80% of my investable income is in cash, precious metals and a small number of stocks. That might seem crazy, but the Pareto Principle, Zipf’s Law and the bell curve have convinced me that it’s a waste of time and money to get any more diversified. [Let me explain why that is the case.] Words: 396
…From my perspective, true diversification is more than just a balance of conventional investments spanning cash, equities and fixed income. There’s a vast universe of alternative investments out there that may suit your risk profile and are worthy of a closer look. Let’s discuss.
This post by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) excerpt from an article by David Wieland, founder and CEO of Realized Holdings, for the sake of clarity and brevity to provide you with a fast and easy read. Please note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
Modern Portfolio Theory is an investment strategy that helps investors manage investment portfolio risk while at the same time seeking increased returns using diversification.
- MPT posits that markets are more efficient and reliable than investors. According to its creator, Harry Markowitz, you can potentially get better returns. theory, based on increasing the level of risk that you’re willing to take.
- MPT assumes that investors want the highest returns with the least amount of risk but risk and reward when it comes to investing have a positive correlation; when you invest in low-risk assets like bonds, your returns will generally be lower than when investing in higher-risk assets like stocks. Investors have to find a balance between risk and reward. MPT says this balance can be achieved via diversification.
Conventional investments are things like stocks, bonds, cash and cash alternatives, such as money market accounts and CDs., but we believe a balanced portfolio that contains a variety of asset types, including alternative investments like real estate, can help investors improve returns while managing risk. Let’s explore some alternative investments to consider in a portfolio and the potential return an investor can expect by including them in their diversified strategy…
- Real estate (Delaware Statutory Trusts, QOZs, raw land, co-working spaces, retail spaces, etc
- Hedge funds
- Private equity
- NFTs (Non-fungible tokens)
- [Read: What Are Non-fungible Tokens (NFTs)? and Fandom Sports Media Stock Price Tracking the Esports Surge and New Non-Fungible Token Opportunity]
In the past, alternative investments were only of interest to high-net-worth and institutional investors but, in recent years, they have become more mainstream and begun attracting the attention of everyday investors too.
[The above being said,] keep in mind that alternative investments are riskier than conventional ones;
- they don’t have a long track record,
- in some cases, they are less regulated and transparent…and
- they are often less liquid than conventional assets
but alternative investments can offer:
- higher returns,
- and because they’re typically not correlated with the stock market, they can help protect your portfolio from market ups and downs.
Current MPT dictates that a diversified portfolio can contain between 10% and 20% alternative investments, including real estate. Most individual investors are falling well short of that, devoting only 5% to alternative investments, while pension funds and endowments are well above that, with 30% and 50% respectively invested in alternatives. These large investors gravitate to alternatives – and real estate in particular – to further diversify their portfolios and because of the income and yield opportunities real estate provides.
Based on data from Griffin Capital, alternative assets can help enhance portfolio return while managing overall risk and volatility of an investment portfolio. Over the past 20 years, a 60/40 portfolio of stocks and bonds has shown returns around 6.86% but, by modifying that split to 55/35/10 of stocks/bonds/real estate, returns increased to 7.06%. Additionally, adding real estate to portfolios decreased the volatility from 9.90% in the 60/40 breakdown to 9.15% in portfolios with 55/35/10.
Related Articles From the munKNEE Vault:
Do you really need portfolio diversification?…Everyone assumes that broad asset class portfolio diversification is advantageous…[as it] reduces the risk associated with events that can trigger a decline in any one asset class…[and makes] financial planning more reliable and predictable by reducing the variations in portfolio performance from year to year. Simply put, portfolio diversification is a sound investment practice but, [that said,] exactly how much risk reduction, in actual numbers, is obtained through application of this philosophy? [Bottom line, is] asset class diversification all that it’s cracked up to be? This article…addresses…the benefits of diversification among various classes.
While it is unclear what impact the next few interest rate hikes will have on the real economy the long term impact is a different story. A more active Fed may have an enormous impact on how investors build portfolios, a development we contemplate in this article.
Natural resource stocks could make for a nice diversifier in a portfolio but I wonder how many investors have the intestinal fortitude to take advantage of that diversification. That’s the question investors need to answer before diving in.
