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In last month’s issue, I talked about government and sentiment. In this month’s issue, I look at the macro investment environment and what that means for crypto.
Predicting ain’t easy
At the beginning of this year, I gave two prediction articles to Bitcoin Magazine and Luckbox.
While I don’t really like doing prediction articles, I know everybody else loves them. As a content creator, I must oblige. I even made my own bitcoin price prediction almost two years ago.
The problem with predictions is when you’re right, it’s almost certainly a coincidence, and when you’re wrong, people make fun of you.
Predictions are good for the entertainment value of some interesting thoughts and the observations you can make when you think through the possibilities. Making decisions? Not as much.
I won’t link to those articles. While the editors preserved my overall message and much of the substance, they took some liberties with the specific words and language I used in my submission drafts. They made the articles read better but also changed enough that the final product doesn’t quite capture what I meant to say.
What were my predictions?
To shrink two long articles into a one-paragraph summary, 2022 will be a year of transition for cryptocurrency.
Governments will start to wrap their heads around what’s going on and your average person will start to understand the significance of this technology. Regulations, enforcement actions, lawsuits, real-world applications, and potentially another crypto winter will expose the scammers, tourists, and people just trying to make a dollar at your expense.
So far, I don’t think those predictions are anywhere near valid. They’ll probably end up being flat-out wrong.
Yes, the tourists have left but scams still abound and governments have found bigger things to worry about than cryptocurrency.
There’s a hole in the bucket
The world’s largest economies, US and China, show signs of slowing down.
The former is the center of the world’s financial system, the latter is the world’s largest trading partner. While I don’t know what will happen when those economies struggle, I imagine it’s not good.
That assumes something more serious doesn’t happen first.
Seemingly every week, a new debt crisis pops up in another low- or middle-income country. The fallout from the war in Ukraine will cause global shortages of food and oil, perhaps instability and revolts as people suffer from hunger, higher prices, and lower living standards.
Thanks to rising US interest rates and a near-parabolic boom in the price of US dollars, foreign countries and businesses are having a harder time paying off US-denominated debt.
Conflicts among Middle Eastern nations threaten to spill over into a regional war that could suck in all of the world’s big countries. Supply chains remain backlogged worldwide. COVID’s back in China. Inflation’s back pretty much everywhere.
Cryptocurrency seems pretty low on the list of governmental priorities.
Maybe that will change once prices go high enough to threaten the status quo?
We’ll see. Until then, it looks like scams, scammers, shills, Ponzis, dog tokens, and failing projects will run wild for quite a bit longer.
Nowhere to hide
Yes, shocking, scams in crypto. Just like in traditional finance.
Unlike scams in traditional finance, we can see this mischief on the blockchain. Verifiable, immutable proof of wrongdoing. @zachxbt covers these regularly, @cryptowhale occasionally, and lots of others get the word out on Reddit and Twitter.
Once these shenanigans are exposed, the market cleanses itself (and has every incentive to do so). We have seen this time and time again.
That’s not to single out crypto. The legacy financial system has its fair share of shenanigans. Let’s hope there’s no systemic risk. Your options are bad enough without that. Where can you put your money anymore?
Imagine having 40% of your wealth in bonds while yields explode and inflation destroys your purchasing power. You just got hosed—on the “safe” assets in your portfolio.
Cash? You’re kidding, right? At least those bonds pay you something in return for destroying the value of your wealth.
Equities? Overbought and expensive against almost every historical benchmark.
Start-Ups? As soon as VCs and investment banks lose access to cheap money, those unicorns will be a lot harder to come by.
Real estate? Investment properties can do well but you need cash upfront and financing that makes sense, two things that most people don’t have or can’t get. Passive funds may make sense, but the growth in China’s real estate sector has fallen every month for more than a year and in the US, new mortgage applications are down 50% since last year while home prices still outpace the growth in wages.
Commodities? Sure, just make sure you get out before the new supply comes to market.
Compared to those assets, crypto doesn’t look so bad. If you’re not a fan, perhaps you can call it the least bad of all your choices.
Let’s hope everything works out ok for everybody. I’m not betting against the global financial system, but I’m not exactly jumping for joy over any financial investment right now.
