It’s 2017. Trump is our president, the stock market is reaching new highs, and we’re on the brink of financial turmoil. Ray Dalio, founder and CEO of the world’s largest hedge fund, voiced his concern for the unsustainable growth in the finance and equity markets over the last several months. Touted as one of the greatest financial minds alive, Dalio forecasted a market crash in upcoming years.
Judging from historical trends regarding the intertwined nature of the USD and equity markets, a collapse in the stock market also means a collapse in the value of the dollar shortly after. This decrease in the value of the dollar happens due to the economic fallout resulting from the stock market crash.
Below is a graph of the value of the USD over the last several decades.
Below is a graph of the S&P 500 over the same time period. Take note of the downtrends during the infamous crashes of 2000 and 2008. The graphs show a direct correlation between market performance and the value of the dollar.
It’s important to note that the decrease in the dollar value occurs approximately 1 year after each respective market crash. This is because the dollar decreases as a result of the weak economy created by the stock market crash, not directly because of the crash.
So what does a weak USD mean for cryptocurrencies? When people lose faith in the USD, they seek alternate means of retaining their assets. During our next crash, the economic catastrophe coupled with the ever-increasing debt of the United States will cause the demand for a decentralized currency to skyrocket.
This hypothesis is supported by the rise of Bitcoin after Brexit sent the value of the British Pound into a free-fall.
It’s easy to get caught up in the hype of cryptocurrencies producing 500% returns in the course of a week. But let’s not forget the bigger picture here. Cryptocurrencies are presenting one of the greatest investment opportunities of our time. Gains from trading the short-term fluctuations in cryptocurrency value will eventually be surpassed by the patient, long-term holders who understand the magnitude of the fiscal revolution that’s about to unfold.
"Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant."
-Warren Buffett
Sources:
Image: http://www.businessinsider.com/artificial-intelligence-team-at-bridgewater-2015-2
Ray Dalio interview: http://www.marketwatch.com/story/hedge-fund-pro-ray-dalio-has-some-bad-news-says-for-stock-market-investors-2017-05-12
USD Graph: http://www.macrotrends.net/1329/us-dollar-index-historical-chart
S&P 500 Graph: http://www.macrotrends.net/2324/sp-500-historical-chart-data