Investors are paying more and more attention to how certain strategies, asset classes or investments perform over shorter and shorter time frames, constantly looking for the best or worst performing sector/smart beta style/ETF/hedge fund/portfolio strategy during the latest two day or even two month sell-off or rebound. That’s not how you build a long-lasting portfolio. This article discusses some of the misconceptions about diversification.
Most investors don’t know anything more about diversification than you “shouldn’t put all your eggs in one basket” [but] spending some time trying to understand the ways you might be shooting yourself in the foot could seriously enhance your portfolio returns and stop catastrophic risk. [There are some advantages to diversification if you REALLY know what you are doing but the shortcomings can go a long way towards killing your portfolio returns. In this article we identify what they are and how best to avoid them.] Words: 1055
Diversification among natural resources is vital because there’s always an ebb and flow of commodities, both seasonal and cyclical and, as such, it is important to anticipate these global trends to know how to participate. [Let me explain.] Words: 528
Gold stocks have historically ranked among some of the most volatile asset classes – about three times that of gold bullion – but despite this volatility, our research shows that investors can use gold stocks to enhance returns without adding risk to the portfolio. [Let me explain.] Words: 560
The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137
We are reading a lot of hype these days about gold and the necessity to own it but only about 2% of ‘investors’ actually have gold in their portfolios and those that have done so have insufficient quantities to offset the future impact of inflation and to maximize their portfolio returns. New research, however, has determined a specific percentage to accomplish such objectives. Words: 1063
There is a common notion that stocks, at least if held for a long-time, outperform other assets [and, as such,] should be the cornerstone of any long-term portfolio. [While that is indeed true,] it is best to focus first on how much you are able and willing to lose (i.e. what risk you are able and willing to bear) when determining the optimal allocation for your portfolio. [Only] then [should you] think about what potential investment returns you might be able to capture. [Let me explain.] Words: 1503
12. Understanding Systematic Risk, Modern Portfolio Theory and the Efficient Frontier (4K Views)
Risk inherent to the entire market or market segment is referred to as systematic risk and modern portfolio theory says that a blend of investments has the potential to increase overall return for a given level of risk, and/or decrease risk for a given return that the investor is trying to achieve. The expected risk/return relationship is known as the efficient frontier. [If you have a portfolio of investments then you need to fully understand what all this really means and how you can apply it to your portfolio makeup to enhance returns under any circumstances. Let me do just that.] Words: 1325
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Eldorado Gold: BMO Reiterates $20 Price Target
This week Eldorado Gold (TSX: ELD) provided full year 2022 production and cost guidance as well as a 5-year production
The post Eldorado Gold: BMO Reiterates…
This week Eldorado Gold () provided full year 2022 production and cost guidance as well as a 5-year production outlook. By 2022, Eldorado expects total gold production to be 460,000 to 490,000 ounces, or about 7% higher than the prior guidance. Cash operating costs are expected to be between $640 and $690 per ounce, while the all-in sustaining costs are expected to be between $1,075 and $1,175.
Eldorado Gold also raised their 2023 and 2024 production guidance, bringing them up 4% and 7% respectively. The company additionally expects by 2026 to be producing between 510,000 and 540,000 ounces of gold per year.
Eldorado Gold currently has 11 analysts covering the stock with an average 12-month price target of US$13.50, or a 42% upside to the current stock price. Out of the 11 analysts, 6 have buy ratings, 4 have hold ratings and the last analyst has a sell rating. The street high price target sits at US$17.51, or an 85% upside to the current stock price while the lowest comes in at US$9.25.
In BMO Capital Markets’ note, they reiterate their outperform rating and $20 12-month price target saying that the company is “approaching the growth spurt.”
For the 2022 guidance, production came in line with BMO’s 471,000-ounce estimate while all-in sustaining costs came in slightly above their $1,070 per ounce estimate. Onto the improved 5 year guidance, they say that the outlook looks a little above their expectations.
Lastly, they say that if you take the midpoint of the 2025 guidance, which is 550,000 ounces produced, it would be a 5% 3-year organic CAGR, which is “a rarity among intermediate and senior producers at present.”
Below you can see BMO’s updated estimates.
