Crypto is Easy - February 2022
Certainty is your enemy
In last month’s issue, I talked about the significance of your decisions at this moment. In this month’s issue, I share my thoughts about data models, analysis, and the expectations that they create.
If the embedded audio narration isn’t working properly or doesn’t sound good, tap this button to switch over to the podcast version.
Bitcoin’s price went 6% higher in November 2021 than it did in April 2021. Its lowest price in January 2022 went 15% higher than its lowest price in June 2021.
By crypto logic, that means our next all-time high will come at $73,000 in June 2022, 6% higher than our November 2021 high. After that, our next low will come at $38,000 in August 2022, 15% higher than our January 2022 low.
How did I come to that conclusion?
Cycles, fractals, maths, and squiggles. I looked at one input and one output, then projected that into the future. The last time bitcoin did this, we got the same result, therefore it has to happen the same way again, right?
While that kind of thinking can open your eyes to realistic outcomes, it can also create a false sense of hope, despair, or certainty. You might psyche yourself into believing something that probably doesn’t exist. You might convince yourself of something that probably won’t happen.
Dismiss the past at your own peril. When you project trends into the future, you sometimes see potential outcomes you would have never expected.
The question is, what will you do about it?
In October 2021, you probably thought I was joking when I asked you what you’d do if bitcoin’s price dropped from $65,000 to $42,000 and took four months to recover. You may have thought I was crazy in November when I told you bitcoin’s price could go from $65,000 to $100,000 by the end of the year.
“Mark, those outcomes are the literal opposites of each other.”
Yes. That’s the point.
Today, any price between $20,000 and $150,000 fits within bitcoin’s normal range of volatility. We’ve seen this market make similar moves in similar circumstances before. Just when you think it has to go higher, it tanks. Just when you think it has to go lower, it zooms.
Nothing fundamentally changes, just the price.
Maybe think less about price, more about opportunity. Less about trading charts, more about human behaviors. Less about downsides, more about risks.
Take it all into account, not just the bits that pop up on your feed or get circulated in your chat group.
Ground floor looking up
When you entered this market, you found a lot of excitement. Data models predicted riches. YouTube and Twitter told you the market would explode to the upside.
It doesn’t feel that way today, but it should.
Since last summer, you’ve stood on the ground floor of the next leg up, and it’s a whole different experience. Scary. Exciting. Frustrating. Terrifying. Stressful. Hopeful. A mix of emotions.
Big upswings, big downswings. Supercycles and bear markets. Laser eyes and death crosses.
Crypto remains a wealth-creation machine, a generational opportunity to build lasting, durable wealth from owning a stake in the financial networks of the future.
It is also a cruel and vicious market. Only the most courageous and persistent survive.
To paraphrase a US general, you may have thought crypto is all glory, but I assure you, it is all hell.
In 2019, the market did 4x in six months to kick-start a three-year parabolic run, with upswings of 500% and downswings of +60% along the way. Do the swings of the past six months seem any more extreme?
When the market zooms for three months, you feel a sense of ecstasy and excitement. You can’t help but put money in—and everybody’s telling you to do just that.
When the market drops for three months, you feel a sense of terror and loss. You can’t help but take money out—and everybody’s telling you to do just that.
Both times, it feels like the right decision. Traders will insist it is.
And if you act on those instincts, you will never get ahead in this market. In other markets, maybe, but not crypto.
Do you feel let down?
The past few months may seem confusing and uncertain.
You thought you’d get a repeat of 2017. Then, Twitter said you’d get a repeat of 2013. Now, you might end up with a repeat of 2012 or 2019.
How could so many people promise so many things that never came true? How could so many people who were so wrong so many times in the past, now be right?
Maybe it’s impossible to be right or wrong about the future.
If nobody knows what’s going to happen, how can anybody be right or wrong? And even if somebody is right or wrong, how do you know it’s anything more than a coincidence or a lucky guess?
Priya in the park yells “bear market” every time the price dips 5% or more and begs you to sell every upswing. Tony on the TV yells “supercycle” every time the price pumps 5% or more and begs you to buy every downswing.
Eventually, they’re going to be right.
Does it even matter? In 2019, bitcoin’s price ended more than 100% higher than it started. In 2020, its price tripled from start to end.
And most people finished down on their investment.
They chased the market. Meanwhile, people who bought in 2018 sold to these newcomers after the price went up.