Looking good but . . .
As I’ve shared in my premium updates, the crypto market’s in a strong position.
Sellers are coming in fits and starts while buying and HODLing is coming from all corners of the market, just not in large amounts.
What’s the problem?
Lots of crypto is posted as collateral for stablecoins that people recycled into buying more crypto.
How much? We don’t know.
The risk is, if prices drop too fast, that crypto will get liquidated. That will drive prices lower, forcing more crypto to get liquidated. As a result, you get a cascade of liquidations and the market keeps falling very far, very fast.
With so few buyers in the market today, even a small liquidation event can cascade into a total wipeout.
No on-chain metrics or technical analysis can prevent margin calls and automated selling of your assets.
This is not leveraged trading. It’s people putting bitcoins in places where they can get sold automatically, without warning, against their wishes.
It’s the most opaque part of the crypto market. On-chain data will make these bitcoins look like HODL coins. Technical analysis will not account for them at all.
We know people have pulled a lot of ETH and BTC out of DeFi protocols since last year, as I pointed out in my updates for premium subscribers. We can see this on the blockchain.
What are they doing with their loans from Nexo and Celsius? That’s anybody’s guess—and a structural risk that nobody likes to talk about. I mentioned it in my most recent YouTube video.
Some think we have to blast upward because sellers are mostly fatigued and the network shows strong accumulation and HODLing patterns among market participants. Illiquid supply, supply shock, 1-year HODLers, data models, etc.
That’s a two-edged sword. Liquidity cuts both ways.
With near-historic lows in the percent of bitcoins on exchanges, little new money entering the market, and retail interest way down, we don’t have enough liquidity to prevent a massive sell-side liquidation that crushes the market.
Will that happen?
Let’s hope we never have to find out.
Why so bearish, Mark?
Bearish?
No. Did you not see my pinned Tweet?
I’m bullish in the short, medium, and long term.
I know the path we’re on and where the journey leads. How could anybody be bearish about that?
Along the way, you can expect setbacks and challenges. Not just liquidation events.
What about protocol failures? Asteroids? A Tether implosion? Massive fraud among big projects? Governments killing the technology? An exploit on ETH or ETH 2.0?
Or perhaps a more likely possibility—a recession?
As soon as US unemployment dropped below 4% last year, you probably started thinking about how to prepare for the inevitable recession that will come sooner or later. Even more so once the yield curve inverted and the US central bank started cutting back on stimulus.
In your country, the conditions may be different, but the result is always the same: eventually, you’ll have a recession. You can’t avoid it.
You’ll have to take your lumps sometime.
Nobody “wins” in a recession. You can’t know in advance when it will start, how it will end, and how bad it will get, but you can choose to prepare and hope for the best. Hard times make strong people. It’s like healthy diet and exercise—not fun, but you’re better off for doing it.
Likewise, navigating the ebbs and flows of the crypto market. Does the daily trading chart show a bear flag (red, bad), ascending channel (neutral, black), or higher low (green, good)?
Nobody knows. You get to see whatever you want to see.
The bear flag has lasted longer and has a different volume pattern than the textbooks say it should. The ascending channel is a nice fit for the price action, but tells you nothing. Higher lows are great, but they can get wiped away in an instant.
Know which trend to befriend
Traders say “the trend is your friend until it ends.”
Choose your trends wisely.
Some choose to focus on this trend, which started in January 2022:
That’s a short-term trend and easy to reverse. Traders prefer this trend, which started in November 2021.
They’ll flip bullish once bitcoin’s price goes above the most recent $52,000 swing high (seems like ages ago).
I prefer to look at this trend:
That’s the 200-week moving average. Bitcoin’s price never goes lower than that line. Meanwhile, that line always goes up.
Don’t fight that trend. Embrace it. Use it to your advantage. Act when opportunities come your way, sit on your hands when they don’t, and sell only when the market forces you to do so. You’ll get better results than dollar-cost averaging with less risk and just as much effort.
Embrace that trend now, while the US Treasury Secretary thinks bitcoin’s only achievement is solving the double-spend problem. While Aunt Sally and Uncle Mortin think it’s magic Internet money. While Billy the Neighbor waits for bullish confirmation. While bitcoin maximalists think altcoins are all scams. While anarcho-capitalists think crypto will replace fiat currencies. While your average investor thinks the legacy financial system offers a better opportunity to grow and preserve wealth.