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
Dolly Varden has 21 drill holes left to report, as gold, silver and copper prices bounce
Predominantly a silver explorer, Dolly Varden Silver’s (TSXV:DV, OTC:DOLLF) flagship project is located in the southern part of British Columbia’s…
Predominantly a silver explorer, Dolly Varden Silver’s (, OTC:DOLLF) flagship project is located in the southern part of British Columbia’s Golden Triangle, an area well-known for its base and precious metals deposits.
The property hosts four historically active mines — Dolly Varden, Torbrit, North Star and Wolf — all have parts that remain unexplored to this day. More than 20 million ounces of high-grade silver have been produced from these deposits between 1919 and 1959.
Dolly Varden’s project lies to the west of Hecla Mining’s Kinskuch Project. It also borders acquired late last year to consolidate what it considers to be an emerging silver-gold district.’ Homestake Ridge, which it
The consolidated project, named Kitsault Valley, is now among the largest, high-grade, undeveloped precious metal assets in Western Canada, with a combined mineral resource base of 34.7Moz silver and 166,000 oz gold in the indicated category.
Regional exploration and reconnaissance drilling also led to the identification of a large new porphyry copper-gold system that may be related to others in the Golden Triangle such as KSM, Treaty Creek, Saddle, Red Chris and Snowfield.
In December DV announced encouraging results from last year’s regional exploration and reconnaissance drilling on its 100% owned Dolly Varden project, which is host to two past-producing silver mines (Dolly Varden and Torbrit) and two other historically active mines (North Star and Wolf).
Encompassing 10 holes testing five regional exploration targets, the drill results demonstrated “excellent exploration and resource expansion potential on the property,” DV stated in the Dec. 10, 2021 news release.
Results are pending for the 21 holes drilled near Dolly Varden’s existing resource.
Dolly Varden Project
The Dolly Varden silver project comprises 8,800 hectares (88 sq km) in the Stewart Complex of northwestern BC, which is known to host base and precious metals deposits.
Dolly Varden project map
Mining activity dates back to 1910, when the original Dolly Varden Mine was discovered by Scandinavian prospectors.
In its early days, it was among the richest silver mines in the British Empire. The other deposit in the area to see production later was Torbrit, which, at one time, was the third-largest silver producer in Canada.
Historical records show these two deposits together have produced more than 20 million ounces of high-grade silver between 1919-1959, with assays as high as 2,200 oz (over 72 kg) per tonne.
Production subsequently ceased due to low silver prices, and the assembled property was eventually acquired by DV with a view to re-awakening the historical silver mine.
An updated NI 43-101 resource estimate completed by the company in 2019 revealed 32.9Moz silver in indicated resources and 11.477Moz inferred, for a total of 44Moz Ag, all adjacent to the historical deposits.
Drilling and underground work that went into the resource estimation confirmed that the mineralization occurs as two styles.
The first is VMS (volcanogenic massive sulfides) similar to that mined at Eskay Creek to the north. Once the highest-grade gold mine in the world, Eskay Creek produced 3.3Moz gold and 160Moz silver at average grades of 45/g/t Au and 2,224 g/t Ag respectively between 1994 and 2008.
The second is cross-cutting epithermal mineralization similar to that being developed at Pretium’s Valley of the Kings deposit (Brucejack Mine).
The southern part of the Golden Triangle is the least explored of all. Only 3% of Dolly Varden’s property has been explored in detail up until now, leaving plenty of potential discovery upside.
According to DV, both the Eskay Creek and Valley of the Kings deposits are located on the same structural trend to the north of the company’s ground. So, it is possible that Dolly Varden represents the southern end of a large silver district that extends northward.
To prove this, the company completed 40 drill holes (11,397m) in 2020, 19 of which were in the Torbrit area. The rest were reconnaissance and exploration drill holes, testing multiple areas on the property.
Highlights included 310 g/t over 6m, a stand-out 304 g/t over 45.82m, and 306 g/t over 5.10m. Higher-grade core within those intercepts featured 648 g/t over 6.06m, 1,595 g/t over 1.06m, and 1,290 g/t over 0.6m.
2021 drill results
Last summer, the company kicked off a surface diamond drill program on the Dolly Varden property. A total of 31 drill holes (10,506m) were completed during the 2021 field season.