Last month, I published an article begging people to stop dollar-cost averaging blindly. While there’s never a bad time to buy bitcoin, some times are better than others. Just make the most of those opportunities and chill when the opportunities pass.
This is baked into my plan.
With that plan, you’re down as much as 26% but probably closer to even, possibly up 600% or more.
(For altcoins, you may have a far wider range of returns. I’m down +99% on some altcoins and up more than 5,000% on others.)
Over the long run, gamblers and competent traders might do better. Dollar-cost averagers will probably do worse.
Mark, you still call it a bull market. Why?
Like Richard Nixon did with his dog, I just want to say this right now, that regardless of what they say about my plan’s name, I’m going to keep it. You can call it whatever you want—I’m sure you can think of some choice words to describe it. (Some with only four letters.)
With my plan, you don’t have to time the market, take profits, or buy the peaks. Ideally, you will never sell (though you probably will have to at some point).
And you will never have to think about right or wrong, bull or bear, short or long. You will simply take advantage of opportunities as they come and let the market do its thing.
Predictions for fun
But nobody likes that.
As a content creator, it’s hard to get people to care about possibilities or take calculated risks. “Just tell me what’s going to happen, Mark!”
Sure. We will all die. Much like my prediction of bitcoin’s market cycle peak.
Do you think predictions are fun?
I hope so.
Food for thought? Even better.
Information you should incorporate into your plans or expectations?
Maybe. When you force yourself to think about what could happen in the future, sometimes you can identify potential outcomes and get a better sense of what might need to happen in order for those outcomes to come true.
That way, you get a little bit more perspective about your expectations and what you need to look for as we move forward. Seemingly impossible outcomes become realistic. A path that seems intuitive and certain becomes unlikely.
You can choose to feel let down when the future doesn’t play out as you expect. That’s natural, we all do that.
The question is, what will you do about it?
Wait for the bottom?
In October’s monthly issue, when bitcoin’s price hit $65,000 and altcoins started popping off, I asked you to think about what would happen if the market dropped to $42,000. What will you do when everybody tells you “don’t catch a falling knife,” China bans everything again, social media algorithms plaster your feeds with bearish content, and the price seems like it keeps going down forever?
Here we are.
Do you wait for the market to bottom? If so, how will you know when the bottom comes? At what price?
What will you do if the market starts to zoom, as it has so many times before in the same circumstances as we find ourselves in today? What if bitcoin’s price rises to $52,000? $62,000? $72,000? What will you do?
When Billy the neighbor tells you he flipped a microcap altcoin for a quick 2x? When another country makes bitcoin legal tender, social media algorithms plaster your feeds with bullish content, and the price seems like it keeps going up forever?
You might just get that. We’ve seen bitcoin’s price go up 100% in worse conditions than today’s. Pumps of 25-50% are normal in all market conditions. When bitcoin goes up, the rest of the market comes along for the ride.
Experts may tell you that’s impossible.
Are these the same experts who told you institutions will never sell, whales are accumulating, data models predict $288,000, and price must go up because the balance of bitcoins on exchanges went down?
Knowledge is not expertise
I still get nasty-grams and snarky comments about my 50/50 analysis and ambivalence about the swings in this market.
I do perspective, not expertise. I’m the guy who says “embrace uncertainty,” basically the opposite of what you want when you seek out somebody’s expertise.
The wider crypto community has such massive brainpower, you don’t need me to start throwing my intellectual weight around. Look hard enough and you’ll find people who have the answers you’re looking for.
From what I can tell, once you learn about crypto, you suddenly become an expert in geopolitics, macroeconomics, monetary policy, epidemiology, psychology, public health, US constitutional law, securities regulations, history, investing, criminal justice, logistics, computer science, international finance, and financial planning.
It happens seemingly instantly, all at once, and in proportion to how many followers you have on social media.
For an industry birthed out of frustration with the so-called experts who run the global financial system, it seems odd to place so much faith in so-called experts who only just learned about whatever they’re talking about. Aren’t we supposed to be anti-authority?
I guess it’s true: cryptocurrency unlocks all of humanity’s potential.
Mark, you’re an expert, don’t be a hypocrite.
Knowledge and expertise are different things.
I’m happy to share my knowledge. It’s the reason I started this newsletter—so many people asked my opinion on things, it made sense to start a newsletter to share my opinions and my reasons for those opinions.
