Fundstrat’s Thomas Lee is emerging as a voice of reason for cryptocurrency investors even as bitcoin continues to trade in the doldrums. JPMorgan Chase’s former chief equity strategist is applying the lessons of the stock market to bitcoin investing. Trying to time the market is “challenging” because bitcoin even in its short history has proven to generate most of its annual returns over less than a two-week period each year, according to Lee in a note entitled “Why HODL?”
Lee also recently recommended that bitcoin investors buy the dip, and now he’s adding to it, saying, “we think investors should be patient buyers of bitcoin here.” It may be easier said than done, given the fact that bitcoin remains lower by double-digit percentage year-to-date. Patience, however, is a virtue when investing, whether it’s the stock market or cryptocurrencies.
Lee said: “Market timing is generally discouraged in traditional equity investing.” He went on to provide the following example –
“If an investor missed out on the 10 best days (for S&P 500) each year, the annualized return drops to 5.4 percent (ex-10 best), from 9.2 percent. In other words, the case for buy and hold in equities is the opportunity cost of missing out on the 10 best days.”
The strategy is vital for bitcoin investing. Say you try to time the market and miss out on BTC’s best 10 days of the year. You would be sacrificing as much as 25% of annualized returns in the interim, says Lee. Without the best 10 days of trading performance, bitcoin posts 25% losses annually, as per the Fundstrat report obtained by CCN.com.
The pressure is real, and bitcoin is struggling to break out beyond the USD 8,000 level, which as Fundstrat points out is the breakeven price for BTC mining. But bitcoin investors can breathe a sigh of relief.
“The overhang from regulatory risk is generally keeping investors sidelined. However, we see positive catalysts for Bitcoin later in 2018, including the clarification of regulatory hurdles.” — Fundstrat analysts
Earlier this month, Fundstrat’s Lee warned that altcoins, which had ridden on the coattails of bitcoin during the leading cryptocurrency’s record run, are headed for a period of “purgatory” to unfold for 150-175 days before the lesser known coins resume their upward climb. Fundstrat paints a picture of a cyclical market for altcoins, which is another parallel to the broader equity markets. As for the leading coins, Lee and his research team are predicting a “strong” 2018 led by “more established blockchains growing” and “upside for ETH and BTC.”
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Last modified: March 4, 2021 5:06 PM