This drill program was part of an aggressive two-year campaign to infill and expand the high-grade silver resource at the Torbrit deposit, and to test multiple highly prospective targets throughout the property.
The drill results encompassed 10 holes that tested five regional exploration targets on the property, including the Wolf Vein extension and Western Gold-Copper belt.
The highlight was drill hole DV21-273, which tested the southwest projection of the Wolf Vein, 94m down plunge from the current mineral resource at the Wolf deposit.
This hole intersected 1,532 g/t Ag, 0.44 g/t Au, 2.11 % Pb and 1.07% Zn over 1.22m, within a brecciated sulfide-rich quartz vein hosted within a broader pyrite stockwork breccia zone of 17.50m averaging 214 g/t Ag and 0.47% Pb.
The current resource estimate for Wolf is 3.83 million ounces of silver at 296 g/t in the indicated category. The deposit is located approximately 2 km northwest of the Torbrit deposit, which hosts most of Dolly Varden’s resources at 25 million ounces of silver indicated and 10.5 million ounces inferred.
Hole DV21-273 is also significant as it tested the prospective Hazelton volcanic rock that underlies the sedimentary units of the Upper Hazelton for the Wolf Vein extension.
Discovering that the strong potassic alteration associated with silver mineralization within the volcanogenic Torbrit deposit continues beneath the sediment suggests that the mineralizing system continues to the west of the 4.5 km long surface anomaly.
According to DV, this opens up the exploration potential of the entire bottom of the Kitsault Valley north of Wolf towards the property boundary and onto the Homestake Ridge property, which the company recently acquired from.
Wolf is the northernmost deposit found at the Dolly Varden project. Modeling of the epithermal vein style deposit indicates a stepped vein system, offset by steep faults. The hanging wall has a strong barium signature and the veins contain barite and quartz. There are underground drifts at Wolf, but no historical production was reported.
Drilling at other silver prospects also returned promising results. At the Syndicate target, a near-surface vein in hole DV21-270 returned 126 g/t Ag and 1.31 g/t Au over 1.10m.
Hole DV21-272 was drilled to test the potassic alteration zone at Silver Horde, located approximately 900m north of Wolf. The structure returned 9.0m averaging 126.7 g/t Ag within the volcanic host.
In other exploration drilling, DV’s technical team is encouraged by long intervals of stockwork quartz with strongly anomalous gold (>100 ppb) over wide intervals (up to 303m) along with silver and copper at the Western Gold Belt area.
Hosted within early Jurassic volcanic rocks, this style of stockwork and alteration is analogous to numerous gold-copper deposits and mines found throughout BC’s Golden Triangle. These include KSM, Treaty Creek, Saddle, Red Chris and Snowfield.
Such a finding could be a game changer for DV, given it was previously positioned as a pure silver-focused explorer sitting on a high-grade, potentially bulk-mineable resource.
The Western Gold Belt is located on the west side of the Kitsault Valley and trends from near the Dolly Varden Mine northward for several kilometers towards Homestake Ridge.
According to DV chief executive Shawn Khunkhun, the strong porphyry-related gold-copper-silver indicators is perhaps the most significant exploration breakthrough on the property in years.
Therefore, the next phase of exploration drilling will prioritize connecting the historical mines and current deposits of the Dolly Varden trend with the deposits at Homestake 5.4 km to the northwest along the Kitsault Valley trend.
Of course, the high-grade silver intercept at Wolf is also significant, as it confirmed Dolly Varden’s resource expansion potential. Assays are pending for the 21 holes completed at the high-grade Torbrit and Kitsol Silver deposits.
The three metals Dolly Varden is exploring for, have all been posting gains of late. Gold and silver both rallied this week, as investors parked money in safe-haven metals on fears of inflation and geopolitical tensions, ahead of a Federal Reserve meeting Jan. 25-26. Gold gained $30, Wednesday, and silver climbed 3%. Copper rose for a third session on Friday, breaking above 10,000 a ton as investors fled a sliding stock market and sought protection against rising inflation, Reuters said.
Gold market update
As Kitco News noted, gold’s move up coincided with the Biden administration’s announcing $200 million in military aid to Ukraine, citing fears of a Russian invasion.
