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Is this the beginning of the end or the end of the beginning for Bitcoin and the cryptocurrencies movement?

Last week Bitcoin lost over 20% of its value with a 10% drop on…
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Last week Bitcoin lost over 20% of its value with a 10% drop on Thursday alone, briefly taking the original and market-leading cryptocurrency’s value below $26,000 (circa. £21,000). It has since recovered to a little under $29,630 but has still lost more than half its value since a record high of $68,991 (£56,512) set last November.

The rest of the cryptocurrency and digital assets market has suffered a similarly sharp decline since the end of last year, widely reflecting the flight from risk that has hit tech sector growth stocks hard. Last week Ether, the second largest cryptocurrency and connected to the Ethereum smart contracts blockchain platform, lost 26%, while Solana and Cardano, two smaller cryptocurrencies, lost 41% and 35% respectively.

bitcoin to usd

Source: CoinMarketCap.com

At its historical peak in November last year, the global cryptocurrency market was worth around $2.9 trillion. It is currently worth around $1.2 trillion. That represents a decline of almost 60% and means any investors more heavily exposed to cryptocurrencies and digital assets like NFTs, which have also seen their valuations routed, will have lost considerable sums. Especially anyone unfortunate enough to have invested towards the peak of the market.

The steep losses are problematic for the cryptocurrencies market in more, and deeper, ways than a market crash, painful as they can be. Recent losses have not only shown correlation to the slump in stock markets, especially for growth stocks, but have exceeded them. The tech-heavy Nasdaq 100 is down 25% for the year-to-date while Bitcoin is down almost 37%, Ether over 45% and Cardano by almost 60%.

Those losses are difficult to reconcile with the narrative that has underpinned the rise of cryptocurrencies over the past several years. Bitcoin, and then the multiple other cryptocurrencies and tokens built on the digital ledger blockchain technology it introduced, were supposed to offer an alternative to the perceived failings of traditional financial markets.

Cryptocurrencies were supposed to be the antidote to high levels of inflation hurting growth stocks because it means the future revenues aggressive valuations rely on are suddenly worth less. And are less certain with recession now broadly expected across much of the world.

Because the number of Bitcoin, and the other cryptocurrencies that followed it, is capped from the beginning (in the case of Bitcoin the cap is set at 21 million), it was positioned as an inflation haven. Fiat currencies like the pound, U.S. dollar, euro and yen, lose value when central banks print more as part of the quantitative easing policies designed to stimulate the economy that have become almost baked into developed economies since the financial crisis of 2007-08.

The amount of money printing that spurred the economic recovery from 2009 onwards, a strategy that was again powered up when the Covid-19 pandemic struck, has been seen as an inflation risk in some quarters for years. For a while, it looked as though the Fed, Bank of England, European Central Bank and other major central banks might have managed to tread the tightrope.

But supply chain issues resulting from pandemic interruptions last year saw inflation start to rise into dangerous territory. That was compounded by the outbreak of war in Ukraine this year after Russia invaded its neighbour in late February. Economic sanctions brought against Russia, and Ukraine being thrown into chaos by a war on its territory, pushed up the prices of energy commodities, metals and agricultural commodities.

inflation rate uk

Source: ONS

That has seen inflation spiral out of control from a little over 6% in the UK in February, still triple the 2% target, to an expected 9% this week when figures are published. The Bank of England now expects it to peak at over 10% in the early summer and most economists expect rates to remain elevated for the next couple of years.

Bitcoin and other cryptocurrencies, for whom the rate of new units being minted and introduced into the market can’t be changed regardless of external factors, were supposed to be a safe haven from fiat currency debasement. Instead, their exchange values have slumped by far more than the loss of purchasing power experienced by fiat currencies over the same period.

Why have Bitcoin and the wider cryptocurrencies market lost so much of their value?

