s investment portfolio. Adding BTC actually lowered the volatility of the total return over time, surprising many.
Bitwise discovered the return on an investment in a traditional investment portfolio (70% stocks, 30% bonds) from the start of 2014 to the end of March 2019 was 32%. Its monthly volatility was 8.1% over that period.
Adding just 1% BTC to the portfolio increased the portfolio’s return to 37% and slightly lowered the volatility to 8.0%.
If the BTC investment was 2.5% instead of 1%, the total portfolio would have increased 44% and volatility would have ticked marginally higher to 8.4%. This is a real eye opener to many fund managers.
We can be sure many will be looking to add BTC to their portfolios, especially if the stock market continues to weaken.
What’s ahead for Bitcoin
There might be one more new high for Bitcoin before continuing its price correction, but it’s looking like a larger pullback/consolidation into the summer has already started. As shown on the chart, this correction could take BTC back down toward a $6,100 support level by July.
The first support level is at $7,425; the low for the pullback as I write this newsletter (June 4th) is $7,427. This level was only minor resistance on the way up so it might not offer much support on the way back down (though at the moment it’s holding).
Assuming we’ll see a larger pullback develop, there are a few potential support levels between $7,425 and $6,100. It would be typical to see large price swings in both directions as it works its way back down.
Corrections are hard to predict so right now I’m simply making a few educated guesses about what might happen in the next month or two. But it would be very healthy for the longer-term bull market to see a larger correction in both time and price.
So strap yourselves in and prepare for more volatility and choppy price action for the next month or so.