“And this follows on with reports over the weekend that the UK was providing military assistance to Ukraine. It’s just like a perfect mix here for gold prices in the very short term,” DailyFX senior strategist Christopher Vecchio told the precious news outlet.
Higher inflation numbers are adding to risk-off sentiment in the market, which is already pricing in rate hikes and the possibility of central banks making a mistake while tightening.
OANDA senior market analyst Craig Erlam believes that traders are inflation-hedging because they don’t think central banks are doing enough to bring prices down.
The US Federal Reserve, whose job is to keep unemployment in check and inflation (the Federal Funds Rate) in the “Goldilocks” zone of 2%, is telegraphing three interest rate increases of 0.25% each (1% at the high end of the range) this year.
The US Labor Department said that its Producer Price Index (PPI) rose 0.2% from November to December, bringing producer prices to a record-high 9.7%, the biggest calendar-year increase since data was first calculated in 2010.
The same report said US consumer prices increased solidly in December, led by gains in rental accommodation and used cars, culminating in the largest annual inflation rise in 40 years. The Consumer Price Index (CPI) surged 7% in the 12 months through December, which is the biggest year on year increase since 1982.
As we have argued, the Fed (and the Treasury) is between a rock and a hard place, the Fed can’t raise rates enough to combat high inflation because doing so will wreck the economy, and imo, the Treasury will soon struggle to find enough buyers for US government bonds because the real yields are so low, currently in all cases negative.
This practically guarantees the continuation of Fed bond buying (QE) despite the much-ballyhooed taper. As for raising rates, we proved that the Fed can’t do it, at least not at the levels required to beat current inflation, which even if covid-related supply chain issues get solved, leaves another 3-4% to deal with. (higher prices will, imo, stay with us for a long time due to persistent food inflation, wage/ salary increases due to a shortage of workers, a ragged energy transition from fossil fuels to renewables that has led to high natural gas prices, and climate change which has a negative effect on crops)
Then there is the debt problem. We’ve written extensively about the dangers of the mounting US debt load. Gold correlates strongly to rising debt to GDP ratios. The US’s debt to GDP currently sits at 127.3%.
The Congressional Budget Office (CBO) and the Committee for a Responsible Federal Budget (CRFB) — both reliable sources — project a deficit of $1.3T in 2022, and every year until 2031. This severely constrains the Fed’s policy options.
Each interest rate rise means the federal government must spend more on interest, reflected in the annual budget deficit, which keeps getting added to the national debt, which is almost $30 trillion. We are talking about interest costs nearing a trillion dollars per year, when the deficit is accounted for.
Furthermore, the incentive for buying a US Treasury bill or bond is gone, the buyer’s purchasing power eroded by inflation.
The current Federal Funds Rate is .08%, but CPI inflation is 7%, giving a real (after inflation) Effective Federal Funds Rate (EFFR) of -6.94%. This is the most negative EFFR since 1954. The 10-year yield, which pays better interest, is -5.3% in real terms.
The fact is nobody is going to want to buy US debt at 7% inflation. The Fed will continue to print money, buy bonds and keep interest rates below 1% for as long as it can — probably hoping that inflation will magically melt away — all of which is extremely positive for gold.
Silver market update
The Silver Institute predicted that global silver demand will rise to 1.029 billion ounces in 2021, up 15% from 2020 and exceeding a billion ounces for the first time since 2015.
In a November report, SI said every area of silver demand was forecast to rise in 2021, including a record amount of industrial demand despite ongoing supply issues.
“The recovery in silver industrial demand from the pandemic will see this segment achieve a new high of 524 million ounces (Moz). In terms of some of the key segments, we estimate that photovoltaic demand will rise by 13% to over 110Moz, a new high and highlighting silver’s key role in the green economy,” states a press release that accompanied the Silver Institute’s Interim Silver Market Review webcast.
Demand for silver used in brazing and solder is expected to improve by 10%, aided by a recovery in housing and construction.
Silver bars and coins will continue to hold investors’ interest, with the Silver Institute predicting that physical investment in 2021 will increase by 32% to 64Moz, pushing the year-on-year total to a six-year high of 263Moz. US bar and coin demand is expected to surpass 100Moz for the first time since 2015, while in India, physical investment in silver is expected to recover from last year’s collapse, and surge three-fold.