It turns out the cryptocurrency valuations, like the naysayers said all along, were firmly in bubble territory, driven up by the kind of speculation that is always so obvious as soon as the bubble has burst. And they haven’t proven a hedge against inflation at all. In fact, quite the opposite; inflation has been the root cause of their sharp decline.

The inherent, immutable scarcity of cryptocurrencies hasn’t helped them preserve their value through high inflation for one simple reason. Cryptocurrencies are not used as currency. You can’t actually buy anything with them. Or at least not much.

That means, at this stage of their development, cryptocurrencies behave more like a commodity than a currency. But a commodity that has no innate value because it can’t be used for anything, like oil, iron ore, or wheat are used to provide power, build things or be consumed as food.

That realisation has seen Bitcoin and other cryptos instead compared to gold as a digital store of value. Gold also has little practical use other than as jewellery and to a limited extent as a conductor in some electronics. Gold’s price is mainly influenced by the demand for it as a store of value. Which is why it tends to rise when financial markets crash.

But gold’s role as a commodity that acts as a store of value has been ingrained in human culture and economics for millennia. When push has come to shove over the past several months, financial markets have shown they don’t believe in Bitcoin’s inherent worth as a store of value, as a digital alternative to gold.

And right now, cryptocurrencies have no other practical use. Bitcoin can’t be used as a currency, nor can other cryptocurrencies. Ether and XRP, the cryptocurrencies that power the Ethereum and Ripple (a blockchain-based financial clearing system) blockchain platforms, theoretically have some practical utility.

But these blockchain platforms have not become embedded in the everyday economy in the way their proponents expected them to become. Plenty of big companies are or have experimented with blockchain systems. But at least for now, these initiatives remain pilot projects and many have been abandoned altogether.

Overall, blockchain technology remains at a nascent stage of its development and there isn’t a single blockchain solution that is strategically crucial to any company in the real world economy outside of the crypto space. That limits demand for their tokens other than from financial speculators. And the fact pure cryptocurrencies like Bitcoin, designed and positioned as an improved alternative to fiat currencies, still have little to no practical use in the real economy means their value was also reliant on demand from speculators.

A bubble occurs when the value of an asset is in the majority founded on a speculative future, rather than genuine economic fundamentals. That’s why the valuations of high growth technology companies have dropped so significantly this year. And why companies still to generate a profit, or even much revenue, have been hit hardest.

And it’s also why cryptocurrencies have plunged. They are, it has suddenly become clear, comparable to the electric vehicle companies that were valued at billions last year without having so much as a working prototype to support investor optimism for their future.

Will cryptocurrencies bounce back more sustainably like online business models after the dotcom crash?

None of that is to say what we are seeing now is necessarily the beginning of the end for cryptocurrencies and blockchain technology. The fact that it is now patently obvious valuations were in a massive bubble doesn’t mean cryptocurrencies, digital assets and blockchain have no future.

The most obvious parallel is that of the bursting of the dotcom bubble in 2000. Online businesses that ran at a loss and generated minimal to no revenues were valued at tens and hundreds of millions by investors convinced of their future potential. It turned out they were right. Just a decade or two early.

nasdaq composite

The chart above of the Nasdaq composite clearly shows the rise then fall of the tech-centric exchange in the runup to the bursting of the dotcom bubble in 2000. While there was something of a recovery between 2003 and the onset of the financial crisis in 2008, tech valuations remained muted until roughly the last decade when the economy truly started to digitalise. That has led to the huge revenues the biggest tech companies like Apple, Amazon, Alphabet and Microsoft now generate.

Tech valuations again formed a bubble from March 2020 until the end of last year as a result of the Covid-19 pandemic and enthusiasm for the ‘acceleration’ of the digital economy. And also, it is now clear, heavily influenced by the cash central banks flooded the system with in an effort to mitigate the economic impact of the pandemic.

Cryptocurrencies, quite possibly a new regulated generation that prevents them from representing an easy option for money launderers and others involved in criminal activity, could make a similar recovery in years ahead. And blockchain technology could also evolve over the next several years and become integral to companies and other organisations including civil service departments.

