So far, 2018 has seen some dramatic panic selling across almost all financial markets.
Metals have tanked. Stocks have become volatile and have declined about 10% from all-time highs. The bond market has taken a hit as central banks have begun slowly raising interest rates (for now). And the total market cap of all cryptocurrencies has fallen by almost $600 billion dollars.
This means that many assets are currently underpriced. While most people perceive catastrophe, successful investors see opportunity.
Q3 2018 might one day be looked back upon as one of the greatest buying opportunities of the decade.
Let’s look at the severity of the recent declines in precious metals, mining stocks, cryptocurrencies, and cannabis stocks.
The quintessential safe-haven bids have provided investors little shelter from the recent market carnage. Rising rates, quantitative tightening, a stronger U.S. dollar and the risk-on trade have contributed to the demise of the metals this year. Gold has broken key support and silver has seen steep declines.
After trading between $1,300 and $1,400 through May, gold has broken beneath support at $1,200. It dipped as low at $1,167 before bouncing back to the current price of $1,195. Gold needs to reclaim $1,250 and ideally climb back above the 100-day moving average at $1,280 to turn bullish again. The RSI momentum indicator was oversold this past week until bouncing a bit in the past few sessions.
After appearing to hold steady above $16 for at least nine months straight, silver has fallen below $15 and is rapidly approaching $14. The $13.50 price level should offer strong support if the dip continues. The silver price needs to bounce back above $16 soon for our outlook to turn bullish.
Silver is the most volatile of all the metals and has been known to make rocketship-like rebounds. Q1 2016 saw silver soar over 50% in little more than a month. Roughly 50% of silver’s demand comes from industrial applications, so the strengthening economy should increase demand for physical silver.
Leverage cuts both ways and GDX has been hit especially hard. The gold miners’ ETF is down 6% in the past week and 14% over the past month. The RSI has become deeply oversold, offering an opportunity for short-term traders and long-term holders alike.
The month of August has seen an even more dramatic decline in GDX than the months that preceded it. Value investors now have the opportunity to pick up shares in quality mining stocks that are deeply undervalued. The GSB portfolio is well-positioned in junior and mid-cap mining stocks. We plan to increase exposure over the next few weeks by purchasing a few of the miners currently on our watch list.
While the marijuana index has seen steep declines over the past six months, a weekly bounce of over 10% from the 6-month low of 224.61 shows how quickly things can turn around. Prior to this bounce, most cannabis stocks had dropped at least 30% from 2018 highs. If this bounce continues a few more sessions, it increases the liklihood that we have seen the bottom for the cannabis sector sell-off.
The cannabis sector is still so young, there’s plenty of time to become an early adopter, even after this bounce. With legalization sweeping the United States and gaining momentum globally, investing in cannabis stocks now could be like buying Microsoft, Apple or Google back when they weren’t yet household names.
Cryptocurrency Panic Selling
The cryptocurrency market as a whole has seen more than half a trillion USD of market cap vanish year-to-date.
Bitcoin, the largest cryptocurrency by market cap, is down more than 60% from its all-time high of over $18,000 in January 2018. XRP, the token of the Ripple network, has collapsed by 90%. Ether, the native token of the Ethereum network, has lost about three-quarters of its dollar value since the year began.
Ethereum has seen very sharp declines amidst this recent sell-off. Panic selling has driven ETH down 75% from 2018 highs around $1,200, all the way to just below $300.
Given that ETH was trading around $7 in Q4 2016, the native token of the Ethereum network still looks to be doing pretty well for early investors.
XRP has tanked through the floor, falling almost 90% from the high of over $3.00.
The XRP token was truly in bubble territory, having climbed from less than half a penny in early 2017 to its record highs just a year later. We view it as a centralized, pre-mined, bankster coin, that will always be inferior to more de-centralized and fairly-distributed solutions.
Bitcoin has been the most resilient of the bunch, being the safe-haven bid of the crypto world.
So far, the BTC/USD ratio has kept in line with my previous prediction of holding a narrow trading range close to the $6,000 mark for some time. This could continue for a few more months before a breakout. Historically, the moon months for crypto have always been in the fourth quarter.
While Bitcoin may be down year-over-year, it still represents the gold standard of crypto and has held its own amidst much steeper declines in altcoins over the past few months. In fact, Bitcoin dominance (market share) has rocketed from 35% in May to 52% currently. Bitcoin is currently worth more than all other coins combined. Altcoins are more speculative, so they tend to suffer sharper declines during corrections, but also tend to enjoy greater gains during bull runs.
Investor Psychology 101 and Panic Selling
The average investor gets washed away in the tides of sentiment. When asset prices rise, people tend to take notice and think they just have to get in on the action right away. When asset prices fall, it feels like the sky is falling and it’s time to panic sell.
It’s no secret that this is a loser’s strategy. To make good decisions in finance, it’s necessary to remain calm and act from a place of discipline and rational restraint.
