Crypto Is About To Reach the Banana Zone Regardless of Global Turmoil.
Anything other than "number go up" is just noise.
I read a quote recently that said, "Never mid-curve life".
It referred to the I.Q. bell curve, where the average person in the middle tends to overcomplicate things to sound smart or get lost in unnecessary detail.
When investing particularly in cryptocurrency, you're better suited to be on either end of the curve. i.e. The simpleton on the left who says, "Number go up", or the wise owl on the right who has a far deeper insight but has come to the same conclusion.
Being stuck in the middle is how you lose in life.
As a recovering mid-curver, I can spot these people from a mile off, and they were out in full force recently when Iran decided to fire rockets at Israel.
Now I realise there's more to life than Crypto, especially when unnecessary wars cost lives. But it was hard to ignore my Coinbase notifications going wild while $400 million was wiped away from Crypto's market cap within minutes.
I can tell you that in 2017, my ass would have fallen out after that stomach-churning retracement. But this time, I decided to switch it up: I put the kettle on, flicked open the laptop and wrote a blog about it instead.
The significance of conflict on crypto prices, particularly in the Middle East, is that people anticipate a rise or knock-on effect on oil prices.
Higher oil prices drive up the cost of goods and services, leaving fewer people with disposable income for speculative crypto investments. Consequently, prices plummeted as quickly as a broken elevator.
Or as one macro trader puts it: "30% drawdowns at this stage in the market are a gift from the gods"
Despite bullish sentiment regarding Bitcoin's halving event, recent elevated inflation data from the Federal Reserve shows a CPI of 3.48%. Compared to 3.15% the previous month.
Getting stuck in the middle becomes problematic because you avoid keeping things as simple as possible.
Meanwhile, BlackRock's Bitcoin Spot ETF has increased to over $15 billion, and they've just cranked up the marketing on Bloomberg.
Hong Kong has just approved Bitcoin and Ethereum ETFs two days after Iran was posturing in the form of rockets.
Everything is driven by liquidity.
Once I understood this part, it kinda makes you immune to these one-off events.
The simplest conclusion in it all is that numbers are going up. It’s for one reason only—more money is set to enter the system, which has a stimulative effect on asset prices.
Any other thought process is mid-curving—big time.
Ray Dalio, one of the most successful hedge fund managers of all time, says we are heading for a reinforced debt cycle in which the central banks will have to keep printing money because all significant economies have debts over 100% of GDP.
This requirement for economies to borrow and refinance to service growing debt has a stimulative effect on asset prices.
The U.S. federal debt has skyrocketed from about $403 billion in 1923, adjusting for inflation, to $33.17 trillion in 2023. The debt-to-GDP ratio in the U.S. shot past 100% in 2013 and is now at 124%.
So they have to print more money just to keep their heads above water.
Prices pull back between each halving.
There's something about human nature that makes us fear loss.
So, after enduring a brutal bear market and buying at the peak of the last liquidity cycle, the fear of further losses often drives people out of the market and forces them to sell at a break-even point when things finally recover.
It’s a mistake I made in 2021.
Then, when prices suddenly shoot up in a parabolic rise, it's doubly painful because you realise that if you had just held on a little longer after waiting so patiently, you could have reaped the benefits.
Don't let it happen.
In 2017, I bought ETH at $250, and it dropped right down to $70. However, when the market recovered, I sold off 50% of my holdings at break-even to ease the pain.
What happned is Ethereum then 40 x. Yuck.
Famous macro investor Raoul Pal says the last three halving events are nearly identical, where people sell out as we reach new all-time highs.
The chart below shows that right after each halving event, there is a cooling-off period during which prices reach new all-time highs.
Looking closely, you will see a little dip after each red line.
Final Thoughts.
Sometimes, it's easy to get lost in the ups and downs of crypto volatility.
We're human, and it's natural to do so when you have skin in the game. When that happens, I scan out and look at the bigger picture.
I ask myself, “Are we becoming more digitalised or less?”—the answer is more, so I want more exposure to digital assets.
Everything is driven by liquidity, and the money supply is set to increase.
The U.S. government needs to refinance 30% of its debt within the next year, and with elections coming up, the sitting president will do everything in his power to prevent economic turmoil.
Interest rates are expected to drop, and we're likely to see an increase in stimulus measures.
Basel 4 will take effect in January 2025. The global regulations will require banks to raise their minimum capital requirements from 2.5% to 10.5% to maintain sufficient reserves to cover debts and manage unexpected challenges.
The higher capital requirement will mean increased balance sheets, which means money printers go brrr.
My message is this: The numbers are going up. When they do, asset prices rise optically.
If you own a mix of the top three assets, Bitcoin, Ethereum and Solana, have a long-term time horizon and ignore the noise in the middle, you'll do great.
Drawdowns at this stage ARE a gift from the gods.
This was a very timely and meaningful article. Human nature is after all by the fault, human nature. Behavior is both predictable and repeatable. You provide a perspective that people should heed and fine exceptionally beneficial.
You’re spot on! Maintaining a big picture outlook with regard to crypto as the bull market cycle progresses is paramount for ultimate success investing in the crypto realm. One does have to consistently remind themselves to ignore the inevitable, short term noise.
Thank you.
Charles