Market crash of 2008
The stock market crashed in 2008 and at that point :
- the economy was in bad shape
- lots of people were out of work
- banks were failing.
- the fed rate went to zero
I could not believe that afterwards the markets rose, and kept rising. And for 10 years in a row, it rose and rose.
Let us look at some history
Between 1920 and 1929 the Dow Jones also rose for 10 years but afterwards crashed deeper than the rise from the previous 10 years. What if we are on the brink of a new crash and history repeats itself?
In 1929 we had the following situation:
- people were over confident and stocks had quadrupled already
- loans were made to stock market investors and banks trying to collect from investors with worthless stocks
- banks also invested depositors money in the stock market
- when depositors heard of the bad shape the banks were in, they tried to withdraw their cash from those banks
In two words, it was a big mess, and yes you can guess, again the banks were in it. Gambling our money away.
Market crash between 2018 and 2020?
You all heard of economic cycles and if not let me refresh your memory. We have the following stages:
- Full recession (interest rates fall)
- yes we already had that
- Early recovery (interest rates bottom out)
- yes, we had that too.
- Late recovery (yes we can)
- probably we get a rate hike in June 2018
- Early recession
- we still have to get there
Looking at the S&P 500 I see the following
Probably we will have one last wave 5 left going up, before a bigger correction.
At the beginning of March I advised against taking new positions in the stock market since I expected a larger price correction than what we saw now. Afterwards I can say that I was correct in my timing, but not in the size of the correction. But better be safe than sorry. It is better to pull out your stocks to early (and miss some profits) than to pull them out too late. Usually I am a bit too early in my predictions and in the past I made the mistake to forget about it (when a prediction did not materialize when I thought it would), and later it happened and surprised me. But we all learn and I now I keep some thoughts in the back of my mind that not yet came true. And sometimes I have to adjust my initial view off the markets and come up with a totally different view.
Will the Crypto market attract new cash?
What if we get a stock market correction or maybe even a stock market crash because of the economic cycle coming to an end? Will new money flow to the cryptocurrency market?
Let us go over some positive signals I get:
- we will get more and more regulations for the crypto market
- banks are more and more interested in getting into crypto
- exchanges get better
- even ETF’s will probably appear to attract even more investors
- the average price to mine bitcoin is currently around $4,758 so with a current price of $7,345 it is still profitable to mine bitcoins
(In a few years it will not be profitable -at this price- since the time will double to mine 1 bitcoin and also the cost)
- for new investors it is hard to start investing (too many sites, tools, wallets, crypto to fiat,….)
- security issues with wallets (you are in charge to keep it safe!)
- it is highly volatile (Bitcoin can easily drop 70%)
- Crypto to fiat (on exchanges) is not readily available and in my vision that is something that will get worked on this year
- for example Binance was talking of relocating to Malta and get a bank partnership
So again, will more and new money flow to the cryptocurrency market? Looking at all the positives and negatives I say not at this time. We will have to wait for the crypto market to mature some more.
- ETF’s on crypto
- easier access to crypto
- crypto to fiat scores big on my list (to put cash on the side when we have profits, or the market conditions are not in our favor or to simply take money out of the markets)
- the bear cycle to end in BTC (bitcoin) and reverse and take out $10,000 to give enough people back some confidence
I believe that new money eventually will go to the crypto markets and then we will easily get a market cap of about 1,2 trillion dollars as a first step. And a nice correction or market crash will really help a lot. Money has to go somewhere and with some hurdles in crypto taking care of I do not see why not.
We are really at the start of it all. To remind you a bit: After the dot com bubble the real value came to light like Amazon, Google, Facebook, Microsoft, ASML,… I think the same will happen for the crypto space. We have more than 1600 coins and lots will disappear over time and like the dot com bubble some will survive and get astonishing gains. Do you know which ones?