{"id":1348,"date":"2023-08-30T08:17:53","date_gmt":"2023-08-30T08:17:53","guid":{"rendered":"https:\/\/www.innov8fs.co.za\/blog\/?p=1348"},"modified":"2026-03-18T11:46:26","modified_gmt":"2026-03-18T11:46:26","slug":"cryptocurrency","status":"publish","type":"post","link":"https:\/\/www.innov8fs.co.za\/blog\/2023\/08\/30\/cryptocurrency\/","title":{"rendered":"Cryptocurrency"},"content":{"rendered":"

In the past ten years,\u00a0cryptocurrencies<\/span>\u00a0(\u201ccryptos\u201d) have become perceived as an alternative\u00a0asset<\/span>\u00a0class on the international\u00a0investment<\/span>\u00a0stage. They have the advantage that they are independent of any government control and the disadvantage that they do not represent any\u00a0tangible asset<\/span>\u00a0or\u00a0income<\/span>\u00a0stream.<\/p>\n

The value of a cryptocurrency is based entirely on the belief of the people who invest in it \u2013 it has no\u00a0income statement<\/span>\u00a0or\u00a0balance sheet<\/span>. It is a concept which goes through periods of strong belief and periods when the belief in it dissipates. In this respect it is similar to an investment in\u00a0gold<\/span>, which also generates no income. Both asset types depend on belief \u2013 the difference is that the belief in gold is literally as old as civilization while the belief in cryptos is a very recent new millennium phenomenon.<\/p>\n

Gold has the enormous advantage of having a physical presence to support the belief that it is a substance of value. If you hold a one-ounce\u00a0krugerrand<\/span>\u00a0in your hand, you will immediately know that you are holding something of immense value. You cannot hold a crypto in your hand. It is completely\u00a0intangible<\/span>\u00a0and as such the value that it has is based purely on the fact that some people believe it has value \u2013 nothing else. And that belief has proved to be very fickle over the roughly ten years that cryptos have existed. This compares with the belief that gold has value and that has been solid and unwavering for thousands of years.<\/p>\n

Because they have no\u00a0fundamentals<\/span>, cryptocurrencies cannot be evaluated fundamentally in the same way as a\u00a0share<\/span>\u00a0or even a\u00a0commodity<\/span>\u00a0can be. Therefore, the only way to make an assessment is with\u00a0technical analysis<\/span>\u00a0(chart<\/span>s).<\/p>\n

Over the last ten years, since cryptocurrencies became popular, we have learned about some of their main characteristics as a possible investment vehicle.<\/p>\n

Firstly, despite the similarity to gold, they are not in any sense a\u00a0hedge<\/span>\u00a0against weakness in the\u00a0equity<\/span>\u00a0markets. In fact, they tend to move directly in line with equity markets.<\/p>\n

Secondly, cryptos are a \u201crisk-on<\/span>\u201d asset \u2013 which means that when investors are feeling nervous (i.e., they are generally avoiding risk and are \u201crisk-off<\/span>\u201d) they tend to sell out of cryptos (and equities) and move their money to safer assets like\u00a0US treasury bills<\/span>\u00a0or gold \u2013 and vice versa.<\/p>\n

Consider the chart of Bitcoin since the start of 2021:<\/p>\n

\"\"<\/p>\n

The upper chart is a\u00a0bar chart<\/span>\u00a0of Bitcoin in US dollars. The lower chart is a\u00a0relative strength<\/span>\u00a0chart of Bitcoin – divided by or relative to the\u00a0S&P500 index<\/span>.<\/p>\n

The upper chart shows the volatile progress of Bitcoin as\u00a0sentiment<\/span>\u00a0towards it waxed and waned. There is a clearly observable long-term\u00a0support<\/span>\/resistance<\/span>\u00a0level at around $30\u00a0000. We have added a 200-day\u00a0moving average<\/span>\u00a0because that is said to be a widely followed\u00a0indicator<\/span>\u00a0in this market. And you will note that Bitcoin has recently failed to seriously penetrate the $30\u00a0000 level and so fallen back to a place where it is now testing the 200-day moving average.<\/p>\n

The lower chart is a relative strength of Bitcoin against the S&P500. This is calculated by dividing the\u00a0price<\/span>\u00a0of Bitcoin by the S&P500 index and charting the result. If Bitcoin outperforms the S&P, then the chart rises and vice versa. What is noticeable in this chart is the fact that Bitcoin only out-performs the S&P when it is itself rising and it underperforms as soon as it is declining \u2013 and that means that it does not provide any significant protection or \u201chedge\u201d against a falling S&P500.<\/p>\n

Our view on cryptos remains the same as it has always been. If you have them, sell them. If you don\u2019t have them, don\u2019t buy them.<\/p>\n","protected":false},"excerpt":{"rendered":"

In the past ten years,\u00a0cryptocurrencies\u00a0(\u201ccryptos\u201d) have become perceived as an alternative\u00a0asset\u00a0class on the international\u00a0investment\u00a0stage. They have the advantage that they are independent of any government…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1348","post","type-post","status-publish","format-standard","hentry","category-innov8ions"],"_links":{"self":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1348","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/comments?post=1348"}],"version-history":[{"count":1,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1348\/revisions"}],"predecessor-version":[{"id":1351,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1348\/revisions\/1351"}],"wp:attachment":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/media?parent=1348"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/categories?post=1348"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/tags?post=1348"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}