Sadly, I have no expertise in any of those fields I mentioned above. I spent my 20s working in Congressional politics and now I work for the US government bureaucracy. In college, I studied economics, history, and political science.
I know some topics better than others (and some not at all). I also don’t have a lot of followers on social media.
But I have something more powerful than followers and expertise: an opinion and a platform through which to share it.
You do, too. With the internet, you can say anything you want and as long as people listen, you’ll be heard. You don’t have to be an expert to have a valid opinion and a useful viewpoint.
Sometimes it’s better that you’re not. Some of the best ideas seemed foolish when first suggested. Some of the finest insights came from people who didn’t know any better.
Some of the worst analysis comes from some of the best-known personalities.
Too soon to tell
In any event, how can you have expertise in a technology that has existed for barely more than a decade?
Looking for an expert in cryptocurrency is like looking for an expert on electricity in 1842, an expert on flying in 1909, or an expert on the Internet in 1983. Better than doing it yourself, but it’s not like you’re going to find Master Yoda.
At best, you’re talking to somebody who has a few years of experience with a rapidly changing, experimental technology.
At worse, you’re dealing with a quack.
Does that mean you shouldn’t seek out knowledgeable people?
No, quite the opposite. Just recognize that you might know more than the people you’re following!
We’re all feeling ourselves out in this new world of crypto, in an environment where the regulations are not clear, the technology changes all the time, and some of the most basic concepts and principles have yet to be proven. In crypto, as in the real world, everything can change in an instant.
The question is, what will you do about it?
If you had to guess . . .
Sometimes I take calls from people who want to consult or get my advice. Do you know what question I dread the most?
Mark, what do you think will happen?
I’m happy to answer and appreciate the confidence you have in my opinion, but does it really matter?
This market offers such a wide range of outcomes at any one time, how could I narrow it down to only one potential result? Especially when the “normal” range is almost certainly wider than any sane person would expect.
Sometimes, it feels odd saying price is going sideways when it’s actually going up and down 20% each week, but then you look at the chart and the line clearly goes sideways.
Crazy market, this.
Sometimes, history or data shows us a fairly clear direction. Trends, patterns, and behaviors align in plain and obvious ways.
Other times, those trends, patterns, and behaviors suggest something very different than the prevailing sentiment seems to agree on.
Usually, we have no such guides. We just need to let the market do its thing and plan for several outcomes, knowing only one outcome can possibly result.
Perhaps that’s why traders have taken to fractals on gold from the 1970s to 1990s, Amazon charts from 1998-2000 (for the bears) and 2010 (for the bulls), astrologers, NASDAQ, and extrapolated price patterns from arbitrary points in history.
When you can’t find anything else, you take what you can get.
I even found a three-month correlation between bitcoin’s price and the temperature in my neighborhood.
Plan for more than one outcome so you don’t have to guess. Whatever those outcomes are, act decisively in spite of your uncertainty. The market will tell you what it wants to do when it’s ready—and not on your terms.
What say ye, data models?
Some think 2021 killed data models.
Perhaps 2021 killed blind faith in speculative theories, but the data models still persist. Dismiss them at your peril.
Over the course of history, bitcoin’s price has gone 400% higher and 70% lower than S2F’s predicted prices for months at a time—including over the past few months. That model is as valid now as it ever was.
Halving cycles show almost no similarities in the timing or extent of price movements from one cycle to the next.
The expanding cycle theory fits all of the peaks and bottoms—depending on what you consider a “peak” and “bottom.”
Four-year cycles can be left- or right-translated. In other words, peaks and bottoms can come at any time or price.
Maybe you’re reading too much into the data models?
Death of data models is greatly exaggerated
Does it feel a little naughty to talk about peaks and bottoms?
Hey, some people are into that kind of thing. No wonder bitcoin seems mad all the time. How would you feel if every time you went down on somebody, they kept trying to find your bottom?
My point: data models allow for so much deviation, you can’t disregard them just because the market strays from expectations. They’re all basically guessing about the future. Appreciate them for what they are and the insights they provide.
When the market goes up a lot and then drops, people think it’s a peak. When the market drops a lot and then goes up, people think it’s a bottom. How do you know?
Data models don’t really matter, you get to believe whatever you want.
What if there are no peaks and bottoms, only opportunities and risks?
Imagine no more bull or bear markets, only the ebbs and flows of a new and volatile asset. Do any data models account for that?
