From March 11–12, bitcoin dropped a stunning 47%.
At the same time, the stock market was in the middle of a 37% free fall… and even gold dropped 12%. It seemed everything was correlated to stocks.
My inbox was full of emails from subscribers, worried that bitcoin was not the uncorrelated hedge they thought it was. At the time, I explained that bitcoin was down for its own reasons that had nothing to do with stocks.
After the dust cleared, we eventually found out a series of massive margin calls was triggered on a bitcoin trading platform. The platform offers up to 100-to-1 margin. It’s estimated about $700 million in bitcoin was forcibly liquidated.
While that was happening, a crypto Ponzi scheme was unraveling in China. The Chinese scammers were selling over $1 billion in stolen crypto at any price they could get.
The unfortunate timing of these two events – coinciding with the meltdown in stock prices – caused confusion among investors.
At the time, I counseled using the pullback as a buying opportunity.
Since then, we have seen bitcoin rise as much as 76% from its recent lows.
I’ve always maintained that bitcoin is one of the best hedges against chaos in the traditional financial world. And so far, that is proving true.
Despite its massive sell-off in March, bitcoin is in the black since January 1… along with the granddaddy of chaos hedges – gold.
Meanwhile, the S&P 500, Dow, and Nasdaq are down 14%, 18%, and 11% year-to-date.
So why is bitcoin weathering the coronavirus storm while stocks have been taking a beating (even after this remarkable rally)?
I’ll tell you today…
Bitcoin’s Supply Is Stable
Unlike most other assets, bitcoin’s supply is forever fixed. There can never be more than 21 million bitcoins. The only other asset that comes close to providing such a fixed supply is gold.
And it’s this fixed supply that is making bitcoin so popular right now. You see, just like how people have always used gold to protect the purchasing power of their money, bitcoin is emerging as a form of “digital gold.”
Investors are flocking to both gold and bitcoin to protect the value of their money from central banks’ reckless currency inflation.
My research estimates the governments of the United States, Europe, and China will spend nearly $6 trillion combined in stimulus money to rescue the global economy from the coronavirus pandemic.
The Federal Reserve just announced its own $2.3 trillion money-printing program. That’s on top of its pledge to buy an unlimited amount of assets that some analysts say could add another $5 trillion to the Fed’s balance sheet.
This unprecedented money-printing will dilute money so much that – 10 years from now – the purchasing power of the U.S. dollar could be cut in half.
And that is why I think everyone should own some gold and bitcoin right now. Of the two, I think bitcoin will have a bigger move higher.
As I mentioned above, unlike fiat currencies, bitcoin has a fixed supply. And starting next month, the incoming supply of bitcoin will be cut in half.
This decrease in new bitcoin supply is called, “The Halving.”
Remember, there can never be more than 21 million bitcoins in existence. Their issuance is strictly regulated by computer code.
Every 10 minutes, bitcoin “miners” compete to solve a complex mathematical problem using computing power. Right now, whoever solves the problem first is awarded 12.5 bitcoins.
When that halving event occurs in May, the bitcoin reward will drop from 12.5 to 6.25 bitcoins.
Over a year, that will drop the supply of new bitcoin coming to the market from about 675,000 to about 337,500.
This supply cut is embedded in bitcoin’s code. So it’s 100% guaranteed to happen.
Meanwhile, central bankers will be pumping trillions of new currency into the financial system.
So as the demand for the U.S. dollar will weaken (because the Fed is diluting the dollar by printing so many of them), the demand for bitcoin will skyrocket just as the incoming supply of new bitcoin gets cut in half.
This isn’t rocket science, friends. Bitcoin is going much higher from here.
Demand Is Surging
Safe-haven buying is only one part of the bitcoin demand story.
For instance, the World Economic Forum has projected that blockchain (bitcoin’s underlying tech) will store 10% of the world’s GDP by 2027. That’s $8.6 trillion – a 295,762% rise from today’s $2.9 billion.
And physical delivery of bitcoin on Bakkt is at record highs – up 44% since last month… Meanwhile, brokerages like Fidelity and TD Ameritrade are expected to roll out crypto services to their clients.
Friends, we’re on the verge of 500 million stock investors being able to buy crypto with just one click of their mouse. This is happening just as demand for safe-haven assets is exploding. It’s a phenomenal mix that will ignite a powerful rally in bitcoin.
So if you’re looking to build your exposure to crypto, start with bitcoin. We generally recommend an allocation of up to 2% for cryptos.
Remember, even a small allocation can make a difference. Cryptos offer you a chance to make asymmetric bets. So you only need to invest a tiny stake to have a chance at life-changing gains.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. As I mentioned above, when central banks pump more and more money into the economy, investors will flock to safe-haven assets like gold and bitcoin.
I’ve put together two reports on how to play the coming boom in both assets in my flagship Palm Beach Letter service. To learn more, click here.