I wrote the bulk of this edition of the newsletter last night, but I wrote the “preface” below today before publishing this.
This market is now approaching uncharted waters in respect to how it has historically functioned during bull runs. If we break $30k in BTC’s price, the upward trend of this cycle technically breaks. Some say we’ll bounce between $30k and $40k for a while before another break out. Some say that bouncing will occur between $20k and $30k. No one really knows. No one ever does. We can only make judgements based on historical trends, which is what I and others have been doing. I sold about 3-4% my holdings today, because my gut says we are going a little lower. I’ll buy back in when I feel we are there. Still hard to tell where “there” will be, though.
Generally speaking, I don’t think we will head back into a bear market just yet, but we could, so prepare accordingly. My gut tells me that the following factors are what has brought us to this place of fear and panic:
Far too much leverage in the system; I wrote about this in the previous edition of the newsletter. It wasn’t enough for people to make more-than-decent returns on their money by just holding these digital assets; they needed cocaine with their heroine, and now we all get to experience the hangover
Institutions like JPMorgan and Goldman Sachs are just getting their digital asset trading desks set up. They likely wanted in at better prices and they are now getting what they wanted. As you can probably tell from previous editions of this newsletter, I despise these institutions. It was likely naive of me to think that retail could front run institutions to these assets. I have not made up my mind about whether or not I feel the ethos of Bitcoin or crypto still exists with these institutions being such large players now. I’ll share my thoughts on that as they develop further
An “unprecedented” (see below) amount of fear, uncertainty, and doubt flooded the market, shaking especially its newer participants. Will these newer participants recover from this? I don’t know. Will the market recover from this? Likely in the long term, but what has happened will likely take some time to repair
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Below is what I wrote last night:
Like many in the digital asset space, I have been sifting through the ashes of the recent crash in efforts to get a better sense of why this downturn was/has been so severe. We know that the main cause of the crash was once again over-leveraged traders who were liquidated en masse. With this leverage wiped out of the market, the market should bounce back within the coming weeks. But according to some that have been in the space longer than I have, the FUD pile on that triggered the crash and that is currently working to keep Bitcoin’s price down is “unprecedented”.
Kling is the founder and chief investment officer of Ikigai Asset Management, a well-known and well-respected digital asset management fund formed after the 2017 crypto bull run. And, yes, he isn’t being hyperbolic when he said that the pope actually got in on the FUD pile on.
Granted, this could be interpreted more broadly, but it did come at an oddly opportune moment. Before I continue, though, let’s all just take a moment to appreciate the cartoon below.
So, yeah, the powers that be may have even gotten to His Holiness to help to continue to rattle the market and its retail participants. I guess the nation-state attacks just weren’t enough. The powers that be had to throw it back the power that was in control of most everything in the Western world prior to the hardening of nation-state borders - the uber power that be. In a million years, I just didn’t see the pope weighing in on this, at least not at these price levels. He didn’t use the key word of the hour, “gyrations”, though, so who knows if he was really in on it?
Kind of reminds me of this.
(Kind of humorous to even make the argument that you aren’t being programmed by the mainstream media (MSM) and the handful of companies that own and produce it, no?)
As I said in the last edition of the newsletter, I feared that this pile on was coming while the asset class at large was against the ropes. And come it has. One can only wonder what narrative the MSM will run with next.
This is what desperation looks like. French novelist and playwright Victor Hugo once said, “Nothing is more powerful than an idea whose time has come.” The time for an inherently deflationary asset like Bitcoin has come. All fiat currencies that have ever existed eventually have gone/go to zero. And hyperinflation usually precedes their demise. Are we about to experience hyperinflation in the U.S. and possibly in other countries around the world? Maybe. It’s hard to really predict such things as there are so many variables. Does it mean that the world could or should adopt Bitcoin as a standard tomorrow? In my humble opinion, no. Its price action is still far too volatile for it to play that role. It can currently coexist with fiat currencies, though, and people should be free to use it to store value in it if they see it as a vessel fit for such a purpose, especially when the national debt of the current world superpower, the U.S., is currently $28,000,000,000,000+ and climbing and the balance sheet of the Fed is almost $8,000,000,000,000 (this is to just illustrate the trouble the U.S. is in; I haven’t even touched on the woes of other developed countries and their currencies). What can the U.S. government or the Fed (which isn’t a part of the U.S. government) logically argue? “Don’t worry, we’ve got everything under control”? It doesn’t appear that way to many.