But like tech companies after the bursting of the dotcom bubble, cryptocurrency and blockchain organisations will have to build back sustainably. And future valuations can be expected to remain much more tied to economic fundamentals.

At least until the next bubble forms.

The post Is this the beginning of the end or the end of the beginning for Bitcoin and the cryptocurrencies movement? first appeared on Trading and Investment News.

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Economics

An Investor’s Look Back for 2022

As we approach the end of June, now is a good time to look back over the market to see what has been happening. The price action is in the bottom right…

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As we approach the end of June, now is a good time to look back over the market to see what has been happening.

The price action is in the bottom right corner of the charts, whereas, at the end of 2021, it was in the top right corner of the charts. Who could have seen the problems coming? I think the technical analysis arena did an excellent job of showing the risks for downside momentum to increase.

On December 17th, I recorded a video about the technical problems aligning in the market and how they created the situation for a rough start to 2022.

A historical look back

In six-month increments, let's take an educational look back on what has been happening.

June 2021

Starting in June 2021, we came off the effervescent high of the SPAC boom. As the book Reminiscences of A Stock Operator highlights so clearly, when there is an abundance of money trying to enter the market, the bankers will respond with new offerings. Nowadays, venture capitalists have all the data they need to be ready to hand over these companies at lofty valuations and step aside for the downside slide. By June 2021, the SPAC announcements had slowed to a relative crawl compared to the 4th quarter of 2020 and the first quarter of 2021.

The defensive side of the market was out of favour, still showing positive returns to their investors, but vastly underperforming. Energy raged forward as the vaccines were rolling out, suggesting the economy would surge with post-pandemic freedom. More on that later. Real Estate and financials were on fire. Interestingly, the growth areas of discretionary, communications and technology were middle of the pack.

December 2021

As the second half of 2021 rolled in, the market changed significantly. Communications and industrials vastly underperformed everything. Technology was back to a glory story, while discretionary and real estate continued to flourish. Financials were in the bottom third. Materials, energy and defensive names were middle of the pack.

By late December, we were also narrowing our focus on the Sexy Six large cap names that kept holding up, even while there was a large breakdown in many of the trendy areas of the market. We didn't know it at the time, but the November high in the Nasdaq was behind us. The move to electric cars and the investment theme around them came and went. Copper made a high in May 2021 and most of the metals moved sideways for the remainder of the year. Oil continued its steady climb in a big bull market that kicked off with the vaccine announcements fourteen months prior.

June 2022

As we turned the corner into 2022, almost all of the upward momentum was focused in energy. Technology stocks, including semiconductors and software, moved down meaningfully as the sexy six slowly let go. Alphabet, Meta and Amazon were the early leaders to the downside. Consumer discretionary and communications dropped hard.

By the end of June, the continuous slow demise of investors' love for the technology space came to the fore. By March, investors were touting the start of a new bull market in Energy. After a 1000% gain in the oil and coal stocks, the relative strength community reluctantly decided it was a new bull market in fossil fuel energy. (You can't make that stuff up!) Still, the technology investment community has been reluctant to dive into the dark side. While the tiger cubs watched 50% of their asset valuations disappear, they couldn't muster a shift into the best performing sector for the past 18 months.

To end the quarter, the financials wobbled sideways but slowly moved lower. On Friday, June 17th, the bank ETF closed at new 52-week lows. Commodity stock markets like Australia and Canada dropped meaningfully as oil names sold off hard. Oil stocks quickly plummeted for 10 days from new highs to their 200-day moving averages, casting down 25%. The technology names continue to be sold as inflation roars. The Fed is speeding up their time line for rate hikes as the economy slows quickly under the pressure of firm gasoline prices and rising food prices.

What's next?

