Some retail investors who hold Bitcoin may be on the verge of selling, given the several months of sideways and downwards movement in the price. Perhaps many of these aren’t in Bitcoin because of its libertarian properties, and they are scared that it will go down heavily. However, where will they put the money if they sell?
The decision to sell
You have a significant portion of your savings in Bitcoin. The market has turned bearish, and you are afraid that those gains that you made are going to fritter away, or perhaps you are sitting on unrealised losses and you are scared that your position will sink even deeper into the red. So you make the decision to sell.
The first thing to realise when you sell your Bitcoin, is that you are making a conscious decision to buy fiat currency with it, whether that be dollars, euros, pounds etc.
You really must step back and think this potential transaction through. You are going to swap the scarcest, and hardest asset on the planet into paper currencies, and this at a time when central banks across the world are on the brink of what could be the biggest currency printing spree in history.
Huge money printing on the way
The interest on the debts has to be met, and these debts have to be rolled over, to be dealt with further down the road. The world economy is about to enter recession, if it hasn’t already done so in certain countries. Therefore, at least as the United States is concerned, as the biggest debtor nation in the world, massive amounts of money printing is practically a foregone conclusion.
If one takes into account that around a third of purchasing power has been lost by consumers since Covid, that is akin to a 33% cut in your wages, and in your savings.
So are you really going to sell your Bitcoin and keep the proceeds in cash? Or perhaps you are a bit more abreast of what is happening, and you know that cash is an ice cube, which, aided by debasement and inflation, is melting at the rate of around 15% in purchasing power per year. Therefore, you are going to use the fiat currency from the Bitcoin sale to buy another asset.
What about buying alternative assets?
For the last few decades, a stocks and bonds portfolio was the way to go. However, this strategy has now bombed. Who wants to buy government debt in these uncertain times, and although stocks are still on the way up, aren’t they pretty much overvalued now?
Hard assets such as gold, silver, and real estate are certainly worth thinking about. At the very least, holding these assets will slow down the decrease in wealth caused by central banks debasing the currencies, but can the gains made with these assets match the 14% per year required to keep one's head above water? Very unlikely.
So, unless you are a very successful investor, and you are able to research and buy into certain tech stocks that could make the required 14% and perhaps well beyond, your choices are limited.
A longer time horizon is crucial
The argument for investing in Bitcoin is heavily reliant on each person’s time horizon. If you are counting on making a quick investment that you will be selling in a few weeks or months, then perhaps Bitcoin isn’t for you.
It has been proven over the last few bull cycles, that unless you are a very successful short term trader, the biggest gains in Bitcoin are made in the period of just a week or two, so being out of the market is so much riskier than being in it, and those who just hold are typically rewarded with huge gains over each cycle.
There is also the 4-year cycle to take into account. Typically, there are 3 years of bull market, followed by around a year of bear market. For some, watching Bitcoin make a potential 70% reversal during the bear market is just too much to stomach.
It’s the institutions that will end up with the lion’s share of Bitcoin
A real problem here is that the average retail investor may not be able to hold their Bitcoin through these down periods, because they have bills to pay, and expenses to meet. Therefore, as usual, it is probably going to be the institutions that end up with the lion’s share of the Bitcoin in circulation.
This probably isn’t what Bitcoin’s creator, Satoshi Nakamoto, had in mind when he launched Bitcoin as a counterweight to the excesses of banks, and a fiat currency system that has ravaged the lower and middle classes for many decades.
So, if you are still going to sell your Bitcoin, so be it. Let it hopefully be to pay off pressing debts, or even better, to take some lifestyle chips off of the table. For those holding strong - more power to your elbow.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
