Now's an Excellent Time to Buy Bitcoin - Goldman Sachs

August 15, 2019
“When you invest, you are buying a day that you don’t have to work”
― Aya Laraya

5-Day Change

  • Bitcoin: $10,032.82
  • Ethereum: $183.93
  • S&P 500: $2,849.90
  • Dow Jones: $25,519.20

Goldman Sachs: Nows an excellent time to buy Bitcoin

Bitcoin is set to claw back up to $14,000... at least according to a Goldman Sachs technical analysis. Of course, that makes it a great time to buy Bitcoin - if you buy Goldman’s story, that is. And though Goldman’s analysis has been overtaken by current events (namely, the recent price drop to sub $10,000), it still has a chance at coming true, as long as, in Goldman’s words, ‘ doesn’t retrace further than the $9,084 low.’ And with the price hovering around $9,900 at press time, we may just see the price head back up.

How’d Goldman get $14,000? Well, technically the number Goldman stated is $13,971, not $14,000 exactly. But that’s a minor detail - the real story is in their analysis, which relies on an Elliot Wave analysis. Put simply, Elliot Waves see price movements as occurring in repeating waves - five trends, followed by three waves of corrections. Goldman claims we’re in wave 4 of 5, and that any temporary weakness will swiftly head back up the wave peaks.

But we’ve fallen a lot further than Goldman expected: Their analysis set the first short-term stop at $10,971, though it’s clear from their diagram that they thought the trend would reassert itself by now. Considering we’ve fallen about $1,000 below their first stop. It may be that their wave ended early and we’re looking at further drops.  

How does this tie into the broader Goldman strategy?  Goldman is an investment bank, and their job is to make money regardless of whether the market is up, down, or topsy-turvy. And this latest focus on Bitcoin is right in line with their overall strategy, which is to lessen exposure to goods (things that can be hit by the trade war) and grow services (things that are slightly insulated from the same.) Since Bitcoin isn’t something that can be targeted by tariffs, it remains a reasonable alternative to goods.

Wut We Think: The bottom hasn’t fallen out of the Bitcoin price just yet - as Goldman notes, the price would have to dip to $9,000 for that to happen. And while the price drop is a bit heavy, it’s nothing that hasn’t been expected - corrections, even big corrections are a normal part of the typical growth trend. Seen that way, Goldman’s advice seems quite reasonable - Bitcoin will probably head back up, some time soon, and the current low is as good a time as any to get into Bitcoin (relatively) cheaply.

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Stocks falling amid Argentina and Hong Kong turmoil

It’s not looking good for equities... as if the US-China trade war wasn’t enough, the protests in Hong Kong have wiped out the Hang Seng’s gains since January, and there’s no way to go but down. Overall, markets have experienced the 2nd worst day this year, and with a recession looming on the radar, there’s no guarantee that there’s going to be a silver lining any time soon. And Hong Kong is far from the only market in the grips of political unrest - Argentina ‘s outlook is looking increasingly grim as well.

Isn’t Hong Kong a major financial center? It definitely is, making the fallout from the ongoing protests hard to estimate. While the Hang Seng may fall in the short term, long term unrest may result in a loss of confidence in the city as a whole, marking a shift away from HK and into other Asian hubs like Singapore and Tokyo. On the other hand, tumbling prices on the Hang Seng are opening up opportunities for investors to snap up stocks on the cheap, especially mainland investors, possibly signaling that the mainland doesn’t expect turmoil for too long.

What’s this about a recession? It isn’t just Hong Kong with bad news - a major recession indicator, one that’s predicted recessions as far back as at least the 1970s. The indicator, known as an inverted yield curve, is the difference between the yield - that is, the payback with interest - of the 2 year and 10 year US Treasury bonds. In other words, while typically the 10 year T-note would yield more than the 2 year (since you’re freezing your money for a longer time), the 2 year currently has the better yield, meaning that investors are less confident in a long term outlook than the short term - a pretty good sign of a recession oncoming.

And US stocks are reflecting the recession fears: All the major indexes have been falling all week, with the S&P is down 3.1% this week, the Dow is down 3.2%, and the NASDAQ is down 3.2% as well. Even the Fed rate cut doesn’t seem to have stemmed the bleeding, and there doesn’t seem to be a lot of positive news to be found, in either equities or bonds. The trade war, the Hong Kong protests, the threat of another Argentinian default - all of it is painting a pretty bleak picture.

Wut We Think: When traditional markets falter, there’s always crypto - though if the Bitcoin price keeps dropping, there won’t be even that to rely on anyway. Unfortunately, there’s not a lot of positive developments on the horizon, and recessions risks tend to overshadow everything anyway. Hong Kong is something to keep an especially observant eye on - the situation could deteriorate even faster and harder than it has, especially if the Chinese government escalates its response.

Wall streets most loved stocks can't shake investor fears

Energy stocks aren’t attracting interest... but they may be on track to deliver the best returns in the next 12 months. But investors aren’t biting the bullet - instead focusing on services and tech over oil and gas. A lot of that has to do with fears that oil may become the next front in the US-China trade war saga, as China looks for more ways to punch back at US threats of more tariffs.

Why aren’t investors jumping into energy? A lot of it has to do with slowing global growth and the subsequent drop in demand. Energy stockpiles are growing; trade inventories are rising, all while demand is falling. That spells a recipe for disaster, even with accelerated stock buybacks.

Where are they turning? A big hedge is tech, since most of the names in FAANG have nearly zero exposure to China. Facebook, Netflix, and Google are pretty well isolated from tariffs and currency manipulations since they do no business in China anyway. While Apple and Amazon are at risk of harder hits, the rest are more or less immune and represent a growth opportunity (especially taking into account Facebook’s recent earnings). 

Anything else? Stocks as a whole might be down, but that doesn’t excuse individual stocks from doing well. Walmart, a major US big-box retailer, and consumer sales generally are still expected to grow this month, while insurance services like medical insurer Anthem, are showing resilience to the trade war.

Wut We Think: There’s always a silver lining to be found, and domestic stocks for US investors may be it, as trade tensions, exacerbated by the Hong Kong protests, ratchet up. With analysts doubting the chances of a trade deal before 2020, we may see less international movement generally as investors flee for the safety of their home markets. Energy stocks, similar to manufacturers, are just too exposed to the war to overshadow even projected returns. Alternative options like Bitcoin and crypto could provide additional relief - but only if Bitcoin can maintain its growing safe haven image.


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