The graph below shows the stock market price/earnings ratio (P/E) ticking down over the past 6 months. The move down is a 20% drop from all-time highs. Because this is a 100-year chart, the log scale makes the move down look small. An arithmetic chart would show this as a 20% plunge of the entire chart height. With the Fed continuously providing a trampoline for the markets from 2008 to 2022, the market has stretched into higher and more extreme valuations compared to history. Since the early nineties, the market has hugged the red line a lot more than the middle of the range at the blue line. Now that we are below the red line, we are in a relative value area for investment managers, as they have seen the market above the 20 P/E level most of their careers.

The next move for the market is unknown, but the fight between the headwinds of inflation forces and the desire for investment managers to make money before year-end should be an epic battle. Throw in the US Mid-terms and that adds more pressure.

The strength indexes we use at the Osprey Strategic website to evaluate when to put money to work are trying to turn up. If you are interested in getting help evaluating the market, check out the one-month trial at $7 on the homepage of OspreyStrategic.org. We are looking for the fourth buy point of the year right now. The last three were very short. Will this one be the one that extends into the next bull market?

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Economics

Stocks That Do Well in a Recession: Top 6 Companies to Buy

Here are six stocks that do well in a recession with strong cash positions, brand power, and market positions.
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New predictions from Goldman Sachs (NYSE: GS) show a 30% chance of a recession in the next year. As a result, investors are scrambling to find stocks that do well in a recession to protect their returns.

Inflation unexpectedly rose 8.6% from last year, its highest since 1981. Meanwhile, the Fed is aggressively hiking interest rates to combat it.

Raising interest rates can slow economic growth. Although this can be good for taming inflation, there are concerns it can spark a recession. With this in mind, companies are already seeing slower growth with higher inventory levels.

For example, the CEO mentioned changing consumer behavior on Target’s (NYSE: TGT) Q1 earnings call. As a result, softer sales are leading to inventory levels well over pre-pandemic levels.

At the same time, some industries outperform during recessions. For instance, discount stores, fast food, and healthcare saw higher demand in the past few recessions.

During a recession, consumers are more cost-aware. They look to save money. So, cheaper options or necessities are solid investment ideas.

Below are six stocks that do well in a recession with strong cash positions, brand power, and market positions.

What Are the Best Stocks That Do Well in a Recession?

A recession means the economy is shrinking. Not to be confused with a depression, a recession means a few quarters of slower economic growth.

So far, U.S. GDP shrank 1.5% in the first quarter. Yet the Atlanta Fed estimates 0% growth in Q2. Will we see more damage in the second quarter with inflation and labor cutting into costs?

Investors are piling into defensive stocks like food and healthcare. Check out the stocks that do well in a recession below to get your portfolio back in the green this year.

No. 6 Mckesson (NYSE: MCK)

  • Industry: Healthcare
  • Revenue Growth: 11%

Mckesson is the largest U.S. pharmaceutical distributor. As such, the company plays a critical role in the healthcare industry.

With expanding access to health care and a growing population, Mckesson is well-positioned to continue growing. Total U.S. prescription sales expect to reach 1.4T by 2026. Not only that, but MCK is streamlining the business, focusing on high-margin opportunities.

If a recession does happen, people still need their medicine. And Mckesson is one of three drug wholesalers handling over 90% of medication.

No. 5 TJX Companies (NYSE: TJX)

  • Industry: Discount Retailer
  • Revenue Growth: 32%

TJX Companies is well known for its fleet of discount stores, including TJ-Maxx, Marshalls, and HomeGoods.

The discount retailer is off to a strong start this year. Though sales missed slightly, EPS and profit margins improved. The performance shows the leading off-price retailer’s position as a consumer favorite.

TJX’s business model helps them catch trends for 20% to 60% off regular prices. Furthermore, the company will likely benefit from retailers offloading high inventory levels. If there is a recession, shoppers will continue looking for deals, and TJX is the best in the business.

No. 4 Coca Cola (NYSE: KO)

  • Industry: Soft Drinks
  • Revenue Growth: 18%

Coca-Cola is another brand favorite with a dominant market position. In fact, Coke owns and markets five of the top six nonalcoholic drinks globally.