A major source of silver investment demand, exchange traded products, are forecast to see total holdings rise by 150Moz. Last January to November, silver ETP holdings increased by 83Moz, bringing the global total to 1.15Boz, within a whisker of 2020’s record-high 1.21Boz.
The supply picture for silver is especially interesting.
According to SI, “In 2021 mined silver production is expected to rise by 6% year-on-year to 829 Moz. This recovery is largely the result of most mines being able to operate at full production rates throughout the year following enforced stoppages in 2020 due to the pandemic.”
“Overall, the silver market is expected to record a physical deficit in 2021, albeit modestly. At 7Moz, this will mark the first deficit since 2015.”
Silver demand is only likely to strengthen, given its use in solder, solar panels, 5G, EVs, and printed and flexible electronics — not to mention steady investment demand in the form of physical silver (bars & coins) and silver-backed ETFs.
Remember, less than 30% of silver production comes from primary silver mines, with over half sourced from lead-zinc operations, and copper mines, meaning that silver’s fortunes are tied to other industrial metals.
The prices of zinc, lead and copper have all done quite well, rising a respective 37%, 16% and 24% from a year ago.
Copper market update
Copper is coming off a historic year during which prices broke records on not just one, but two, separate occasions, hitting $4.76/lb in mid-October after peaking in May.
During the first half of 2021, copper rallied off the back of a sharp recovery in economic activity across the world, led by top consumer China. Also pushing prices higher was the belief that pandemic-related stimulus, plus the global push for decarbonization, will further lift demand for the industrial metal.
That saw copper prices break the $10,000/t level towards the end of April, the first time that has happened in a decade, and eventually surged to a new high the week after.
Then in the second half, copper received yet another boost amid an energy crisis that affected several major producers and threatened global supply. In October, a surge in metal orders from warehouses in Europe saw LME inventories plunge by as much as 89%, to their lowest in 47 years.
All these events factored into copper’s record-breaking year, though many believe that the red metal is just getting started. Click to read AOTHs in-depth copper market analysis;
In two decades, copper producers must, at the minimum, double the current production of 20Mt to have a chance of coming close to meeting demand. This equates to one new Escondida mine (1Mt annual production) every year for the next 20 years!
While such a feat is difficult to achieve, finding the right investments in projects leading to copper discoveries would help to close the supply gap. According to CRU, the copper industry needs to spend upwards of $100 billion to erase what it estimates to be a 4.7Mt deficit by 2030.
We aren’t the only ones feeling bullish on copper. Goldman Sachs is reportedly forecasting copper will, on average, reach $5.39 in 2022 and $5.44 in 2023. The investment bank said it expects “extreme deficits” coming as soon as mid-decade, due to a lack of new development commitments, combined with accelerating growth in green demand.
“To solve the long-term supply gap copper faces, we would need to see close to 40 new average-sized copper mine projects being approved,” LiveWire quoted Goldman saying. “And as we all know, bringing forward a new mine of any description is getting harder to achieve in a timely fashion.” Indeed in some jurisdictions, getting from discovery to resource definition to commercial production, can take upwards of 20 years.
Snow may have blanketed the Golden Triangle of northwestern British Columbia, putting a temporary halt on all mineral exploration activities, but there is still plenty of news to come out of Dolly Varden’s namesake project. Assays are pending for the 21 holes completed at the high-grade Torbrit and Kitsol Silver deposits.
In the spring, when DV returns to the property with boots on the ground, we expect to see continued investigation of the Dolly Varden project targets, including the Wolf Vein extension and Western Gold-Copper belt.
Also likely to be a priority is the connection between the historical mines/ current deposits of the Dolly Varden trend, and the deposits at Homestake Ridge 5.4 km to the northwest along the Kitsault Valley trend.
Readers stay tuned; this is a company we’ll be watching closely.
Dolly Varden Silver Corp.