And what about the changes in market-making mechanisms and technology? With custodial accounts, multi-sig wallets, investment products, private deals, lightning network, and mixers, on-chain data gets less useful.
With smaller floats, low balances on exchanges, more leverage, and more people with access to quality market intelligence, technical analysis gets less useful.
Perhaps we can say the same about data models.
A new data model—U2R
Do you know what’s cool about data models?
You can tell everybody that they’re just experimental and need constant recalibration, but they’ll still read into them whatever they want to. As a result, you can publish almost anything and some people will think it’s valid.
I figured if other people can do that, why can’t I do it, too? A lot of people think I do this already, with every post, so let’s prove them right.
With that thought, I created the “Up and to the Right” model, or U2R.
Is U2R accurate?
We shall see. It should be an interesting experiment.
At some point, somebody will create a data model that works. I know somebody who’s working on one, it’s already really good and I’m sure with a little more time, it will rival all of the others.
Until he’s finished that model, try U2R.
(Not financial advice.)
Too much can change
Just as data models can change, so can the world.
At the moment, lots of people worry about the conflict in Ukraine.
While that’s a pressing and urgent concern, what about the world’s other geopolitical hotspots?
What about the South China Sea or the Persian Gulf, two of the most important shipping areas in the world? Both regions are fraught with tensions among nations and ethnic groups. They could erupt at any time.
So could a volcano in Iceland (it happened last spring).
China’s debt-to-GDP ratio is perilously high and its financial sector remains stressed. The US dollar continues to rise, as it has all year, putting more stress on emerging markets that hold dollar-denominated debt.
Also think about local economic problems that could cause outsized damage to major economies. For example, what happens when the union contract for port workers on the US west coast expires in July? The last time that happened, ports shut down for four days and caused months of shipping backlogs. Can you imagine the same scenario today, with cargo shipments already backed up for months?
Or if China’s real estate sector implodes? Its second-largest developer has no money and the growth in property values has fallen for months.
Inflation’s on a tear pretty much everywhere. For how long?
People worry the US central bank will raise rates and sell assets, but its balance sheet keeps getting bigger and I’m skeptical that a half-point rate hike can tame 7% inflation, even if the stock market plunges.
(And that assumes it raises rates at all.)
What about laws and regulations? Each month, more countries pass laws to let people buy, hold, and use crypto. Russia says it plans to create its own framework and the US has started to work on its own plans.
Technology changes, too.
In 2017, we had a few consensus algorithms and no usable apps. Since then, we’ve seen an explosion in token designs, consensus algorithms, and viable platforms.
Are you sure you can find somebody who can understand all of these issues, explain their implications, and offer a trustworthy prediction for how things might play out?
All of these complexities can seem overwhelming. Certainly not the “price go up” simplicity you felt when you first entered this space.
When the world seems like an uncertain or confusing place, you can choose to accept it. Without this uncertainty, you would not have this investment opportunity.
Consider yourself lucky. Most people will not discover crypto until the investment opportunity has passed.
But it’s a tough row to hoe.
Sometimes, you will try to make sense of something that makes no sense. You may read too much into a single fact or statement. You may grasp at fractals or past outcomes without appreciating the opportunities you have at this moment.
At all times, you have options.
Exit. You lose out on every penny of growth that follows.
Sell with the intent to buy lower. You risk never getting a chance to buy lower.
Sell to get some cash out of the market. You risk giving up an asset that gets more valuable over time for an asset that gets less valuable over time.
Rebalance from crypto to a different investment. You risk getting a lower reward for the risk you’re taking.
Buy. If you’re buying bitcoin, your investment will go up over time (possibly immediately, probably down at first). If you’re buying altcoins, some will do quite well, most will not.
That’s just five options. You can find many more.
The question is, what will you do about it?
Winning fixes everything
One thing I can assure you: crypto will not succeed because of inflation, governments, war, peace, freedom, tyranny, adoption, censorship, or any monetary, political, or ideological movement.
Those are narratives. They all play a role in shaping opinions, defining the contours of debate, and offering reasons for people to invest their time, energy, and money into this asset and its technology.
At the end of the day, all that matters is whether the price goes up. Justifications come later.
So it goes with every financial asset—stocks, bonds, commodities, and all of the others.
Once the price goes up long enough for people to think it will keep going up, they will trade their government’s money for access to that asset. Some will keep enough money in the market for long enough to generate a positive return.