The drink maker has an advantage, though. Coke can raise prices to offset the higher costs and still sell. On top of this, the company focuses on high-potential areas such as coffee and low sugar.

Coke grew revenue by 18% in the first quarter with a better product and price mix. Moreover, KO stock is holding up well this year as investors rush for safety.

No. 3 Mcdonald’s (NYSE: MCD)

  • Industry: Fast Food
  • Revenue Growth: 21%

As the largest fast-food company in the world, Mcdonald’s is a go-to favorite for fast, cheap food.

When consumers look to save money, expensive food is usually one of the first to go. For this reason, Mcdonald’s stock outperformed in 2008. Can Mickey D’s do it again?

The company’s growth strategy seems to be paying off so far. Global comp sales rose almost 12% in the first quarter while digital sales surpassed $5B.

Lastly, Mcdonald’s continues expanding its market share by focusing on a modern, digital transformation. However, below are the top two stocks to buy that do well in a recession

No. 2 Walmart (NYSE: WMT)

  • Industry: Discount SuperMarket
  • Revenue Growth: 2%

Walmart’s position as the largest global retailer continues to grow. By expanding into other revenue streams such as Walmart +, healthcare, and financial services, Walmart is further improving its earnings growth.

For example, comp sales have been growing significantly since last year. Not only that, but sales are increasing across the board.

Though inflation is shrinking Walmart’s bottom line, the company is in a strong position as we advance. The ability to lower prices during challenging times has worked out in Walmart’s favor. With this in mind, Walmart stock also grew during the 2008 recession.

No. 1 Dollar Tree (NASDAQ: DLTR)

  • Industry: Discount Store
  • Revenue Growth: 4%

After the first price rise in company history, higher margins are giving Dollar Tree new life. The hike is helping the company overcome higher costs. At the same time, the extra earnings allow DLTR to expand its selection.

Dollar Tree hit a new quarterly EPS record in Q1 of $2.37 as a result. It also opened 112 new stores in the quarter.

Meanwhile, the company plans to keep the momentum rolling with investments to add profitable growth. For example, Dollar Tree plans to upgrade data analytics, store systems, etc.

The company has a high return on invested capital (ROIC). In other words, the company is excellent at adding value for investors and consumers. To illustrate, DLTR stock gained almost 61% in 2008.

Will Buying Stocks That Do Well in a Recession Boost Returns

Recessions can cause high unemployment and painful losses. We have seen it before. But, buying stocks that do well in a recession can help buffer your portfolio from risk.

Don’t get me wrong, investing in a recession is challenging. Most assets lose significant value. Yet, a handful of companies see higher demand. With this in mind, these are the companies you will want to focus on.

For example, Walmart and Dollar Tree increased shareholder value during the last recession. With superior low-priced business models, they were able to attract cost-aware shoppers.

The most important things to consider are market position, brand power and the nature of the business. Companies with necessary items such as food, health care or utilities tend to perform well.

The post Stocks That Do Well in a Recession: Top 6 Companies to Buy appeared first on Investment U.

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Stocks

Shiba Inu Price Prediction: Buy When Others Are Fearful?

When making a Shiba Inu price prediction, there are two big historical events to look at for this popular crypto.
The post Shiba Inu Price Prediction:…

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When making a Shiba Inu price prediction, there are two big historical events to look at. These events are the coin’s two massive surges in price. One of these surges came in the span of a few weeks in mid-2021. Then, towards the end of the year, the price surged again in an almost identical fashion. In both cases, the price retreated immediately afterward. If you want to make money buying Shina Inu Coin then the key is to buy it before the price surges. This means that you need to buy it when nobody is talking about Shiba Inu and the price isn’t moving. Basically, you need to buy it during a time like now.

NOTE: The past performance of an asset is never an indicator of future performance. Shiba Inu coin is a very volatile asset. There is no guarantee that it will ever spike in price again.

What is Shiba Inu?