Shares Outstanding 130.6m
Market cap Cdn$98.1m
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Fear And Panic As Bitcoin Crashes 50% From All Time High
Fear And Panic As Bitcoin Crashes 50% From All Time High
Just two months after cryptos hit an all time high amid widespread euphoria that…
Fear And Panic As Bitcoin Crashes 50% From All Time High
Just two months after cryptos hit an all time high amid widespread euphoria that the newly launched bitcoin ETF would lead to even more substantial upside, the two largest tokens have lost half of their value, with the broader crypto sector suffering more than $1 trillion in losses amid an accelerating liquidation panic that the Fed’s tightening cycle will lead to another crypto winter.
Such is the volatility in the sector where, as Bloomberg put it overnight, there has been just one constant recently: “decline after decline after decline.” Of course, for veteran hodlers, Bloomberg hyperbole seems trivial in a world where 80% drawdowns are the norm and the current drop may have a ways to go before it hits a bottom, before a new all time high is hit.
Where Bloomberg is right however, is that superlatives for the latest carnage have been easy to come by: Friday’s decline led to the liquidation of more than $1.1 billion in crypto futures positions and overall more than $1 trillion in market value has been destroyed since the last peak. In other words, “the meltdown is pouring salt on an already-deep wound.”
After the latest furious puke that pushed Bitcoin RSI’s indicator to the most oversold level since the covid crash in March of 2020…
… Bitcoin, which lost more than 12% on Friday, saw its price drop just above $34,000 with Ethereum sliding as low as $2,400, as the two largest digital assets now trade at a 50% discount from their all time highs and are back to levels last seen in late July, early August. Other digital currencies have suffered just as much, if not more, most meme coins mired in similar drawdowns.
While the selling has been relentless for the past two months, it accelerated in the past three weeks, after the latest Fed minutes – published in early January – showed its intention to not only hike rates but to accelerate the unwind of its balance sheet, which has sent all “bubble baskets” plunging, with bitcoin getting hit especially hard amid the carnage.
And while there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, according to Bespoke, this marks the second-largest ever decline in dollar terms for both.
“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”
Another fact that Bloomberg gets right, is that over the past year, cryptos have transformed from relatively uncorrelated assets providing diversification during market turbulence, into what is effectively a high beta stock. This is easily seen in the following chart showing the 60d correlation between cryptos and stocks. One can thank institutional adoption for that, because the same institutions that are now facing margin calls on their tech holdings, are also dumping cryptos to provide much needed liquidity.
“Crypto is reacting to the same kind of dynamics that are weighing on risk-assets globally,” said Stephane Ouellette, chief executive and co-founder of institutional crypto-platform FRNT Financial. “Unfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class it’s almost a certainty that it falls, at least temporarily in a broader alt-coin valuation contraction.”
Antoni Trenchev,, co-founder of Nexo, cites Bitcoin’s correlation to the tech-heavy Nasdaq 100, which right now is near the highest in a decade. “Bitcoin is being battered by a wave of risk-off sentiment. For further cues, keep an eye on traditional markets,” he said. “Fear and unease among investors is palpable.”
According to Art Hogan, chief market strategist at National Securities, it’s useful to think of cryptocurrencies as living in the same space as other speculative sectors, including special-purpose acquisition companies and electric-vehicle makers. “When we’re in an environment where all of those riskier assets are selling off, crypto is going to find itself doing the same,” Hogan said. “When the Nasdaq 100 or any of the other more-speculative, rapid-growth, momentum-type asset classes start to gain some traction, so will cryptocurrencies.”
Unfortunately for Bitcoin longs, one place where the token’s correlation is especially high is that to such market naplam as Cathie Wood’s sinking ARK Innovation ETF, a pandemic poster-child of speculative risk-taking. That correlation stands at around 60% year-to-date, versus about 14% for the price of gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis. It’s “reminding us to categorize Bitcoin and altcoins as risk assets rather than safe havens,” she said.
Perhaps unaware what “hodling” means, data from Coinglass shows that more than 342,000 traders had their positions closed over the past 24 hours, with liquidations totaling roughly $1.1 billion.
“Digital-currency markets in total have been challenged this month,” said Jonathan Padilla, co-founder of Snickerdoodle Labs, a blockchain company focused on data privacy. “There’s definitely some pain there.”