At that point, other people will start to emulate them. Businesses will pop up to serve those who want to invest. The asset will get less volatile and more popular. Eventually, people will see it as safe, normal, and possibly necessary.
Make sure you get into the market before that happens.
Why does my plan force us to wait until everybody’s bearish? When we see bearish trading patterns and all of the trading indicators turn south?
Because those are prime buying opportunities.
Why don’t I take profits?
Because you never want to trade a rising asset for a declining asset. Once you pay taxes and fees, you end up with a lot less than you expected. You also miss out on 100% of the future growth.
Why not wait until the bottom?
If I knew where the bottom was, I would. Only Twitter psychics know that, and they won’t tell us.
Why not wait until the market turns bullish?
It’s just too risky. Most trading signals play out only 50% of the time, and if you wait for the market to confirm a bullish signal—or even a bullish bias—you might watch the price rise 50% before you get confirmation. At that point, you’re stuck chasing after the market as it goes up—for an asset you already planned to buy.
Why sell only in extreme conditions?
Because this market is volatile and the swings are crazy. When “normal” prices can go up 100% in bear markets and drop 50% in bull markets, you don’t want to pull out too early.
Give my plan a shot. Three lines on a chart tell you when to buy. Sell only when the market forces you to sell. No timing the market, trading in and out, or taking profits. “Buy low and grow.”
Today, that means buying. Tomorrow, who knows?
Mark, it’s a bear market. Why do I need a “bull market” plan?
Bear markets are easy—just buy. Easiest decision you’ll ever make. Buy and keep buying as you have more money to put into the market.
You get the same risks as you get in a bull market, but with more upside.
When the price goes too high, stop buying and enjoy whatever comes next.
If the price goes below a certain level, throw in the towel and move on.
With my plan, you will get to a point where you will stop buying, either because bitcoin’s price goes too low or too high. This can happen in bull or bear markets.
At last year’s all-time high, I said it was reasonable to expect bitcoin’s price to double before the market cycle peak. For altcoins, 5x on your entire portfolio seemed fair. Most of your altcoins would pace or trail the market, a handful would do 10x or more.
Now, you can double those expectations. Bitcoin can still realistically hit $150,000, the total altcoin market can still reach $4 trillion, and now a few of your altcoins can give you gains of 20x before the market cycle peak, whenever that comes.
Wait, Mark, are you saying we haven’t seen the peak of this market cycle?
Right. We haven’t seen the peak of this market cycle.
What about April 2021, October 2021, and November 2021?
Some people like to call every downtrend a “bear market.” Some say every 20% decline is a bear market. Others say whenever the price falls below a certain moving average or trading level, it’s a bear market.
Pretty much anything that fits whatever definition of bear market they choose.
Some say 2019 was a bear market because the price went down after it went up.
Was it, though?
Bitcoin’s price more than doubled that year. Plot the bear market on a chart, and it looks like the first leg of a bull market.
I saw one analyst say our present bear market started in February 2021 (that’s not a joke, and I regret not saving the tweet to my bookmarks). Can you have three new all-time highs during bear markets?
I’ve also heard some people talk about “mini bear markets.” Does that mean we’ve had four bear markets since 2019?
I’ll defer to the experts on that.
Maybe it’s ok to appreciate the larger trends and dynamics around you, without forcing labels onto them?
Bull market or bear market, this market gives you all sorts of opportunities, often when you least expect it.
Since the summer of 2021, this market has gathered itself for the next leg up. We saw clear, textbook consolidation among market participants even as bitcoin’s price doubled from its June low of $28,500.
In November and December, we shed some institutions and summer tourists. In December and January, we shed some whales and leveraged traders. This month, we’re shedding defensive profit-takers as institutions trickle back in, some buyers re-enter, and diamond hands gobble up whatever remains.
Altcoins continue to pace bitcoin, as they have since last fall.
No worries if you bought in October or November. You’ll be fine, possibly sooner than you might think. Try to push through the terror of the moment. Eventually, you will find the ecstasy you seek.
It’s not good, fun, or anything like what you signed up for—but in this market, terror brings opportunity.
How much longer will that opportunity last?
We shall see.
Premium subscribers, I will keep you up-to-date about what I’m seeing and how the plan changes over time. If you’re not on the premium plan, subscribe now.
Relax and enjoy the ride!