Shiba Inu is a cryptocurrency that has very little utility and is more of an experiment in community building. It was created after Dogecoin, another dog-themed memecoin, surged in popularity. Shiba is known for having a cult following as well as being incredibly cheap. Each Shib costs just a fraction of a cent. Despite this, it currently has a market capitalization of $5.7 billion. It is also the 11th most popular coin on Coinbase.

One of the main reasons that investors buy Shiba Inu coin is because of Dogecoin. Dogecoin mainly started as a joke. However, it actually gained a massive following and even garnered the endorsement of billionaire Elon Musk. Many investors feel that since Elon Musk likes Dogecoin, it must be worth buying and holding. In the past, a simple tweet from Elon about Dogecoin has been enough to send Dogecoin’s price flying.

This is important because Shiba Inu’s price tends to rise/fall in sympathy with Dogecoin.

Elon Doubles Down

At the Qatar Economic Forum, Elon Musk recently reiterated his support for Dogecoin. Although he did not make an outright recommendation to buy it, he stated that he “personally supports” Dogecoin. Dogecoin’s price spiked on Elon’s statements. Accordingly, Shiba Inu’s price has spiked as well. As I write this, Shiba Inu coin is up 26% in the past week.

So does this mean that you should buy Shiba Inu?

Shiba Inu Price Prediction: Is it Time to Buy?

To start, you should never buy an investment based solely on someone’s recommendation. This is because everyone has a different risk tolerance. For example, Elon Musk is the richest man in the world. He could invest a billion dollars into Shiba Inu coin without thinking twice. He could also light a billion dollars on fire and not lose sleep. But, for many people, investing even just $100 into Shiba Inu is fairly risky. But, this doesn’t mean that buying Shiba Inu coin is always a bad idea.

Let’s examine my Shiba Inu price prediction.

Buy When Others are Fearful

There is a famous quote from Warren Buffet that goes, “You should sell stocks when others are greedy and buy them when others are fearful.” Essentially, Warren is saying that you should buy when everyone else is selling because this is when the asset’s price is the lowest. This same thinking could apply to Shiba Inu.

Most of 2020 and 2021 were full of incredible optimism in the investment world. Despite the global pandemic, the S&P500 surged 44% from 2020 to 2021. This even includes a 33% dip in early March. At the same time, we witnessed a frenzy of retail trading in investments like AMC, Dogecoin and GameStop. For a while, it seemed like nearly everyone was making cash hand over fist. Since the end of 2021, most of that has changed.

Today, we are officially in a bear market. The United States is experiencing inflation rates not seen since the 1980s. There is a land war in Europe between Russia and Ukraine. And, the entire global supply chain is still suffering from the effects of COVID-19. The economic outlook is bleaker than it’s been in years. Ironically, this could mean that it’s a good time to buy Shiba Inu.

Trying to predict when Shiba Inu coin will surge is nearly impossible. So, to make money in Shiba Inu you need to establish a position early on before everyone else does. If you wait until the coin has already surged then you’re too late. Right now, almost nobody is talking about buying Shiba Inu because there’s so much risk in the world. Counterintuitively, this could mean that it’s a perfect time to buy. This style of investing is known as contrarian investing.

Final Thoughts: Shiba Inu Coin

At the end of the day, you should associate buying Shiba Inu very closely with gambling. Remember that Shiba Inu has no underlying value or use. Additionally, there is no way to predict when its price will surge. This makes it very similar to putting money on red money at a roulette table. This doesn’t mean that you should never buy it. Just that you should only ever do so with money that you can afford to lose.

If you want to buy Shiba Inu then this could be as good a time as any. Nobody is talking about Shiba and the coin’s price has come nearly all the way down from its last surge. As long as you are patient and won’t need your investment anytime soon then you’ll be in a good position to wait for the next (potential) spike.

I hope that you’ve enjoyed this Shiba Inu price prediction. Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.

The post Shiba Inu Price Prediction: Buy When Others Are Fearful? appeared first on Investment U.

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