Script(ish) for the Video:
Today we’re going to talk about the decline in not only Bitcoin, but also the stock market and bonds. I think it’s kind of interesting to talk about whether or not this decline in other asset classes is positive for cryptocurrencies.
Before we continue though, I’d like to acknowledge it’s been a while since I’ve made my last video. I’ve been fairly busy, some things related to the channel and other things just being life… But if you want to keep up to date with me, check my Twitter because I post there more frequently, especially when I am MIA on this channel. Also… I am finally using Trading View, hoorah! I know everyone’s been waiting for that. Let’s get into the video…
Now 2018 has not been kind to Bitcoin – we started the year at roughly $14,000 and had a nice run up to $17,000 before all hell broke loose and we saw the market decline over 60% from the peak very rapidly, although it is worth noting that it didn’t fall as quickly as when we initially went up to $20k.
There are a number of theories out there as to why prices began to decline. Some speculate that it is due to China extending their ban to “exchange-like” services, others attribute it to the possibility of a ban on cryptocurrencies in India (or FUD surrounding that event) … Yet another group believes that prices are being manipulated by Wall Street through the use of cash-settled futures offered by CME Group and the Chicago Board Options Exchange. Then we have less specific catalysts like the idea that January has historically been a bad month for cryptocurrencies, so basically the January effect from stocks. Some argue it is a coordinated result from several or all of these catalysts.
The important detail here is that there is no “single” catalyst that anyone can definitely declare is the cause of prices declining, unlike back in September of last year where we saw Bitcoin decline due to the ICO ban in China and the subsequent exchange ban.
What this suggests to me is prices were simply too inflated and only needed an excuse to decline. What do I mean by this? I mean that everyone sort of knew that Bitcoin and other cryptocurrencies were overinflated (at least most people) and yet despite this, they kept buying in just so they wouldn’t miss out or to hopefully ride the wave a bit longer. In other words, price was driven by the Greater Fool theory.
This type of mentality is actually quite similar to what we saw with Ponzi schemes like Bitconnect, where people are aware it’s a scam and invest anyway in the hopes of profiting prior to the collapse. This is almost exactly what I am doing as I invest in Bitcoin despite believing it to be a bubble (which is different from being a scam, for the record).
Now that the momentum is definitely to the downside, the mirage has faded and many are panic selling. But there’s also another subcategory of sellers who are only selling for the possibility of buying in cheaper soon after. In other words, they are trying to take advantage of the downward momentum in the same way that many people tried taking advantage of the upward momentum in the second half of 2017. And just like what we saw with the inflation of the Bitcoin bubble in 2017, this subcategory of sellers is actually contributing to the overall strength of the price fall. In other words, they are contributing to the crash despite being net positive on cryptocurrencies.
This combined with the much louder voice of naysayers has led to a heavily bearish tone for Bitcoin and other cryptocurrencies. Just as we saw Bitcoin’ers drown out the naysayers while price was skyrocketing, suddenly the so-called “no-coiners” (or whatever you wanna call em) are beginning to drown out the Bitcoin’ers. All markets are about balance. I mean they talk about equilibrium of supply and demand from the very beginning when it comes to price discovery. Exceptionally emotional markets like Bitcoin tend to sway one way or another and they almost always are tipped out of balance just by human nature. And indeed, it seems that the pendulum has now swung the other way.
Meanwhile, the past two weeks has not been kind to stocks. In the US, we’ve seen the S&P 500 decline x% since January 26th and the DOW dropped 1,175 points on February 5th, the most it ever has in history on an absolute level. We saw a recovery the following day, but the rest of the week has been shaky so far and with the VIX being as high as it, the market has become a much less stable place.
Many investors are attempting to understand this decline, blaming a number of factors such as inflation expectations, increasing interest rates, government deficits that never seem to end and possibly most importantly, algorithmic trading.
A lot of people are speculating that due to the large bets placed on continued low volatility in the stock markets (as measured by VIX) as well as automatic portfolio rebalancing, there was significant sell off caused by algorithmic trading. The market also moved below its 50 day moving average, a critical support level that many bots likely are configured to spot and respond to accordingly.