Definitely embrace it before this market takes off, out of nowhere, when you least expect it, as it has done so many times before.
The total crypto market’s down 40% from the peak. With my plan, you’re probably down only a little bit and possibly up quite a lot. At most, you’re down 23% or up 620% (likely closer to even).
You’ll be way ahead once prices go up long enough and high enough for people to talk about bull markets again.
The end of bull and bear markets?
That assumes the traditional bull/bear paradigm still makes sense.
What do those terms mean for an asset whose price goes up 100-300% in bear markets and crashes 30-50% in bull markets?
From the start of 2019 until the end, bitcoin’s price went up 120% and seemingly everybody called it a bear market.
In 2020, people said the bull market started in December, with the first new all-time high since 2017—after the price had already gone up 600% in less than two years.
Now, you hear people claim April 2021 was the peak of the cycle and everything else was a dead-cat bounce.
In other words, some people think we had a nearly three-year bear market followed by a five-month bull market and now we’re one year into a bear market that’s already seen two new all-time highs.
Seems odd.
Fitting, though, for a market as crazy as this one. With crypto, you get 100% pumps in the middle of raging bear markets and 50% drops in the middle of massive uptrends. 25% upswings and downswings are normal—sometimes barely noticeable on a price chart.
After November’s all-time high, bitcoin’s price spent two months going down, then three months going up. Can you have a bear market where prices spend more time in an uptrend than a downtrend?
What about percentages? In September 2020, many altcoins dropped 50-80%. Likewise in January 2021. Both times, in the middle of a massive bull run.
When those drawdowns happen in the middle of a raging bull market, you call them corrections. One or two months later, back to zooming.
Today, you call them bear markets. Same drops but the zooms take a lot longer.
Suffice to say, we haven’t seen anything that looks like a classic bottom on a trading chart, nor clear signals in on-chain data or activities in the derivatives markets.
What happens if bitcoin’s price goes to $50,000 before it drops to $35,000 in a massive liquidation event? Does that count as “the bottom” or another “higher low” since January’s $33,000 nadir?
U2R doesn’t care
So many people get psyched out in bull and bear markets.
For that reason, I created the U2R model, which projects a fair price for bitcoin. Here’s the projection:
That black line represents the fair price, $74,000. It’s higher than today’s price. If the model holds, bitcoin’s price will go up eventually.
Tap this button to learn more about U2R.
My most bullish scenario for bitcoin
Do you want to know my most bullish scenario for bitcoin (and by extension, the whole crypto market)?
Up a little, down a little, forever.
Something like this:
For most people, that’s a nightmare. Six months before the price doubles? Multiple drops of +20% along the way?
Nobody wants to wait six months for their Lambo.
How long could that trend continue before traders decide it’s no longer a bear flag? And anyway, how do you get a good entry if the price doesn’t break out of the trading pattern?
At the same time, you get perfect conditions for growth.
Plenty of opportunities for people to enter and exit, enough upward price movement to give new buyers confidence in the market, not so much FOMO that people get too greedy, boring enough that scammers go back to other things, and enough excitement to motivate investors to learn about what they’re buying.
Most importantly, enough liquidity and casual interest that builders and innovators have an audience for their creations.
Would you be upset if the price goes to *only* $90,000 and your investment goes up *only* 2x this year? And then another 2x next year? And another 2x the year after?
That’s a lot more sustainable than a supercycle.
While that’d be nice, I’m not betting on it. This market has always moved in extremes. Big moves up and big moves down. Do you see any reason that should change now?
Emerging “Third Way”
Perhaps one of my 2022 predictions will turn out true, just not in the way I had expected.
Maybe the world will realize one significance of cryptocurrency: independence from Western and Chinese financial systems.
At least a dozen countries risk falling into China’s debt trap at the same time China’s government plans to pull back on its foreign obligations to bolster its domestic economy.
At the same time, pretty much every government seems mad about the crazy rise of the US dollar over the past year.
