Bitcoin Is Marked As Crypto Winter Wiping Billions From Market Cap

Some of you may remember the “crypto winter” of 2018. Bitcoin crashed 25% in January of that year, while Ether experienced three straight months of double-digit losses.

Even though we are entering the summer months, last week we might remember another great crypto winter. The entire digital ecosystem has fallen under selling pressure, with LUNA leading the way. The algorithm’s “stablecoin”, which was designed to remain pegged to the US dollar, has virtually lost all of its value in one of the fastest and most brutal sweeps I’ve ever seen.

Meanwhile, shares of cryptocurrency exchange Coinbase, which went public in April of last year, are down about 85% from their high in November 2021, when the price of bitcoin topped $68,900.

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As annoying as all of this sounds, I don’t think it’s time to panic. Previous cryptocurrency sell-offs have been much worse, as I’ll show you shortly.

Just as they did in those previous cases, critics of Bitcoin and cryptocurrency in general are already taking winning streaks and writing I-tell-you-you so and Twitter op-eds. You may have come across a little yourself.

But if you had bought while they were celebrating, you would have seen some great returns. At the end of 2018, Bitcoin was on sale as low as $3,200. Even at $30K, which bitcoin is currently trading with, this represents an increase of nearly 840%.

Having this level of conviction is hard, but it can be very rewarding at times.

We’ve been here before

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It is important to keep in mind that we have been through a painful cryptocurrency survey before. We’re still in the early stages of this emerging technology, after all, so volatility is still high.

Take a look below. We’ve been in a crypto bear market since November/December 2021, but the losses so far haven’t been as bad as the previous pullbacks. Note that this shows the percentage change in the total cryptocurrency market capitalization from peak to trough, so results vary depending on the digital asset.

In 2018, the group’s collective market capitalization fell by more than 87%, leading many on the sidelines to announce the death of cryptocurrency entirely. Among the most vocal Bitcoin critics is Peter Schiff, who chirp In November of that year “not making the mistake of thinking that buying #bitcoin at under $3800 is a bargain.” You can save this under “Tweets that are not old”.

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Bitcoin oversold…but could drop further

At $30K, Bitcoin is more than 55% off its all-time high. If you love Bitcoin, this one should appeal to you. Imagine you’re watching a pair of controversial new Balenciaga shoes, which retail for $1,850. If the fashion house were to cut 50% of the price tomorrow, you’d probably buy it.

Based on the 14-day Relative Strength Index (RSI), Bitcoin is currently oversold, but not as oversold as it was in the recent past. As attractive as I think this entry point is, some investors may choose to wait for the bitcoin price to register a more decisive buy signal. Historically, buying at these falter levels has been profitable.

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Once again, cryptocurrency is still an asset class in its infancy. Some popular investors are predicting that Bitcoin will eventually be worth $100,000, $1 million or more. It could do well, but it’s currently priced closer to $0. It is a risk and an opportunity at the same time.

Stocks and ETFs are under pressure too

So far, I’ve only been focused on bitcoin and cryptocurrencies. The truth is, it’s not the only risky asset under stress right now, as many of you brave enough to peek at your 401(k) are well aware.

Tech stocks in particular have taken it to a chin as the Federal Reserve signaled a more aggressive tightening cycle and continuing global supply chain turmoil. Shares of Richard Branson’s Virgin Galactic are down nearly 88% from an all-time high. Robinhood 87% off; Peloton exercise equipment company, down 84%; Pinterest, down 74%.

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The hugely popular Invesco QQQ ETF, which tracks the Nasdaq 100, has lost about a quarter of its value this year so far. Cathie Wood’s flagship ARK Innovation ETF is down nearly 55% since the start of 2022.

April was already the toughest month for ETF issuers. According to the Financial Times, net inflows into global ETFs fell from $117.4 billion in March to $27.4 billion in April, the weakest monthly rate since the pandemic began.

US-based equity ETFs saw net outflows of $25.6 billion in April. Investors extracted $10.2 billion from the Vanguard S&P 500 ETF (VOO) alone, which ended up being the largest monthly withdrawal of any Vanguard product ever.

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However, few people would say stocks are “dead”, “highly risky” or uninvestable as a result.

Through it all, gold has shown resilience

I am happy to say that despite the crashes happening all around us, gold has remained very resilient. Year-to-date, the yellow metal is down a slight 1%. This has helped savvy investors offset some of the losses they may have suffered so far this year.

If you’re concerned about fermentation stagnating, gold may be an option. As I showed you before, gold and gold mining stocks outperformed the S&P 500 in the last four economic downturns, between 1987 and 2020. This is precisely why most people invest in the metal as a store of value.

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As always, I recommend a 10% gold weight, with 5% actual gold and 5% in high-quality gold mining stocks, mutual funds and ETFs.

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