Regardless of the cause, however, the frothy global stock markets are finally seeing a decline after not only record prices, but also exceptionally high valuations as shown by Shiller PE.
Meanwhile, the bond bubble started to deflate in the past month as treasury yields increased (for those of you unfamiliar, bond prices have an inverse relationship with interest rates, meaning they decline as rates increase or vice versa). However, we saw bond prices start to recover a little following the decline in the stock market as investors fled to safety but overall the trend is that bond prices are falling.
… And speaking of safety, gold has held strong during this decline and illustrates very clearly why Bitcoin is NOT digital gold as it is far too volatile and not yet perceived unanimously as a hedge against not only geopolitical risk, but more importantly (and this is what gold is really all about) hedging against monetary and systemic risk. Peter Schiff and other gold bugs are having a field day with this, finally receiving validation for their controversial views, although they tend to be a tad extreme for my tastes.
This all leads us to the important question: What should you do as an investor in this market? Is the broader sell-off in other asset classes a positive for Bitcoin? Unfortunately, I tend to think it likely isn’t. What used to be a unique opportunity for Bitcoin and other cryptocurrencies among a class of investors who watched it skyrocket without them is now a ubiquitous opportunity in other asset classes as well. In other words, there is now competition for where to buy the dip.
The other important factor is that the recent sell-off was clearly a risk-off trade as we saw equities broadly sell-off with defensive stocks outperforming other sectors and bonds saw a slight uptick before coming back down the rest of the week. If investors are going more risk-off, this would imply less capital for Bitcoin given its obvious more risky nature.
One last question that many have been asking: Is the sell-off in stocks related with Bitcoin? I’m going to have go with a big fat NO on that one – there is far too many variables at play and cryptocurrencies at this point in time are far too small to have such an impact in my opinion.
If you’ve followed my content a while, you know that I bought my last batch of Bitcoin at $8,300 with no plans to sell. You also know I used a majority of the cash I have allocated to cryptocurrencies when Bitcoin reached that level. However, I will be shifting some funds from outside of my cryptocurrency portfolio if we see Bitcoin come down to around $5,000 or lower (which no longer seems likely, fortunately).
Now the reason I’m not buying above $5,000 anymore is because I’m fully allocated to Bitcoin at this stage and really only want to increase that allocation in the event that there is an exceptionally attractive buy opportunity. Note that if I didn’t have a position in Bitcoin right now, I would have been buying it below $8,000. So this is a portfolio specific decision – and I really want to put emphasis on this because different portfolios should make different decisions.
This is a tough concept for many of you who are new to investing, but the best way to manage risk in a volatile asset like Bitcoin is to just limit your exposure to it and occasionally take profits when good opportunities arise. This way 60% declines like we have seen recently don’t devastate you entirely. The flip side is you won’t always make as much money when prices go up of course, but behavioral finance has illustrated to us that the pain of a loss is twice as bad as the good feelings associated with a gain so you want your portfolio to reflect that.
My strategy right now is focused on identifying altcoins that depreciate against Bitcoin and then moving some of my existing Bitcoin position over into that altcoin. In other words, I’m not dedicating new capital anymore, just moving around existing capital. I’d also like to note that altcoins held up exceptionally well this particular crash, with Bitcoin dominance never eclipsing above 40%.
This is a harsh blow to my estimate that Bitcoin dominance will rise to 50% in the coming months. I have previously stated on this channel that dominance tends to rise during either extreme crashes or spikes for Bitcoin. While dominance did in-fact climb slightly from 33% to around 38%, it never came close to returning over 45%.
The relatively small altcoin selloff (as measured by a rotation into Bitcoin) is still a topic I’m forming opinions about. I’m leaning toward the idea that it suggests the overall market wasn’t as panicked as the sell-off may have implied, which is also supported by the fact that the market fell slower than it went up.
