This Week in Crypto: The Don’t Panic Edition

Read the video transcription

Good afternoon and happy Friday after a very eventful week in markets around the world. This is Dave Weisberger, the CEO of Coin Routes, talking about this week in crypto. And to be honest, this Week in Markets is a better title for what we should talk about. We’re at one of those flash points in the market where there’s obviously a lot of fear, a lot of people saying, what’s going on? We’ve had several interesting days in a row and I’ll try to break it all down for you.

At the core of what’s going on in the market is the United States Federal Reserve and central banks around the world realizing that they’re trapped. Now, for those of you who have been watching me in other videos or on other commentaries I’ve written, I’ve been saying the Fed is trapped for quite some time. But let’s look at what actually is happening. Their 1st 50 basis point rate rise this week. And the markets cheered because there was a thought that OK, maybe it won’t go so bad and everything will be fine. And the language in the statement was that it wouldn’t be so high, except for the fact that inflation is still raging dramatically and the Fed’s rates are still dramatically low, somewhere around 7% negative compared or negative real rates compared to inflation. So why do people get so excited about rate rises? Well, the answer is, when rates rise, it makes the borrowing of capital to invest go higher, it makes the borrowing of capital to speculate go higher. And the worry is that it will pop these speculative bubble that has happened in assets. And when people talk about bubbles that they’re really looking at are discounted future cash flows or metrics like price to sales.

And by those metrics, the market is still actually fairly expensive in terms of long term trends, but we’re still way below in terms of interest rates, long term trends. And so as a result, the real question is how much of the money that has been created and printed over the last couple of years has been in speculation? I guess we’ll find out, because what really ends up happening in these sorts of situations is markets seek a level. Now, it’s pretty clear from all the backchannels that we’ve heard from the Fed over the last six months that really they don’t care if markets go down gently a little bit. They understand that markets are overheated, but that is very, very different than sharp balls.

So yesterday when the previous day’s gains were completely reversed, and today when it started to follow through a little bit to the downside, there’s a lot of people nervous that renouncing or stopping the wealth effect that has essentially been floating large swaths of the US economy for years now could be problematic and we could be headed toward a recession. We did see a negative GDP print for the first time, which when you put that in real terms was a significantly negative print, and so there is a lot of concern. So what does this have to do with crypto? Well, as I’ve said many times, bitcoin trades like a risk asset, and as a result, speculators can find it’s very liquid. They can sell it when they want, and so sell it they do.

And a lot of crypto has been dropping as bitcoin has been dropping. People had made a lot of the fact that the Ethereum has dropped less than bitcoin over the last few days. Sure, I mean, there’s some of that, that bitcoin is more liquid, easier to sell kind of thing going on. But the reality is, if you actually zoom out and look, bitcoin is still in the middle of a trading range. It’s been in for a while. Yes, it’s for the lower part of it, that trading range between the low 30s and the mid 40s is now going on, what, 14 months with that one bubble top in the middle of it, and going on quite a few months, like five, six months since the last big rally to the all time high. We’re still in that range. Nasdaq does not look like that over the same period of time. Nasdaq stocks, it’s been pretty monotonically down. And if you zoom out and look only at the high flyers, the ones that are in Kathy Wood’s art portfolio, the carnage has been palpable.

So what is actually happening? What’s happening is people are selling and things are going to find levels. Where is bitcoin’s level? Well, it looks like somewhere around where we are is the beginnings of support. What I mean by support? What I mean is there are buyers, like actual buyers, who are patient buyers, who don’t want to FOMO chase on the way up unless they feel they have to, but are happy to scale in and buy here. Are there buyers who are “defending their price level” by buying at this price in order to make themselves not look stupid? I mean, people have theorized that, frankly, the greatest contrarian indicator in all crypto, Peter Schiff basically said exactly that in a tweet this afternoon, which makes me think it almost certainly can’t be true. But hey, broken watch. Right twice a day. Maybe he’s right this time. I don’t know. What is relevant, however, for people in crypto is to zoom out and be on your right timescale. I’ve said it many times, leveraged investing in an asset that trades like an option, like bitcoin, is dangerous if you hold for the long term. The question really is, is the thesis of bitcoin becoming a store of value intact? On that note, for many reasons, I believe it still is.

So this is the time to actually try to figure out where price levels are happening, why they’re happening and what is going on. If there’s more funds that are going belly up and have to sell, if miners are forced to sell because the bond markets where they were borrowing against have gotten tighter. Sure, there can be more follow through the downside. On the other hand, ask yourself, is the Fed going to be able to actually stop quantitative easing? Are they really going to be able to shrink their balance sheet? Or is that going to tip us into a recession where they feel the need to reverse course again? That becomes the most important question one has to answer. I’ll leave you with this, and let’s watch what goes on next week, because it could be very interesting. Thank you.

Leave a Reply