So, when there isn’t a logical answer to things, governments and the MSM begin to do what they do best: they incite fear and panic, as they know it’s the best means of control. So far, the media has run with both the “Biden crypto tax” narrative and the “China bans Bitcoin” (for the 4,095,093,090,590,395th time) narrative.
Most in the space saw these coming. But, I ask in all seriousness: What is next and how intense will this fight get? Holding Bitcoin inevitably seems like it will become more than a financial strategy.
At some point, it will likely become a political stance, and if governments and the media don’t scare you out of your position, then what happens? I genuinely don’t want to think about it, and the only thing that comes to mind is, “Why did it even have to get to a point where technologists had to create magic internet money in response to governments’ inability to manage their finances in a just and equitable way?” As someone who has been diagnosed with OCD, I often find myself in search of a logical conclusion to things. Sometimes I go way too deep down rabbit holes, when, in reality, I should likely leave well enough alone. I don’t like the rising tensions surrounding Bitcoin v. governments, the media, etc. Some people seem to get off on it. I don’t. Ideally, I’d like for things to be peaceful. But as a previous pope said, “If you want peace, work for justice.” I don’t think Bitcoin in and of itself is “justice”. That would just be crazy talk. However, it is a counter to the Fed, the institution that is fueling the widening inequality gap. And as its power as a counter to the Fed continues to grow, so too will the attacks on it. I’m not excited about this. It actually turns my stomach. I don’t want to deal with the stress that will likely come with the further attacks on it. And these attacks could become as strong as the government shutting down exchanges, the on and off ramps for crypto. The government could also decide to tax digital asset gains at a higher rate as an effort to stop people from investing in them. The S. Korean government has already done this. And all the while, this digital asset movement seems to have more teeth than any rally or protest march I’ve ever attended. And there’s a potential asymmetric return to be made in the process. Such an odd combination. It feels too good to be true. Maybe it is. Or maybe digital assets simply find their place in the current system and eventually become less volatile. We shall see.
I do believe that the price of Bitcoin bounces back from here, and while I was being facetious when I argued that “Bitcoin is a bullshit meter” in a previous edition of the newsletter, I do think that there is some sort of poetic truth to the statement. But as the price increases, so will the attacks on it. There will likely be sharp upticks in price followed by more major corrections. The volatility will not be fun to stomach. When people say that all you have to do is buy Bitcoin and hold it, they didn’t say that holding it through a bull market has the potential to age you a few decades. I am still learning, and what I continue to learn is that change - both personal and systemic - isn’t easy. Sometimes it feels downright miserable, especially once you strike a nerve with the powers that be. Where do we go from here? I don’t know, but I can say with more certainty is that the road ahead will be quite rocky. As I am not a financial advisor and am not in the business of giving financial advice, I will say that it seems worth considering your risk profile when it comes to investing in digital assets, because while I do think Bitcoin eventually gets to a point where it’s more stable and, in turn, a decentralized store of value, we are still a ways off from that and the process of getting there will likely be a lot to stomach.
On a Better Note…
Apparently, a number of newer whales in the space lost a ton of their Bitcoin in this recent wash out, and that money was redistributed to a number of new wallets that own very small amounts of Bitcoin. The chart below shows an increase in Bitcoin supply held by new entrants with a balance of 0.01 to 0.1 Bitcoins.
Also, a number of new addresses have begun to acquire this now cheaper Bitcoin during this selloff.
More people in. More spreading of the wealth. This is what I am here for, even if being here right now doesn’t feel all that great.
Best,
Frank
Twitter: @frankcorva
Nine out of ten doctors say Bitcoin causes herpes.
Bitcoin trips blind people on the subway platform.