Though liquidations have spiked, the numbers are rather muted when compared to previous declines, according to Noelle Acheson, head of market insights at Genesis Global Trading. Acheson points out that Bitcoin’s one-week skew, which compares the cost of bearish options to bullish ones, spiked to almost 15% on Wednesday compared to an average of about 6% in the past seven days.
“This flagged a jump in bearish sentiment, in line with overall market jitters given the current macro uncertainty,” she said.
Amid the pain, some of bitcoin’s most faithful are professing patience…
HODLing #Bitcoin is painful.
If you survive the journey, you will truly know what HODL means.
— Dan Held (@danheld) January 21, 2022
… while others are starting to wonder out loud at what point the battering might end. Famed crypto investor and (former?) billionaire Mike Novogratz mused on Twitter that “this will be a year where people realize being an investor is a difficult job.”
2600 $Eth would be the next support. Hoping and thinking it holds. Unfortunately Russel has like 14 percent more to go before it bottoms. Won’t be a straight line down.
This will be a year where people realize being an investor is a difficult job.
— Mike Novogratz (@novogratz) January 21, 2022
Unfortunately for Novogratz, 2600 did not hold and Eth is now trading below 2,400.
Still, many point out that like on all previous occasions when cryptos crashed, they eventually rebounded to new all time highs. At some point, sellers will become exhausted and the market could see some capitulation soon, said Matt Maley, chief market strategist for Miller Tabak + Co. “When that happens, the institutions will come back in in a meaningful way,” he said. “Once the asset class becomes more washed-out, they’ll have a lot more confidence to come back in and buy them. They know that cryptos are not going away, so they’ll have to move back into them before long.”
But it’s not just central bank tightening fears and liquidation technicals that have depressed cryptos: one can also throw in a relentless news cycle, where just in recent days, regulators from Russia, the U.K., Singapore and Spain all announced interventions that could undermine crypto companies looking to grow in those regions. Meanwhile, the Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and task federal agencies with assessing the risks and opportunities that they pose, Bloomberg reported late on Friday.
Testing the resilience and patience of the faithful, so far the sharp drop below the psychological level of $40,000 has failed to serve as an upward inflection point. Crypto proponents say heavy liquidations often serve to cut out the froth in easy-win asset speculation, helping to solidify new bottoms in the market.
Ultimately, the real support will come from none other than the Fed, which will soon realize that it is hiking into a slowing economy…
Tightening into a slowdown… Déjà vu? pic.twitter.com/pczXzMVSxb
— Julien Bittel, CFA (@BittelJulien) January 22, 2022
… and will be forced to be far more dovish during this week’s FOMC meeting, a reversal which should serve to send risk assets sharply higher.
“Fear and unease among investors is palpable,” Nexo’s Trenchev,said. “If we see a bigger selloff in equities, expect the Fed to verbally intervene to calm nerves and that’s when Bitcoin and other cryptos will bounce.”
In other words, the more the Fed tightens – or the more the Fed scares markets into believing it will tighten – the bigger the market selloff, and the worse the economic slowdown, until eventually Powell will be forced to ease, a key point brought up by Bank of America CIO Michael Hartnett yesterday.
Incidentally, it also means that the faster markets crash, the faster the Fed panics, and is forced to stabilize stocks because even if the new and improved Powell Put is well below previous levels, the Fed can’t risk a market crash just to appease Biden’s demands for an inflationary slowdown so Democrats aren’t destroyed in the midterms.
And incidentally, this weekend’s ongoing selloff in cryptos means that while stocks are currently mercifully not trading, Monday should be another bloodbath, as Jim Bianco reminds us.
The BTC/SPX correlation is “significant”
Or as @jeffdorsman says, crypto is a 24/7 VIX.
See the table, as of this writing, Crypto is down another 10% since Friday’s NYSE Close.
If this hold, no-coiners have about 36 more hours to gloat before it is their turn. pic.twitter.com/JpWeMJZbAf
— Jim Bianco biancoresearch.eth (@biancoresearch) January 22, 2022
One thing is certain: several more 2% drops in the Nasdaq, and Powell – who two years ago crossed the Fed’s final rubicon and bought corporate bonds to halt a catastrophic collapse – will be making emergency phone calls to put an end to the carnage. As such, a continuation of the meltdown may just be the best thing that the bitcoin faithful can hope for.
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