Welcome new subscribers! Scroll down for some news and commentary from others. First, a brief message.
As you probably already know, this newsletter goes beyond the day-to-day to look at the bigger picture and the larger trends going on around us so we can get a better perspective around the markets and the decisions we make.
Sadly, I don’t have hot tips or trading advice for you. While I do use technical analysis as part of my analysis of the market, it’s very basic, and in any event, not something I act on. I just follow my plan—three lines on a chart to tell us when to buy and specific signals for when to sell.
Traders are trying to hit singles, get 10 or 20% gains, stack those wins up over time, and hopefully beat the market. I’m trying to build wealth with cryptocurrency. Different goals, different strategies.
For that reason, my content’s a little different than what you’ll get with other newsletters. I realize that’s not everybody’s cup of tea and I hope you give it a chance before you decide whether or not you like it.
This week, I published an altcoin market update. Normally I post one or two bitcoin or general market updates, but not this week. Nothing really changed in the data or my analysis. Still the only price that concerns me is bitcoin at $29,000. Watch the June 26, 2021 update for more on the importance of $29,000.
As long as bitcoin’s price stays above $29,000, I have no worries about the market and I have to stick to my assessment that our recent drop and sideways move suggests a healthy consolidation within a larger bull market. That’s what history and data suggest.
Premium subscribers, I’ll have at least one update within the next few days. Some very interesting trends playing out. Stay tuned.
Meanwhile, some news and content you may enjoy.
Is Bitcoin in danger of losing $30K with Grayscale's big GBTC unlocking in two weeks?
Bottom line: experts disagree over whether bitcoin’s price will rise or fall after Grayscale unlocks over $500 million worth of shares of GBTC, its bitcoin investment fund.
My take: I would not expect this to move markets much. These are paper-traded shares of a fund, not bitcoin itself, and a fairly trivial amount for a $700 billion asset. Consider a few variables:
For months, GBTC traded at a steep premium. As a result, some investors adopted a complicated arbitrage strategy that (oversimplified) involves borrowing bitcoin to buy GBTC with the intent to sell GBTC once it’s unlocked to pay back the loan (pocket the difference). With the premium now negative, those investors need to buy bitcoin from the spot market to repay the bitcoin they borrowed to finance their original purchases of the GBTC shares. (Note that’s a very simplistic explanation of a far more nuanced strategy, please don’t @ me to pick nits.) Generally, once those investors repay their loans, those bitcoins will go to people who have no incentive to sell and every incentive to lend their bitcoin to others again. As a result, you get buying pressure. Albeit not that much, given the small size of the unlocked GBTC.
With GBTC trading at a discount now, investors have incentives to HODL their shares instead of selling them. Why sell GBTC possibly for a loss when you can wait for the premium to go up? While you wait, you still have exposure to bitcoin—which is presumably what you wanted in the first place.
There may be pent-up demand from institutions and traditional investors who are waiting to see what effect the unlocks have on GBTC price and the spot price of bitcoin. If that’s true, we may see the unlocked GBTC bought up pretty quickly. While that might mean less money going into the spot market temporarily, it won’t mean selling pressure.
All the reasons to expect selling pressure are valid, too. We’ll have to see how it goes.
Why we care: if bitcoin’s price goes down on July 18, the day those lock-ups expire, people will say it crashed the market. If bitcoin’s price goes up, people will say it was nothing to worry about or that it was positive for the market. But on any given day, bitcoin’s price can go up or down a lot regardless of whether there’s a Grayscale event. The whole dynamic is far beyond anybody’s ability to predict and only able to analyze in hindsight. We can keep an open mind.
Bitcoin is in quiet re-accumulation
Bottom line: highly respected analyst Willy Woo says bitcoins continue to move from weak hands to strong hands.
My take: Willy tells you the same thing I’ve told you with different charts, basically, the market is building a nice floor for the next leg up. How low is that floor? We still haven’t seen a lot of new buyers enter the market yet and it could take a while to get gather momentum again.
Why we care: while Willy’s data focuses more on short-term behaviors that can change quickly and may not turn out the way we expect, it’s nice to know somebody with a bigger profile shares our analysis of the market. That can give us a little more confidence in our analysis and expectations.
Tyler Neville on the Biggest Trends in Macro
Last week’s On the Margin podcast episode delves into a concept of labor vs. capital, where workers assert their power against the financial system—not by revolution or conflict, but by making choices that snub the traditional financial system, e.g., top talent snubbing legacy businesses, new businesses upending traditional business models, workers demanding higher wages, and other actions that move wealth from the gatekeepers of capital to the creators of value.
As Web3.0, DeFi, and peer-to-peer payment services take off, cryptocurrency will shift monetary power from the owners of capital to the creators of value. Best to prepare now.
You Won't Believe This CRAZY Chart (a warning to the markets)
Please excuse the clickbait title, it’s not mine and it’s just what you have to do when you post YouTube videos to get clicks and the attention of the algorithm. That’s why everybody does it, regardless of whether the video content is substantive or not.
Alessio Rastani shares an alarming trend in a small niche of the US stock market, where unprofitable companies are raising money at a rate seen only twice: just before the 2000 and 2008 stock market crashes.
In other words, investors are putting more money into businesses that may never make money ever again than they are putting into businesses that make money.
(And they think we’re crazy for buying cryptocurrency?)
Watch the video for Alessio’s take.
For reference, here’s a link to a Barron’s article on this phenomenon:
Money-Losing Companies Are Flooding the Stock Market With New Shares
The real question is whether this demand comes from investors starved for yield or confidence that these businesses will recover in the post-COVID world.
Either way, it’s a sad state of affairs. When safe investments guarantee you will lose money and risky investments offer paltry returns, buying a stake in an unprofitable business doesn’t seem so far-fetched.
What does this mean for crypto?
It means Wall Street has too much money and not enough good places to put it. I wonder what will happen when bitcoin’s price goes up long enough that deep-pocketed investors start to think it will keep going up further?
Could look a lot like what we saw from October to March.
We shall see. Relax and enjoy the ride!
Sunday Rundown - July 4, 2021