There are other explanations as well, such as the recent news that Bittrex recently announced that they will be allowing USD deposits on their platform at some point in the future, allowing direct trading for altcoins and hence hurting one of Bitcoin’s primary use cases. There’s also the common explanation that Bitcoin is worse than useless due to its speed and transaction costs, meaning that it’s time of dominance has come to an end. I am still weary of this idea because it fails to acknowledge that most altcoins aren’t too useful either and possibly more importantly, haven’t been tested at the same scale as Bitcoin. As a result, I think it will take a longer time horizon to prove either side of this argument correct.
As to where the market goes from here, it’s anyone’s guess as to whether or not the “bottom” is in. There are some positive signs of a recovery such as the fact that volume remained relatively strong on the bounce back compared to other bounces we’ve seen recently. Volume is tepid now as we have moved from capitulation to consolidation.
I still stand by my original thoughts that the end of the bubble isn’t here yet. Many investors missed out on last year’s crazy bull run and Bitcoin is now on their radars. I suspect this group of investors will be the source of the next rise up in Bitcoin before we see a real and more extended bear market Bitcoin and other cryptocurrencies (assuming of course that their utility continues to grow at its current lackluster pace, which is a big assumption). What are your thoughts on the market?
Regarding reasons for decline there really seems to be an overindulgence in ignoring the effects of the ridiculously bad technical performance of Bitcoin. Consider this narrative:
So now my personal experience is that this bitcoin / blockchain stuff doesn't actually work as advertised and I can't make any use out of it. But... what about all these people on twitter and youtube who obviously know better than me who swear that it's the best invention since agriculture? And they're telling me that fixing scaling is trivial (which you'll believe unless you are an experienced programmer and you realize that Lightning Network is going to create more problems than it solves)? And the price is still rising so I'm still going to be rich?
Until the price wasn't ricing any more...
I really do believe this is fundamentally the biggest contribution to weak hands and fear in the market - that belief in crypto doesn't come from personal experience or working technology but rather through sect leader style influencers and FOMO.
Well said
I had that very same perspective. And then I started transferring money using stellar lumens. Put simply, it's what I expected Bitcoin to be. I actually said "That's cool" to an empty room after witnessing a near instant transfer and negligible fees. There is still hope.
Stellar is great. We'll see whether it works out or not but it's so blazingly fast. If anyone believes in Ripple, Stellar is much superior: half the market cap, better team, and lower reserve amount. And this is from a guy who got 1000 XRP from the 2014 airdrop (and flipped it for a bottle of Laguvulin 16) shortly after.
Nano also does a beautiful job of it. Definitely the cleanest "blockchain for currency" implementation I've seen. Shame about the Bitgrail debacle going on :/
Great writing! Loved it!
Maybe you will find this interesting too ... Best regards!
https://steemit.com/bitcoin/@laviniatherapist/how-can-bitcoin-criptocurrency-affect-your-life-and-how-can-you-deal-with-it
This is the nature of most new technologies - that there are far more promises than realities. One can only hope that eventually that reality catches up with those promises. Many people have had a similar experience as you.
I agree with Schiff in that the current stock market is due for huge correction.
While there may be a bubble in the stock market as well as crypto, I do feel that the crypto market can de-couple from the stock market, i.e. there can be a huge bull market for cryptos during a bear market for stocks.
If the US dollar and stock market goes on an extended down period, I believe it makes crpyto an even more attractive investment. The cash hand that is freed up from the selloff of other investments might just flood into bitcoin and other cryptos.
While I'm not sure on this theory, I do feel like CNBC and other media outlets are still talking about the price of bitcoin against the backdrop of this stock market collapse. Putting it into people's heads that they should FOMO in when BTC rises while other assets drop.
I think the main reason for the sell off was regulatory fears, especially in the US and in the upcoming G20 meeting. I think the tone from the US, EU and South Korea got more friendly in the past days. The SEC hearing went well, the South Koreans made to its political leaders clear, they care about Bitcoin and Co. and the EU want to be a leading nation for blockchain technology.
