How cryptos can help you control your stock-market risk

Tony Sagami

Did the recent stock market gyrations bother you? Do you think the 9-year-old bull market is about to run out of steam?

If your answer is “yes,” then you should think about investing some of your money into assets that tend to zig while the stock market is zagging.

I’m talking about non-correlated assets that move in different directions from each other. By diversifying your assets into different areas of the market, you’ll control risk.

And the asset with the lowest correlation with traditional asset classes — the S&P 500, the dollar, international equities, bonds, commodities and even gold — is cryptocurrencies.

Can you really control stock-market risk just by investing in cryptos? Just look at the recent trading action to see this non-correlation in action …


Image credit: ZeroHedge

Cryptocurrencies’ low correlation was clearly demonstrated early last week when just about everything in sight — U.S. stocks, international equities, emerging-market stocks, commodities and even gold — got clobbered.

When traditional assets were tumbling, crypto correlations climbed to the high-teens, which is still exceptionally low.

The lesson here is that, if you truly want to be diversified, you need to own assets are that non-correlated.


Image credit: Forbes

In fact, there have been many days when cryptocurrencies were sharply rising when the stock market has been falling.

Of course, there are more than 1,800 cryptocurrencies right now. (We currently rate more than 100 of them, and add new names to this list all the time.) Bitcoin is the largest, making up 50% of the entire cryptocurrency market cap.

In fact, Bitcoin has gained popularity since the start of 2018. Its market cap is now $105 billion, which is about $901 million more than the market cap of every other cryptocurrency combined.


Image credit: CoinDesk

The entire market cap of the cryptocurrency universe is about $200 billion, but it was north of $800 billion at its 2017 peak.

Cryptocurrencies, of course, have been struggling this year. On Dec. 19, 2017, the price of Bitcoin was $17,605. That was 65% higher than its value today.

But our Weiss Cryptocurrency Ratings team has every reason to believe that we’ll see a rebound, and soon.

We know a great deal of that money is going to come not just from crypto enthusiasts, but also from institutional and individual investors. People who have watched massive fortunes be made but who haven’t had a way to buy cryptos on the broader U.S. exchanges.

But that day is almost here … and you want to be ready for it.

One of the biggest issues holding back the price of cryptocurrencies is the SEC, which has rejected 15 different Bitcoin ETF proposals.

However, every rejected ETF brings us one step closer to finally getting approval.

The SEC isn’t rejecting Bitcoin ETFs because they hate Bitcoin; the SEC is rejecting a Bitcoin ETF because all the previous ETFs failed to meet certain rules and requirements.

Related story: Bitcoin ETF rejection is a mere stumbling block

A Bitcoin ETF approval is inevitable and could happen as early as September. I expect the price of Bitcoin to skyrocket when that happens because it will be able to draw from the trillions of dollars of institutional and retirement funds.

When are you going to jump on the cryptocurrency train? When Bitcoin is trading for $6,000 a coin? Or $20,000?

Best wishes,

Tony

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