Cryptocurrency & How J2 Capital Management is Playing the Bitcoin Rally

Bitcoin made its debut in 2009 and has grown exponentially since. As of November, Bitcoin is valued at a little over $19,000 per coin.¹ Cryptocurrency and the blockchain technology has continued to gain popularity over the past decade, and investors are still turning to this alternative market in 2020. As we continue experiencing a year of financial uncertainty, here’s where the world stands when it comes to cryptocurrency.  

Bitcoin and COVID-19

Between March 5 and March 12, Bitcoin dropped over $3,600 in price - the biggest plunge this popular cryptocurrency has experienced in over seven years.¹ Feeling some deja vu? As most investors remember, the stock market crash of 2020 also occurred around the same time, beginning on March 9. 

Similar to the traditional markets, cryptocurrency likely plummeted in response to investor uncertainty surrounding the coronavirus, as well as the decline and disparities over the price of oil in the Middle East, some experts believe.²   

It’s important to note, however, that Bitcoin rebounded fairly quickly, reaching it’s pre-pandemic pricing by the beginning of May.¹ Does this indicate that cryptocurrency may be a safer option for investors during times of financial turmoil? There is no certainty in the answer to that question, but many investors are finding it to be an appealing alternative (or addition) to portfolios based in traditional markets.  

Blockchain: What Is It?

Blockchain is described as an incorruptible digital ledger of economic transactions. It can be used to record financial transactions or virtually anything with value. It works as a digital ledger keeping record of all transactions taking place across a peer-to-peer network in real-time.

How Does Blockchain Work?

Imagine the blockchain as a book of records with a countless number of pages. Each page in this book is referred to as a block that can be programmed to record virtually anything. The pages (blocks) are then created one after the other and chained together simultaneously, creating a chain of blocks referred to as the blockchain. 

The various blockchain records are maintained on a large network of networks, meaning no single person or entity has control over the records' history. Every time new information is accessed and updated, the changes made are verified and recorded before being encrypted and sealed off completely, unable to be edited again.

How J2 is playing the Bitcoin Rally

We were allocated to Bitcoin before the rally began off the thesis that it would serve as a hedge against inflation and we were seeing some early signs of relative strength. We allocated it across a couple of strategies that we run. Sector Rotation and Millenial Disruptors.

• In our Sector Rotation strategy, we look for sectors showing relative strength compared to the overall market. Bitcoin was showing early signs of relative strength in early October and the added narrative behind more fiscal stimulus fueled the rally even more as many feared more money printing and inflation on the horizon.
• In our Millenial Disruptors strategy, we are focused on disruptive companies with competitive advantages, network effects, proprietary technology, and quality brands. Bitcoin demonstrates all of these characteristics so it was an easy addition to our fintech thematic allocation.

Let's not forget that Bitcoin is up over 100% in less than  2 months and if you were around during the 2017 rally you know how fast and volatile things can get as FOMO (Fear of missing out) sets in.  So while the price is appreciating quite nicely right now, pullbacks are to be expected, but we still believe in the underlying technology, digital gold store of value, and hedge against fiat devaluation.