When it comes to mining stocks, cannabis stocks, precious metals, and cryptocurrencies, people tend to have even stronger emotions than usual. They can become mentally “married” to a particular asset class, stock, or token, meaning they refuse to change their position no matter what happens.
1a: something that is falsely or delusively believed or propagated.
bpsychology: a persistent false psychotic belief regarding the self or persons or objects outside the self that is maintained despite indisputable evidence to the contrary.
The sad truth is most investors live in a constant state of delusion when it comes to their assets. Instead of examining trends and evidence in order to come to a rational conclusion, it’s more common to create the desired conclusion and discount any evidence that contradicts that conclusion.
Panic Selling is Not the Answer
In order to buy low and sell high, you have to swim against the tides of bearishness and bullishness. August of 2018 represents the best buying opportunity of the year so far for almost all asset classes. But do most people perceive things this way? No. The more common view is that the end is nigh and all hope has died.
Like clockwork, once asset prices begin to rise, the bulls will begin screaming that now is the time to buy. But by then it will already be too late. The bottom may already have been reached by the time you read this, whatever asset class you choose.
Keep in mind that trying to time the absolute bottom or perfect peak is also a mistake. While you want to buy at a low, waiting for the very pit of a dip is impossible. It causes you to wait so long that the inevitable bounce comes before you were able to seize the opportunity.
Likewise, selling near a high is great, but waiting for the tip-top of a meteoric rise leads you into the same trap. By the time you take profits, a correction will already have hit.
Easy Ways to Mitigate Risk
For the sake of this argument, we’ve been discounting two ways to get around the typical herd mentality that causes most people to lose money. These include stop-loss orders and buying and holding.
First, you can place stop-limit and stop-loss orders. These give you the option to minimize your losses and lock in your gains without having to keep a constant eye on the markets.
Buy and Hold
Alternatively, you can buy and hold for the long-term. This strategy is much easier for the average person and can lead to the largest gains.
Don’t fool yourself into thinking you’re some master day trader that can make millions trading penny stocks in a couple of months. Arrogance is another fatal flaw in this regard.
Case in point. I once had a friend who lost over $10,000 in less than a year because he kept making massive bets on penny stocks based on news reports or a single technical indicator. This never worked. Using this kind of method is not falling victim to the investor herd mentality, but is pure gambling.
A much better method is to take the contrarian perspective and act accordingly.
Panic Selling and the Contrarian Perspective
Contrarian investing involves doing the opposite of what everyone else is doing. Capitalize on the momentum of the herd instead of being trampled by it.
Consider the following definition of contrarian investing courtesy of Wendy Connick of The Motley Fool:
Contrarian investing is the practice of bucking the herd. Contrarians buy stock when everyone else is panicking and selling theirs, because they know that a flood of stock sales means that the market is near, or at, its bottom and will soon begin to recover. They sell whenever investors become extremely optimistic, because when everyone is buying that usually means the market is at or near a peak and is about to take a dive.
For example, the doom and gloom that this article has so far focused on might make you think that now is not the time to get into crypto, stocks, gold, or anything else. But in reality, nothing could be further from the truth.
A buying opportunity like this will probably not come around again for quite some time. While the broader stock market is still mostly overvalued (particularly tech stocks), mining stocks and cannabis stocks still have significant upside potential going forward.
For those who are betting on much greater U.S. stock market gains ahead, please realize just how overvalued the market is currently (it’s worse than in 1929!). The odds are against much further gains. You need to be realistic. https://t.co/UUu9ltAzywpic.twitter.com/yHDcYofXID
In the financial markets, investors or traders have weak hands when they lack either the conviction to stick with an investing or trading plan or they lack the resources to carry them out. Their are usually small speculators exhibiting predictable behavior. They buy near tops and panic sell at bottoms.
Don’t be the weak hands that panic sell at the worst moment. It’s easy to freak out and feel like you’d better cut your losses before they become even deeper. But what you usually wind up doing is depriving yourself of future gains instead. If you are involved in short-term trading, utilize stop-loss orders to take the option of panic selling near a bottom off the table.
When the world is panic selling, take the contrarian perspective. Buy what you can while it’s still undervalued and wait for the bulls to begin running again. Whether you’re trading for short-term gains or holding for long-term profits, it’s times like these that represent monumental opportunities.
Join us now for just $55 to follow our trades, see which stocks we believe will outperform, discover under-the-radar cannabis companies prepping for huge growth, get our take on the cryptocurrency markets and our top crypto picks for the next move higher.
We have previously written about the tragic situation in Venezuela with the Bolivar enteringhyperinflationand how some Venezuelan citizens have turned to crypto as a financial lifeboat of sorts.
Avestacan also be part of the solution in preventing catastrophes like this from happening in the first place. The demand for crypto in Africa shows that it can be done.
In June of 2018, the Paxful exchange saw over 770,000 bitcoin trades occurring in Nigeria and over 50,000 in Ghana. And that’s only two African nations interacting with a single exchange. These numbers provide a glimpse into the great potential for developing nations and cryptocurrency.
