Macro Thoughts About The Current Bear Market
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Risk Off
The sentiment in the crypto market is ultra bearish.
Crypto Twitter is dead, and people I used to chat with on a daily basis on Twitter are starting to disappear.
The trend is clear, we're going down.
The total crypto market cap is now around $1.7 trillion at the moment, the same as it was at the July 2021 low.
This time FED is in control over what happens in the market.
With inflation above 8%, and an insane amount of money printing since March 2020 (COVID-19), we all knew that the market had to come down (at some point).
I started to risk-off when I saw the forex market started to act strange.
I live in Norway, and for that reason, I follow the forex chart USD/NOK very closely.
An 11% increase in 1 month is not normal, and most often when we see these sharp increases, there's bad news ahead.
Below you can see the Nasdaq 100 index on the same timeframe (4H) for the same time period.
Nasdaq 100 (the 100 biggest tech stocks in the US) is down 16%, which is quite a correlation to the forex market in inverse.
My point is when forex is up, stocks go down (not always, but often).
Why?
When there is fear in the market (eg. FED increase rates) people sell off stocks for US Dollars or people who trade forex sells off their currencies for the US Dollar.
Fiat is not the solution long-term IMO, but for now, the US Dollar is the most trusted stable asset (for most people) worldwide.
Why Does The Market Look Like Shit Right Now?
Quick summary:
A crisis start (eg. Covid-19 in March 2020)
The government prints money to stimulate continued economic growth
Inflation and the circulating amount of money increases
People get more money --> they now both invest and spend more money
Both asset prices and consumer goods prices increases
People get richer, so they increase their spending and take out loans to buy even more (houses, cars, boats, stocks, crypto, bonds, etc.)
The government loses track of inflation
Money printing stops & government stops buying assets
FED increases interest rates (WE ARE HERE)
Now you have to spend more money on your loan rents = less money to buy assets and consumer goods
Both the government and you are not buying assets, in fact there's a sell-off because people need to pay down their loans
Your net worth decreases, your assets are tanking, you're losing money and now you're sitting with houses, cars, and boats with high loans that are more expensive to pay down (increased interest rates) + they're worth less than before.
You have to sell off assets with a loss to cover the loans
You have less money to spend
Companies goes bankrupt because people don't buy their goods
You are losing your job
People are forced to sell their houses
.......
No one knows if we're in a real long-lasting recession, but if we are this may continue for a while.
Oh, and this TLDR is very simplified (I'm not a financial macro analyst).
What Does This Have To Do With Crypto?
First of all, you need to know that the macro is a bit correlated across markets. Also, as I mentioned, the crypto mcap is sitting at $1.7 trillion. That's not much compared to other markets.
Real estate = $325T
Bonds = $120T
Stocks = $100T
Metals, incl. gold = $15T
Crypto = 1.7T
Nasdaq is down 22% from ATH, while $BTC is down approx. 50% from ATH.
The correlation between Bitcoin and Nasdaq 100 has recently been almost 70%. Is Bitcoin just another tech stock?
So since $BTC has been very correlated to Nasdaq lately, and altcoins are behaving in a similar way to Bitcoin, this is why this matters.
A general rule of thumb is that if $BTC is down 10%, altcoins is down 20%. But there are so many exceptions here, so don't take this for granted.
I wrote the tweet above 2 weeks ago.
The stock market looks even worse now (tech giants down 80% from ATH).
Seeing tech stocks down this much, and knowing that the crypto correlation to stocks is high scares me a little bit.
We've seen altcoins already down 60-90% from ATH, but $BTC and $ETH holding up fairly well ("only" 45-50% down).
There's a logical explanation behind this.
People will sell-off in this order:
High-risk altcoins
Med-risk altcoins
Low-risk altcoins ($SOL, $LUNA, $AVAX)
Bitcoin/Ethereum/stablecoins
So far we've seen huge sell-offs in 1. and 2., but only a little bit for 3. and 4. which should be treated as capitulation IMO.
What's Next For The Market?
Like everyone else, I don't know what will happen next.
But it remains hard to be very bullish short-term at crypto. For the long-term, I still believe massively in the industry, in DeFi, and all the builders.
For now, maybe the best strategy is to just DCA into $BTC and $ETH, or just wait in cash or stables on the side until a bottom present itself.
Or short the market, but for most people, this is too advanced, and if you try it be careful ;)
That's it for today!
See you next week.
Before you go, check out these 3 tweets that inspired me to write this post.