If we get a friendly regulatory environment, this could fuel more money from institutional investors, as they are hesitant because of the risks and unregulated markets.
Main risks for the bubble to pop, before they can catch up with its value are from my point of view:
Besides that, I truly believe this market has the potential to raise to a new asset class next to stocks, bonds, real estate and so on.
Nice post,
Unfortunately i think #3 is starting to happen now (ex;Tezos),too many shady ICOs as is.
I wont invest in any because of this.....
This infact why i think regulation will come in faster than people think.
I have seen similar pattern many times with bitcoin. The next phase will have much volatility as we move through the "blow off" on into the "stealth phase"
Yep. Just everything repeating over and over. It's fun, though.
You seeing most likely a dip down to 3-4k then?
Maybe $2k by valentines.
@inertia, you're assuming a return to the "true mean" of bitcoin then, in the literal sense I take? And are also disregarding the volume?
Wouldn't surprise me if this ends up being the case.
An interesting way to look at the price. https://www.theinvestorspodcast.com/bitcoin-mayer-multiple/
Thank you for your valuable opinion. I did thought sp500 and btc crash lines were related, because if I lost a lot in one market then I need to sell on the other market to eat my lunch. But even gold is down!?.. where all the 'value' (money?) is going to? This all 'downs' cannot be only value lost by depreciation of the perceived values, or could? ... someone is storing value under its bed or over spending in restaurants and wine...
Seems like there are talks that banks themselves are not really loaning to each other... Some of your points seem to point that banks are overextended and taking money out to pay their bills? Store under its bed could quite be but why would they when they were doing well? I assume they are overspending (and overextended). Even the bond market is acting weird too..
Thank you Sir for sharing opinion. :D
Well correlations of all assets tend to rise during crashes - all the money is going to... money! Cash, it's king when people are selling.
I wonder if there exists money enough in the world for all the value stored in all the markets ...
Great post as always, but I disagree with the idea of crypto selling off as money leaves risk assets of stocks and bonds. The underlying question is whether the "easy money" is still flowing in terms of low global interest rates and European QE.
As long as the U.S. federal reserve and Mario Draghi leave the spigot on, the world will be awash in easy money. As you said, this money will need to go somewhere. Classically, easy money = inflation, which is bullish for commodities, gold, and real estate.
If the narrative changes to how Bitcoin/crypto is an inflation hedge, this space could rocket!
I think the fear is that the easy money situation will evaporate faster than people originally anticipated - should be interesting to see how that plays out.
The bond guru Jeff Gundlach is pounding the table for commodities here. He makes a compelling case for the fed always taking the punchbowl away too late.
The narrative for wall street this you could be: "buy hard assets and cryptos"
Good video.
Yes, the stock crash was not related to crypto decline.
But the SP500 "recovery" on Tues wasn't. It was a classic dead cat bounce or bull trap.
I hope today is not a repeat because I backed up the truck and loaded up on AAPL today. A trailing 2% buy stop got me in at 153.26, so I'm a happy camper at least over the weekend.
I'm interested in your opinion about good satoshi levels to shift BTC to ETH and/or LTC. I'm fat BTC and lean ETH and LTC and looking for opportunities to rebalance.
Thanks again for your insights.
Regards,
Rick
Ethereum is in an odd place now because if it keeps going up any further, it will overtake Bitcoin which is a pretty colossal event that I don't anticipate happening yet. Litecoin I have no strong opinions on... wouldn't be a bad idea to scale it up if it comes back to 0.015ish BTC again.
Nice call on AAPL,
Ive been slowly increasing my position in HON as well.
If you get a chance look into NEO if you buy alts.
You rock sir. Thank you all your ideas. Even the ones I don't agree with 100%. I love thinking critically and you always force me to do so.