Unbanked populations of countries being ravaged by the effects of runaway inflation stand to benefit the most from the integration of cryptocurrency and blockchain technology.
We’ve also written much about the potentialcrypto market in Africa. In addition to having extraordinary demand for cryptocurrency services, the African continent has the largest population of unbanked adults in the world.
Coinbase Charity to Bring Developing Nations Cryptocurrency
In addition, Coinbase recently announced the creation of a charity aimed atbringing developing nations cryptocurrency. The charity intends to donate cryptocurrency to those in developing nations who are not currently able to participate in any financial system.
Brian Armstrong, CEO of Coinbase, gave the following statement, as summarized byCoindesk:
“In a release, Armstrong wrote that “most people I respect and know in the crypto ecosystem believe we have a moral responsibility to shepherd this technology forward in a way that allows it to reach its full potential.” He cited lower fees, reduced transaction times, micropayments and mobile device-friendly payment systems as some of the advantages for blockchain technology.”
It’s interesting to note thatAvestafulfills all of the advantages listed.“Lower fees, reduced transactions times, micropayments and device-friendly (including point-of-sale) payment systems” are all features ofAvesta.
According to a 2012 report issued byThe World Bank, the “unbanked,” or people without access to traditional banking services, total approximately 2.5 billion. That’s about one-third of the world’s present population.
Without access to a financial account, it’s unlikely that an unbanked person will have the means by which to escape poverty. And three out of four people that are in poverty are also unbanked, according to the same World Bank report.
Avesta – the Developing Nations’ Cryptocurrency
Avestaaims to provide a means by which the unbanked can use crypto as well. Being easily integrated into point-of-sale systems, merchants everywhere can use Avesta tokens as a means of payment and receipt.
The unbanked in Africa and elsewhere will benefit from Avesta as its low transaction fees allow for financial actors of all sizes to take part in its financial ecosystem.
On top of its ease of use and utility value, Avesta will also solve the legal issues surrounding the use of crypto. From the Avesta white paper:
“By partnering with legal entities around the world, Avesta will launch the development of a legal framework for wider adoption of blockchain technologies and payment solutions.”
In 2018, the world finds itself at a unique crossroads.
With fiat currencies failing around the globe at an alarming rate, citizens of all nations will soon have to make a choice, assuming they haven’t had to do so already.
The choice is simple. Will we continue to suffer the consequences of unlimited money printing at the hands of private banks? Or will we choose to adopt new, decentralized methods of storing and exchanging value like Bitcoin and Avesta?
The African continent, in particular, has a number of countries that have begun to see their fiat currencies collapse at freefall speed.
When fiat currencies fail, the daily endeavors of businesses and citizens change dramatically. People find it hard to obtain the basic necessities of life such as food, water, and energy as the cost of everything begins to increase exponentially. What costs fifty units of fiat currency one day might cost seventy-five the next.
While there are a handful of nations experiencing this very scenario right now during the second half of 2018, two stand out in particular: Sudan and Venezuela.
Fiat Currency Failing in Venezuela
Over the past several years, the Venezuelan Bolivar has entered hyperinflationary collapse.
Food and medicine have become scarce while the demand for hard currency and alternative currencies has increased.
In Venezuela, merchants have begun demanding physical currency notes instead of credit cards. Yahoo News reports that seniors have recently taken to the streets in protest, demanding that their pensions be paid in cash:
“Currency notes are in very short supply; in some markets, food and other basic goods can be purchased for three times less if the buyer pays cash.
So seniors are desperate to stretch their income by paying in cash.
Octo says he often has to get up at 3:00 am to go wait outside the bank and withdraw money.
“If we have to pay with a card, we are getting robbed,” Octo explained. What could cost 10,000 bolivars in cash costs 40,000 with a card.”
As a consequence of all this currency devaluation, some individuals have turned to mining bitcoin in order to survive.
While exchange rates for their local fiat currency continue diminishing precipitously, the exchange rate for crypto is rising. This inverse relationship is the main reason why crypto adoption will continue to increase.
Sudan is also facing circumstances similar to that of Venezuela.
In response to an abrupt devaluation of the Sudanese Pound, banks have limited the amount of currency anyone can withdraw from their account.
While in theory, this prevents the Pound from devaluing further by restricting people’s ability to trade Pounds for other currencies, in reality, it cements the idea that the currency has reached a breaking point and initiates further panic.
Sudan’s inflation rate has skyrocketed to a record high of 122%. #Sudan has surpassed South Sudan and now has second highest inflation rate in the world after Venezuela. pic.twitter.com/vIlCEvEDfi
“spark a revolution in cryptocurrency that leads to mass adoption and an environment where cryptocurrency is used at point of sales.”
Once this has been accomplished, economic systems in Africa and elsewhere will have a chance to stabilize. Citizens of the world will be able to conduct fast, affordable transactions with currencies that have intrinsic value without worrying about fiat currencies failing.