Trump To Reportedly Open The Floodgates Of 401K Money To Cryptos; Bitcoin Could Reach $250K

To gain an edge, this is what you need to know today.

Trump Gambit

Please click here for an enlarged chart of Bitcoin BTC/USD.

Note the following:

• The chart shows that after the breakout above zone 1 (support), bitcoin has been consolidating in a narrow range.
• Typically, the bitcoin pattern shown on the chart leads to a pullback before a move higher.  However, a new executive order that President Trump is about to sign has the potential to not only stop the pullback but push bitcoin higher.  The first magnet for traders is $140K.
• President Trump’s executive order has the potential to push bitcoin to $250K and then potentially to $1M in the long term.  By now, you may be asking what is President Trump about to do that is going to light a fire under bitcoin — President Trump appears to be ready to sign an executive order to open the floodgates of retirement money, including 401K money, to cryptos.
• To understand what President Trump is about to do, investors need to understand the history of retirement plans in the United States.
  • Before 1963, retirement fund scandals were common, as there were not stringent federal requirements to protect workers’ retirement money.  Many employers raided their pension funds for ulterior purposes and often mismanaged retirement funds that cost workers their retirement.  
  • The key catalyst came in 1963, when the Studebaker Auto Company collapsed, causing thousands of workers to lose their pensions.  The Studebaker collapse and other scandals lead to Congress passing the Employee Retirement Income Security Act (ERISA).
  • ERISA established three standards:
    • Retirement plan sponsors have a fiduciary duty to act prudently in the best interest of participants.
    • Investment decisions must be made in a way that a prudent man would make to protect retirement funds.
    • Retirement plans must avoid concentration of assets in risky assets.
• As crypto gained popularity, in 2022 the Department of Labor cautioned plan sponsors against including cryptos in 401K’s due to the high risk.
• President Trump is now set to issue an executive order directing regulators to remove barriers to retirement plan money, especially 401K money, to flow into cryptos.
• Prudent investors need to get ahead of the curve and understand that President Trump’s action will open the floodgates of 401K money to cryptos.  
• Prudent investors also need to look ahead to midterm elections.  In a midterm election, historically, the President’s party loses an average of 3.6 Senate seats and 28 House seats.
• Opening the floodgates of 401K money to crypto will strengthen the financial support the crypto industry has been providing to President Trump.  The crypto industry provided more than $250M to support Trump’s campaign for re-election.
• Allowing cryptos in 401Ks will open up a new source of revenue for Wall Street firms, increasing support of Wall Street firms for Republicans in the midterm elections.
• Money is a big influence in U.S. elections.  Prudent investors should expect many Democrats who have been resistant to cryptos to change their minds and jump on the crypto bandwagon to raise money for the midterm election.
• In our analysis, here is a key question prudent investors need to ask: The prevailing wisdom is that cryptos can only go up, what happens if the prevailing wisdom turns out to be wrong and cryptos go down?  If cryptos in 401K’s go up, it will certainly help Republicans in the midterm elections, but what happens if people lose money on cryptos in their 401K’s?  If cryptos go down and people lose their retirement funds, will they blame President Trump and in hindsight, call this an imprudent policy?
• Allowing cryptos in 401K’s will also help the stock market as long as the prevailing wisdom that cryptos only go up proves correct. 
• Should prudent investors be swept into the frenzy generated by the prevailing wisdom that cryptos only go up?  In our analysis, prudent investors need to remember that history has shown us the prevailing wisdom often turns out to be wrong.  
• Prudent investors should pay special attention to our second law of investing and trading: “Nobody knows with certainty, what is going to happen next in the markets.”
• In our analysis, there is merit to cryptos, but they should only be a very small part of the portfolio at this time.  As full disclosure, iShares Bitcoin Trust ETF (IBIT) is in the Core Model Portfolio of our ZYX Buy and our ZYX Allocation.
• Monthly options are expiring today.  So far this week, option expiration has been exerting upside influence on the stock market.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin BTC/USD is range bound.  

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors. 

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.