Sri Lanka, Russia, Pakistan, and Lebanon can’t pay their creditors. Several Latin American and African countries struggle with this, too. Few have options to deal with it.
Do they really want to be forced to choose between SWIFT and UnionPay? Between a eurodollar system that’s squeezing their currency and a digital yuan that lets China strong-arm them into giving up control over swaths of their economies?
Do they put their fates in a system that can cut them off at a moment’s notice or a government that preys on their vulnerabilities?
Do they seek the support of an overbearing IMF or the world’s biggest loan shark?
Some believe the 21st Century will plunge the world’s financial system into an economic Cold War between China and the US.
Maybe cryptocurrency can serve as a third way? A non-aligned movement for modern finance based on non-political, immutable, open, permissionless financial systems? After all, smart contracts won’t leave you hanging. The US and China might.
And who knows? Once freed from the constraints of legacy finance, maybe a new crop of financial engineers will develop breakthough technologies that bring wealth, prosperity, and economic opportunities to billions of people who would otherwise have no good way to access global capital markets?
Maybe, maybe not. Geopolitics is complicated.
It’s also a moot question. Crypto can’t yet scale to handle mass adoption. That will change, but when?
In any event, nobody cares about crypto until the price goes up—and the price ain’t going up.
Until it does
Yet, bitcoin offers the best risk-adjusted return of any asset you can buy right now and some altcoins will do amazingly well in the future.
Perhaps that’s not an endorsement of crypto as much as an indictment of the legacy financial system. Risky investments offer paltry returns, safe investments are guaranteed money-losers, and inflation has turned cash into a financial burden.
At least with crypto, you might get ahead on your money. All the better to do so when the prices are low.
Does that mean they can’t go lower?
Nope. The bottom is always $0.
But the top is infinity.
Look at the state of the global financial system, the world’s economies, and sovereign debt burdens. You’re going to ride those horses? Do you really think those problems will get fixed before crypto prices go up again?
I don’t expect the world to collapse. I’m not so sure we’ll get any of the things I talked about in this issue.
My investment in cryptocurrency doesn’t come from fear of financial failure. It comes from faith in a financial future.
I know where this road leads and I’m content to follow my plan. Step beyond the day-to-day and look at what’s going on around you, trends and behaviors that never appear on your timeline or landing page. Get a reality check.
When the market zooms, I probably seem too bearish. When the market crashes, I probably seem too bullish.
How much of that is a reflection on what I’m saying rather than what you choose to hear? There’s a difference between cautious, effective investing and being bearish. There’s a difference between wishful thinking and accepting a wide range of realistic expectations that include “price will go up a lot, quickly.”
Keep it simple. When prices drop, you get more upside with less risk—for an asset that you already want to have.
Of course, risks remain. Without risks, you can’t have opportunities.
Easy choices, if you want them to be easy
My free advice?
Buy bitcoin and altcoins whenever bitcoin’s price is below $50,000.
While that’s not my plan nor a strategy I follow, it’s a safe bet. That way, you will never have to pay for analysis from people like me or even think about the market.
That said, if you’re not already on the paid plan, please consider doing so. You get access to my plan, analysis, and commentary.
A $50,000 bitcoin in 2022 is like a $10,000 bitcoin in 2019. Everybody obsesses over the swings, but would you really be mad about buying at $10,000 instead of $8,000?
Do you risk buying too early or too high? That the market will fall out from under you? That your portfolio’s value will drop or you’ll see a negative return on your investment?
Sure. You have that risk at every time, every price, forever.
My plan makes sure we limit that risk as best we can and catch the upswings before they come. We always catch the bottom, but we still buy higher, before, and after that bottom hits. We never get it just right.
The problem is, if you wait until everything’s “just right,” you’ll miss today’s opportunity. You can always find a way to make more money. You will never find a way to make crypto prices go down. You can’t fight the trend—at least, not the trend that really matters.
Today, you risk being too early. You might have to make up for whatever you lose in the weeks and months ahead.
Tomorrow, you risk being too late—and you will never be able to make up for what you’ve lost.
It won’t always be this way. At some point, the market will go up. It will get too hot. The risks will flip upside down, and you’ll end up chasing after a market that you will never catch until it’s too late.
Relax and enjoy the ride!
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