Is Crypto Dead? Nope. But It Might Feel Like It.
What previous crypto crashes can tell us about the crypto crash of 2022.
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” — Bitcoin Genesis Block
The Crypto Crash
If you are recently rekt, and especially if you jumped in the crypto game in 2021 at the highs, I feel your pain. I wouldn’t blame you if you’re so frustrated you want to quit.
If you are thinking about quitting, I’d recommend some reflection and perspective. Just know, the overwhelming likelihood is crypto markets will recover.
The trick is to know when and why they’re likely to recover.
Crypto “Experts” and Recency Bias
Crypto Twitter (CT) and Crypto YouTube (CYT) love talking about the “history” of crypto, or the “history” of Bitcoin. Let’s be real for a second.
Bitcoin is 13 years old.
If a 13-year old kid came up to you and said, “I’ve never had a bad break up and I never will” you would instantly know that’s a ridiculous thing to say. But when some CT expert says “Bitcoin has never gone below a previous all-time high” people eat it up.
It boggles the mind.
The quote at the top of this article is there for a reason. It sums up why Bitcoin is important. We’ll get to that in a minute.
Most crypto “experts” will disagree with the following thesis and I don’t care. I’ve managed to preserve my capital while many of them are completely rekt. It’s not because I’m some super-genius or anything.
I just look at things a little differently.
Fun Bitcoin Chart #1
The following chart is important if you want to understand recent price action in the crypto sphere. The green lines are post-Covid stimulus checks, BTC price is logarithmic:
This chart is important because crypto is a retail oriented, bubble asset that is mostly driven by expansionary monetary policy. Bitcoin was born in the aftermath of the collapse of 2008 and the bank bailouts.
The central banks of the world have no choice but to keep inflating the money supply to prop up ponzi-scheme equity and debt markets. Crypto in general, and Bitcoin in particular, might be a way to save yourself from the inevitable calamity that is going to cause.
But right now, Bitcoin and crypto investors are (generally speaking) educated, high-income men in the United States and Europe. Put a different way, they are the people that did just fine during Covid.
They kept their jobs, they got to work from home, and when given free Stimmie checks, they dumped it into crypto markets and Bitcoin. I’m one of them and that’s exactly what I did.
Stimmie One took BTC from $4800 to $20k, Stimmie Two took BTC from $20k to $68k, Stimmie Three “bought the dip” at $45k and pushed BTC back to $68k. What happened when the Stimmies ran out?
Crypto markets dumped.
This isn’t rocket science. But what about the war in Ukraine? Or inflation? Markets were coming down before any of that was in the headlines. That stuff just sped it up.
It doesn’t matter what the CT and CYT crypto narratives about “use cases” and “stores of value” say. From an investing perspective, it’s all trash with promising tech.
Until those promises are realised, crypto markets live and die by loose monetary policy.
Fun Bitcoin Chart #2
The following chart is important if you want to understand when markets will probably start rebounding. This chart is the US M1 Money Supply and BTC. The M1 is the blue line, BTC is the orange line and the yellow line at the bottom is the M1 Relative Strength Index (RSI):
What this chart demonstrates is when the Federal Reserve Money Printer (the Fed) is going “brrr”, Bitcoin pumps. When the Fed slows down, Bitcoin dumps. The technical analysis (TA) folks might recognise the M1 RSI has been deep in “over-bought” territory for a long time.
Like I said, it’s not rocket science, but the CT “experts” need their narratives. Simply acknowledging BTC and crypto markets are zero-sum bubble assets doesn’t fit that narrative, for whatever reason.
Remember who crypto investors are
As mentioned above, educated, relatively high-income men invest in crypto. Their general investing profile is overconfident and risk-on.
This is not surprising. Most crypto investors today have never known anything but what it’s like to invest in an expansionary monetary environment.
The chart above looks exactly the same for the Dow, the S&P 500 and the NASDAQ. All of these markets are pumped full of funny money. And they all tank when the Fed doesn’t print — or prints less anyway.
