The Power of Drawdowns #Bitcoin #Amazon #FAANGS

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The immortal Jackie Gleason once said, “the only problem with losing 50% is… you need double to get it all back.”

Late this week, Bitcoin dropped under $7,000, to trade nearly 20% below Wednesday’s all-time high.  That shaved well over $1,000 off her sky-high price.

In a tweet in July, we called for a bounce – noted bitcoin’s support level down near its 100-day moving average.  Today, this level appears miles away at $4119 ($6581 Friday’s close), but as history’s lesson – she can be there in a New York minute.

Bitcoin dropped to $6,418 on the Luxembourg-based Bitstamp exchange by 1200 GMT Friday, before recovering a touch to trade at $6,664 only minutes later.  A violent week indeed.

Famous Asset Bubbles within 9 Yrs of Peak

Bitcoin 2011-2017: 66x
Tulip Mania 1617-1622: 53x
Nasdaq 1991-1999: 13x
Oil 2001-2008: 7x
Silver 2004-2013: 6x
Miami Condo Mkt 1998-2007: 6x
Nikkei 1982-1990: 5x
Nasdaq 100: 2009-2017 5x
US Stocks Dow 1921-1929: 5x

“But, but but… Bitcoin is the future” the young man screamed across the room.  The thing about manias comes down to measuring just how much goodwill is priced in?  The Amazon AMZN lesson is an investor classic. From June in 1997 to June in 1999 the stock was 7100% higher (yes 71x!) – only to lose 95% of its value by 2001. In took over a decade but Amazon was able to take out its 1999 high by early 2010. Eleven years of growth was priced into its first two years as a publicly traded company. Ultimately, the equity grew into its expected growth profile, but this lesson remains one for Bitcoin investors today. In determining your entry point into a once a decade secular trend, we must determine how much is priced in relative to the long-term upside. Bottom line: most investors DO NOT have the patience to capture long-term gains once a major drawdown takes hold.

Bitcoin’s $7882.10 perch was reached Wednesday after a software upgrade anticipated for next week  – would have split the cryptocurrency in two,  news of a suspension triggered a relief surge.

The Rocky Trading History of Bitcoin
A 2013 investment in bitcoin took nearly three years to get back to even after a nearly 80% loss.  Indeed, Bitcoin is not for the faint of heart. 

FAANG Equities

Netflix $NFLX 2008-2017: 78x
Amazon $AMZN 2008-2017: 31x
Apple $AAPL 2009-2017: 14x
Facebook $FB: 2012-2017: 9x
Google $GOOGL 2008-2017: 7x

FAANG equities are a POUNDING the table, screaming sell.  Since 2010, Amazon has had six drawdowns of 15 to 30%, three of which were thirdy percent.  Sit in the boat and buy fear in fangs.