S&P e-minis are a better proxy for risk sentiment than the Dow (they are extremely liquid and trade nearly continuously during the week). The correlation between them and BTC during the risk off event on Tuesday was staggering. Watching it live on the terminal you could see them ticking down or up in complete unison. With that being said the subsequent risk off move to end the week wasn't accompanied by a selloff in BTC. I think the market is still unsure about whether BTC is a risk off or risk on asset. If institutional money gets more involved I think it should start trading more like gold. Below is a screenshot from earlier in the week and a link to a post I made about BTC being risk off or risk on.
https://steemit.com/bitcoin/@cryptsheets/cryptsheets-is-bitcoin-a-risk-off-or-risk-on-asset
You imply that Bitcoin dominance might not start rising again, quoting Andreas that due to the high fees and long processing of transactions, there are not many reasons for it... but what about the Lightning network??
There are people who already set it up. It's working, it's right there, within the reach of our hands. If we can actually start using it to purchase things, which is in foreseeable future, there will actually not be many arguments left against the Bitcoin dominance. Because, let's admit it, vast majority of altcoins are pure Sh*tcoins, only rip-offs of Bitcoin with very little added value, used only for speculation...
(disclaimer: I actually haven't set up a lightning node, just thought this sticker is funny.)
The sticker is great.
I'm not into the true tech behind any cryptos. I'm just speculating/investing in the next big thing.
Almost as important as "don't invest what you can't afford to lose" is "keep your sense of humor when it all goes to sh!t".
Regards,
Rick
Lightning is a tech nerd solution, not a real world one.
Bitcoin was originally a tech nerd solution as well.
Bitcoin dominance is a matter of perception rather than reality, so who knows what happens with it. I'm sticking with my initial idea that it recovers to 50%, but this crash and lack of recovery in dominance came as a surprise to me. I've mentioned previously that Lightning could one of the catalysts that sends dominance back up.
I might have not been listening carefully enough... It just always seemed to me that anyone who mentioned Lightning didn't really take the possibility of it actually working seriously. Now I realize it's not a question of it working or not, it's the question of people trusting it or not: as it is with everything else within this weird market.
Great post. I'm cautiously moving back into Cryptos.. Buging bitcoin Litecoing Ethereum. Taking out of stocks
It’s impossible to know when the best time to invest is, but I suspect you will do well out of this timing.
I think you are among the most honest traders :) + right voice tone :))))
I think whales are DELIBERATELY taking money out of crypto to cause FUD so it won't go up while DOW plummets...
Resteem and upvote
could you please post a link to this podcast you mentioned? I'd be curious to check it out
Will Bitcoin follow the NASDAQChart? :)
Great post I was starting to wonder if something happened to you. Glade you posted again. I think that people were selling because of the uncertainty with the government influence, now with positive things coming out people are back investing.
Nice video and write-up, what alts are you looking at? Were there a few you noted that dipped more than average?
Do you think what is going on is Washington could be effecting the markets?
The BTC market today looks exactly like the market from 2014.
Look at the 2 graphs
ILLUMINATI CONFIRMED
lol
This might be the year where we stop worrying about btc vs alts. As use cases become clearer and the number of them explodes people will see that it's far better to have many specialist coins that can be interchanged seamlessly than btc or eth, etc, grabbing the whole market.
We saw one coin, DGD, which is tied to physical gold, go up massively when btc tanked down to 6k. If that gains more traction it could potentially become a better replacement for tether.
It's getting fun!
Thanks, great video.
It had been day after day of bad news and uncertainty - tether still not having been cleared. But that SEC hearing was hanging over everyone's head but i don't understand how after that it was a green light when the SEC didn't really say anything. Plus I think in January there were so many "dips" only to go lower still so even if you did have cash - you were reluctant to spend it!
i dont know why u called it bubble ...do u mean there is no future for the crypto currencies or is it not revoulotion in other meaning...thanks
The dot com bubble in the 90s didn't mean the internet had no future. It meant that everyone and their mother were piling into internet stocks for no reason other than hype. $20k bitcoin at 5 tx/s and $30 fees was a similarly ridiculous overvaluation that warranted a sharp pullback in price.
Thanks again for your cogency and analysis.
