Will the Inverse Cramer strategy work with Bitcoin (BTC)? This is the question that people familiar with the predictions of CNBC MadMoney host Jim Cramer are popping out right now as he just gave his negative prediction on the crypto.
Cramer’s Prediction
Recently, on an episode of Mad Money, Cramer advised investors to pivot in favor of gold rather than cryptocurrencies, particularly Bitcoin. Citing the chart produced by DeCarley Trading that pitted Bitcoin futures performance against Nasdaq100 since March 2021 when both indexes began oscillating in tandem. Commenting on this graph, he claimed that Bitcoin is neither an accepted currency nor a reliable instrument for storing value over time.
The analyst host urged investors to “ignore crypto cheerleaders” amid the rising value of Bitcoin. He instead placed emphasis on gold as the “real hedge” against inflation or economic uncertainty.
Bitcoin’s Value
Bitcoin‘s value experienced an unprecedented spike in 2021, as it surpassed 65,000 USD in November. This particular surge was associated with the establishment of Bitcoin exchange-traded funds (ETFs) within the United States and other catalysts throughout 2021 such as Tesla’s announcement to buy 1.5 billion dollars’ worth of digital coins in March and Coinbase’s IPO that triggered widespread enthusiasm.
The surge in Bitcoin’s value came as a surprise to many experts, who had predicted a moderate rise of only 15%. This sudden growth has been attributed to the increasing institutional interest in cryptocurrencies, which is largely driven by decentralization and increased security.
In addition, the rise in BTC has been further bolstered by a surge of retail investors into crypto markets, as more and more people see digital coins as an attractive investment opportunity. This is due to the fact that many of the world’s leading financial institutions are now offering a range of products related to digital coins and blockchain technology, such as futures contracts and ETFs.
However, the post-pandemic scenario saw BTC dive until it reached a low of 15,312.76 USD on a 52-week range from the present and settling down to around 22,936 USD as of writing amid the effects of the FTX fiasco in the background. The massive slump of the coin last year was heavily attributed to China’s crackdown on cryptocurrencies and Tesla backing out from its support of Bitcoin.
Applying the Inverse Cramer Strategy
The Inverse Cramer approach to trading involves taking a contrarian stance regarding the financial advices made by the MadMoney host on air with the expectation that such a move would yield great returns on such investments. Effectively, this strategy has given a significant number of investors an edge over the market with favorable alpha generation results from its implementation.
The Inverse Cramer theory stemmed from the said analyst’s top predictions over the past couple of years missing their marks. Traders and investors believe that this is due to his projections being ill-advised or too premature. Likewise, they strongly think that Cramer is out of touch when it comes to the crypto market.
Seeking Alpha analyzed Cramer’s top 10 picks over a period and has betted against them while utilizing equal weighting and weekly rebalancing on the portfolio. More often than not, the strategy yielded positive results wherein it was estimated that a 100 million USD investment in the past two years would have compounded to 147.20 million USD today if the Inverse Cramer was applied.
Now, that Cramer is acting as a doomsayer for BTC, traders and investors, especially those who continue to be supporters of meme stocks and coins, are betting against him because they are seeing this as a strong “buy” signal.
In fact, there is even a dedicated website now called the Inverse Cramer ETF that tracks the CNBC host’s forecasts in order to be used in their long and short positions in the stock and crypto markets.
Final Thoughts
While the Inverse Cramer strategy does have its strong basis, it should be noted that going against the decades of experience that Jim Cramer has in the industry would be a huge gamble. Simply going with the hype dictated by the crowd exposes one to a risk of being a bag holder in the future if all else fails.
As always, it would not pain you to study the fundamentals and pay attention to the more sound signals produced by technical analysis when investing to mitigate your risk rather than simply blindly joining the bandwagon.