But we know from history that these bull markets don’t last forever.

At some point, a macro down-cycle comes around, sending asset prices tumbling. Yet, predicting down-cycles can be very difficult. When fundamentals erode, bullish investor sentiment can still maintain price levels.

By studying the historical trends, we can make an educated guess on where we are in the current cycle:

At just over 8 years into the current bull market, and with historical bull runs around 9 years on average, we are statistically likely to see a down-cycle within the next few years.

Some traditional metrics support the view that asset prices are nearing peaks. High cyclically adjusted price-to-earnings ratio (CAPE) and price-to-book (PB) ratios are two examples. CAPE and PB are far from perfect as predictive metrics, but still can tell us about where we may stand in the cycle.

CAPE Ratio Historically

CAPE Ratio at 2nd highest point in last 100 years. Not perfect, but an interesting datapoint when thinking about cycles

Weathering The Storm

The last two US-based recessions originated from exploding asset bubbles. These bubbles caused systemic damage across the economy, affecting many asset classes. The Dot-Com Bubble and Great Recession seem obvious when looking back today. Yet, they doomed many professional and amateur investors at the time.

Investors can hold store of value or counter-cyclical assets to combat down-cycles. Counter-cyclical investments are useful because they may rise while other assets are falling. These opposite movements can help offset losses that occur during a down-cycle.

The downside of counter-cyclical investments tends to be losing gains from riskier assets that have higher returns during normal economic conditions.

We’ve already looked at some of the merits of Bitcoin as a store of value asset. Here, we will take that a step further with a prediction:

If Bitcoin can be a store of value, it will be counter-cyclical and grow in value in the next global recession.

Bitcoin is young (born 2009) and only recently developed significant global trading volume. Because of that, we don’t have data on how it performs during something like the Great Recession. However, we can make an educated guess in two ways: