By Nick Rokke, analyst, The Palm Beach Daily
“Will Bitcoin ever rebound?”
“Bitcoin Price Crashes as it’s Branded a ‘Failed Experiment’”
“Bitcoin price falls by 20% in dramatic crash”
“Is This the Beginning of the End of the Bitcoin Bubble?”
You might think that all these headlines were from last week.
If you do, you’re wrong.
The first is from a January 15, 2015 CNN article. The second from the January 15, 2016 edition of Newsweek. The third from the January 5, 2017 issue of The Daily Telegraph.
Only the last one is from 2018 (the January 16 edition of The Atlantic).
Bitcoin has had a wild ride to start the year. Last week, it fell over 20% in less than 24 hours. And it’s down nearly 40% from its December high.
Every time bitcoin crashes, the mainstream media writes it off. In fact, bitcoin has been declared dead so many times that we’ve lost count.
By now, regular readers should be familiar with bitcoin’s volatile swings. But we know they can be emotionally jarring. That’s why at the Daily, we preach staying rational… especially when the markets turn against you.
We remain firm believers in bitcoin. Despite the recent crash, we’re still up 2,597% since recommending the cryptocurrency in April 2016. And if you follow our plan and position-size correctly, you can ride out these storms.
Today, I’m going to put this recent drop into perspective… and hopefully keep you from deviating from your investment plan.
Bitcoin’s January Effect
As I mentioned above, bitcoin is down almost 40% from its December high. That makes it the fourth year in a row that bitcoin has crashed in January.
Over the past three years, bitcoin has pulled back an average of 30% in January. But after stumbling at the start of the previous years, it’s bounced back each time…
Here’s my theory: Bitcoin investors were waiting until January to sell so they could delay paying taxes on their profits until the following year.
Every time we sell an investment, there’s a tax consequence. If you have a gain, you owe money. If you have a loss, you might be able to write those losses off. And you can use the offsetting losses to your benefit.
Selling your losers in December can offset your tax liabilities the following year. But if you want to delay paying taxes on your winners another full year, you can sell them in January.
This may be the case with bitcoin.
Or maybe it’s just a coincidence. We’ll never know for sure. What we do know is that, just like before, bitcoin quickly regained those losses.
Stick to Your Plan
No one likes seeing an investment plummet over 30% in a week… You feel a knot growing in your stomach… you get light-headed… and just want the pain to stop.
Emotions take over and you click the sell button.
But that’s usually right near the bottom. And the people who did that last week appear to have sold at the bottom. That would have been the irrational thing to do.
We’ve sat through bigger dips before. Just last summer, the entire cryptocurrency market dropped 50%. But after that harrowing drop, almost all cryptocurrencies went on to make new highs the rest of the year.
If you can’t stomach this volatility, it probably means you have too much invested in cryptocurrencies. If you do, then you need to follow our cryptocurrency investing plan:
Allocate no more than 2–5% of your investable assets to cryptocurrencies. They’re smart speculations, so don’t bet the farm on them.
Position-size properly. If you have a smaller account, that means no more than $200–400 per position; and for larger accounts, $500–1,000 per position.
Diversify. Don’t put all your eggs in one basket. Invest in several quality positions.
Hang on to your bitcoin. We believe the dip is temporary… just like it was in the past three years.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. How do you cope with cryptocurrency volatility? Tell us your action plan right here.
Betting Big on AI: Artificial Intelligence (AI) demands a lot of computing power. And that’s creating a lot of new startups in the semiconductor world. Semiconductors make the chips that are the “brains” of computers and smart devices. Today, AI requires more powerful chips than those made by stalwarts like Intel and Qualcomm.
According to The New York Times, at least 45 startups are working on chips that can power tasks like speech recognition and self-driving cars… and at least five of them have raised more than $100 million from investors. Venture capitalists invested more than $1.5 billion in chip startups last year, nearly doubling the investments made two years ago. This is a trend we’ll continue to watch closely.
Better Learners Than Humans: Meanwhile, researchers say AI can learn to read better than some of the best human students. AI programs built by Alibaba and Microsoft beat humans on a Stanford University reading comprehension test. The test was devised by researchers at Stanford to measure the growing reading abilities of computers. Alibaba says, “This is the first time that a machine has outperformed humans on such a test.”
AI is causing disruption in many industries, including factories and customer service. The best way to get in on this trend is to buy chipmakers.
Virtual Practice: Nerds aren’t the only ones playing with virtual reality… so are jocks. And it’s making them better players… Minnesota Vikings quarterback Case Keenum had a breakout season in 2017, throwing a career-best 3,547 yards and 22 touchdowns. Keenum credits his performance to STRIVR, an industry leader in virtual reality training. Using the program, Keenum can comb through a few hundred reps as part of his final preparation in 20 to 25 minutes. And he’s not the only one. Many teams in the NFL and in college football are using VR to train players, according to ESPN.
Sports isn’t the only industry adopting VR. We’re seeing it take off in medicine and engineering, too. Like AI, we’ll be looking for ways to profit from this new technology.
A reader disagrees with marijuana legalization (“The War on Some Drugs”)…
From Thomas C.: In a recent issue, you asked readers, “If you’re at all interested in riding the pot stock wave…” No, I have no interest in supporting an industry that is destroying my state of Colorado and the youth of my country.
And praise for crypto guru Teeka Tiwari’s recent update on volatility (Palm Beach Confidential subscribers can watch it right here)…
From Peter E.: Ah… Pastor T. Feels like I’ve just been to church! Nothing like a reminder that the sun continues to rise, the world continues to spin. Keep on looking out for us. Love the wisdom.
After predicting the No. 1 Stock on the S&P 500, this Silicon Valley insider is revealing his No. 1 pick for 2018. Click here for more…