Have you had time to think about EOS? I mean this with reference to its unique long ico period and what kind of price action to expect as June approaches and the ico ends.
I wont invest until it goes below 5k. The swings are too strong right now, I don't think it's going up past 10k until it goes down below 5k or if it does, I have no confidence in it.
This is how you are wrong on your BTC dominance predictions, the #flippening is happening this super cycle: https://www.tradingview.com/chart/ETHBTC/bYbalXbW-MARKET-CYCLE-ALT-SEASON-CYCLE-BTC-V-ALTS/
Good Analysis bro. I been checking out your vids, came from Twitter! I was so ready to buy sub $10k BTC couldn’t wait til $8.3k like u predicted 😩 I picked up a little at $9.5k but kept watching and doubled order at $7k. Looking forward to BIG investors going long on BTC. 👍🏾
Thanks for sharing your thoughts.
Side note : Trading view is a great tool, but be wary of volume information returned on the coinbase/gdax charts. It seems there has been issues in the past with the Gdax API - and reported volumes look indeed sketchy at times...
That being said, maybe it's just me looking at those for too long :)
In your early remarks you mention that the fall in a January has been slower than the rise that lead to it, as shown on your chart. That should be ringing a bell in your head. The fall relates to a much longer rise that started over a year ago and in those terms,
Even on your chart the white moving average, that is turning down, is not suddenly going to flip up again and the blue one has been below support for months, is way up in the air as strong resistance. Sentiment has changed. People have had their fingers burnt. The institutions are attacking cryptos and so its going to be a while before the true value of crypto currencies can fight off the fear running through them now.
Take a look at a weekly chart of 2017/18 to see how this new year fall really looks. I still think 4,000 is Bitcoin’s support level and it may even overshoot and then range trade around there for weeks.
One other thing, commentators always fit news events around market moves both up and down. Sentiment trumps news every time. An event such as an interest rate rise by a central bank can lead to a surge up in
markets or FX pairs, just as much as a fall.
I have been searching for this video that I watched about a year ago. It has another video within it showing all Bitcoin’s previous bubbles. The price is higher, but the curves look the same.
Thanks for your constant insights. Some of the fundamentally-oriented reasons for the pressure on cryptos might also have to do with those having purchased cryptos on credit at the peak of the hysteria period in Dec being so deep underwater led them to panic selling to liquidate positions, which helped to fuel the recent declines. Off topic, I found the following daily report quite insightful to gain further insights into the day-to-day fundamental developments in the space... I like how they keep it structured. https://medium.com/@coinlive.contact Thanks again.
Hello Truth investor. Keep up the good work. I had a question about your chart's volume bars at the 5:17 mark on BTC. Your volume bars don't match up with mine and I'm a bit confused as to why. Your largest bar is for Dec 7th's rise followed by Dec 22's fall, with the recent dip into 6k on Feb 6th barely comparing in volume. While my chart has each respective day's volume bar as the three largest volume bars in the last 2 months. Have you set your volume bars up differently?
Hei! Would you like to make videos about investing in general? Because it seems that you have some really valuable knowledge... And I would like to learn something about this little more!
My crypto brother...you are AMAZING. ..seeing you break down the stock, bond, gold & Crypto market all at once was phenomenal. Your on another level. Very informative and helpful.
👍
great analysis. I still feel not worried about future of bitcoin
👍
I always enjoy hearing your perspective.
One thing to note, as you mention investors have the ability to invest in many things during a dip at the moment. I have heard multiple people now predict the US is headed to a financial crisis. If this is the case and we see the dollar weaken significantly I think the cryptocurrency story is bought by many more Americans and we could see increased adoption because of this.
Why my chart is different? I have selected same exchange, same timeframe and same currency pair. In my chart BTC did not went above 200 line and actually bounced back from it.
Great vid!! I think its likely BTC is going to retest the channel @ 4500. I believe the stock market is in the middle of a 5 wave down correction. I'm into T&A and elliotwave analysis. Trying to figure out what to short tomorrow.....
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