The trouble since 2008 is, the Fed has been a MAJOR purchaser of equities and Treasuries. Without Fed support, there is no other buyer.
The Fed wasn’t buying all that trash off the finance companies because those “assets” were valuable. If they were, the Fed wouldn’t need to buy them.
While Joe Average crypto investor is talking about “fundamentals” or “historical” Price-to-Earnings (P/E) ratios, the reality is there is only Fed printing supporting the whole works.
So Joe Average goes looking for narratives to understand why markets are crashing when they do. War, inflation, pandemic, you name it. Point is, there’s always something an “expert” can point to.
The real story is always the Fed.
Will the Money Printer Go “Brrr” Again?
Yes. Absolutely. 100%. Zero-doubt.
No Fed money printing means figuring out what is actually valuable in the global economy. No one has been able to reliably answer that question for over 40 years.
That’s because the money printing has been going on since the 1960s and really ramped up during the 1980s. For decades, people have been saying with a straight face that the US economy is 70% consumer spending.
That cannot work. You cannot spend more than you make, whether you are a person or a nation. That is a basic economic principle that otherwise smart people ignore to their financial peril.
But we’re long past “fixing” this problem. It’s all funny money forever, or at least until the whole thing stops working.
That’s why Bitcoin and crypto are important — or will be pretty soon here.
The Bitcoin Rope
When the Fed printer comes back on, your purchasing power is going to sink fast. The more and more they prop up markets, the more and more money printing it takes to do that. It’s an exponential problem.
This is less of a problem if you own debt free real estate, or already have a lot of equities (because they pump with monetary expansion). If you don’t, you are going to get burned bad in the coming years.
Except now we have Bitcoin and crypto. My best educated guess says Bitcoin is either going to be a helicopter or a rope out of the financial burning building the central bankers have created.
The goal, or I should say, my goal is to stack as much BTC as I (responsibly) can. Best way I can think to do that is to do the crazy investor “thing” and buy low, sell high.
Genius, right?
I can’t advise you what to do. Here’s what I did and what I’m doing.
I didn’t hodl into the toilet. I’m momentum trading a small bag, like $1k (mostly leverage shorting ETH). I’m stacking SAFE stable coins. And I’m waiting patiently for the M1 RSI to stop going down and start going up.
That’s the bottom I’m buying at.
That’s when I know the Fed printer is going “brrr” again. And that’s when I think crypto starts pumping again. Don’t get me wrong, the markets are going to move up and down in the meantime.
We will get pumps here and there. If you’re skilled — or lucky — you might catch those and make some money. Just don’t mistake them for a “new cycle”.
Bitcoin “History” 2018
There is only one time in Bitcoin “history” where the Fed was raising interest rates AND doing quantitative tightening (QT). That was in 2018 and this is what Bitcoin did:
Each red line is a 25bps hike from 1.5% to 2.5% (we hit 1.75% in June). Equity and debt markets were absolutely collapsing by the time the 2.5% hike came in.
It got so bad, the Fed had to “promise” to stop raising rates. And despite saying the “economy is strong” and all that nonsense, they started lowering rates shortly after.
Double-speak is the new English.
Of course, Bitcoin prices had three sizeable pumps in there. And every rally died right after. Each rally hit lower highs until the whole thing flatlined and then fell off a cliff.
My point is, if you know that’s what happened the only other time Bitcoin has had the Fed hiking rates AND doing QT, chances are good something similar is going to happen again. Remember, that was also before we had massive inflation due to Covid stimulus.
Here are some thoughts on how to deal with that info:
- Use some basic TA to ride pumps.
- Don’t FOMO if you miss a pump.
- Don’t be greedy during pumps (take profits), and
- Don’t hodl into the toilet.
Or, just sit on stablecoins. Either way, when the Fed pivots, go long. Makes sense to me. But what do I know?
I’m not an “expert”.
Here’s a quick shill for a Medium subscription. Subscribing will bring world peace. It will also help me buy a cup of coffee. Please and thank you.
And remember, these are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
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