“As usual, since crypto traders deploy leverage, it results in cascading sell orders and liquidations,” the co-founder of a crypto lender told Bloomberg on Saturday, on the heels of a fairly dramatic plunge in Bitcoin.
It’s never possible to ascribe causality to episodic volatility in crypto. So, I typically eschew documenting all but the largest drops.
That said, given recent cross-asset volatility and the distinct possibility that incrementally tighter financial conditions on the back of a more hawkish Fed could have knock-on effects, Saturday’s mini-plunge was worth a mention. Ether fell in sympathy.
At one point, Bitcoin dropped near $42,000 (figure below).
At the lows in July, it traded around $30,000. Needless to say, you can find someone who thinks it’s going to a million and someone who thinks it’s going to zero. To say there’s a diversity of opinions is always a laughable understatement.
I won’t pretend to have anything like a “view” on where support is. As regular readers are apprised, my steadfast contention is that technical analysis is only useful for what you can divine about the likelihood of systematic de-leveraging when spot equities (for example) breaches key levels. But even if I believed in technical analysis, I’m not entirely sure it’s applicable to Bitcoin. “Cascading sell orders and liquidations” notwithstanding, Bitcoin generally trades on a combination of psychology, the greater fool theory, headlines about mainstream adoption, progress on the road to institutional buy-in and, occasionally, Elon Musk tweets. Obviously, there’s no way to fundamentally value it. It has no intrinsic value and no internal rate of return.
Ether, on the other hand, actually does have a function and something like an underlying investment thesis, although I’ll confess that I’ve just started to appreciate it over the past six or so months.
Saturday’s selloff underscored the extent to which Bitcoin (and crypto more generally) tends to trade like a risk asset during risk-off periods. Some proponents argue that even if you don’t buy the notion that Bitcoin is akin to gold or some other kind of “pure collateral,” crypto is an uncorrelated asset and as such, can serve a purpose. In my experience, that isn’t usually the case.
For what it’s worth, I finally came around to the utility in having a (very) small crypto position. Long-time readers who’ve chastised me for criticizing the space can claim a small victory. I own Bitcoin, Ether, Solana and Avalanche.
I’m prepared (and fully expect) to lose it all. I have almost no faith in crypto, but I have even less faith in the sustainability of the existing system, broadly construed. Not because the system hasn’t worked for me, or because I think it can’t keep working, but rather because chronic undereducation, worsening divisiveness, the disintegration of civic-mindedness, the death of civil discourse and Belle Époque-style inequality, all point to the erosion of society in advanced economies.
In short, I’m beginning to fear a world where a lack of trust in our existing institutions begets a slow, but inevitable decline. If we do end up living in a post-government, digital dystopia, I’ve no appetite to be marooned in such a world with no means of payment. So, in that sense, crypto is my doomsday hedge.
According Coinglass.com, some $2.1 billion in crypto exposure was liquidated on Saturday (figure, below, from their platform).
The slump in crypto came amid a deepening rout in highly-valued equities, as traders fret over the implications of a hawkish Fed.
So-called “hyper-growth” names are being liquidated en masse. Seen in that context, the crypto slide is no coincidence.
Concerns about a rates shock are “clear in long-duration stocks [like] ARKK, CLOU, TAN and XBI,” BofA’s Michael Hartnett said in a recent note, adding that the “next leg of tighter financial conditions” could hit crypto.
On Thursday, Hartnett flagged Bitcoin below $53,000 as a possible canary. Bitcoin was approaching that level on Saturday morning — from below.
Haven’t had as much time to read the articles on here lately, but maybe I’ve spent too much time before.
“If we do end up living in a post-government, digital dystopia, I’ve no appetite to be marooned in such a world with no means of payment. So, in that sense, crypto is my doomsday hedge.”
Literally read my mind.
The only trouble is there is every chance that in our dystopian future our electronic devices won’t work so neither will crypto. I had a classmate in boarding school in the early 60’s whose dad was a jeweler to the rich and famous. His dad had this limo he rode around in and under the floor boards he had a safe welded in and the safe contained $2 mil in cut diamonds — his doomsday stash. I kind of liked that approach. But Derek’s ammo may also be a winner, although a good amount takes up a lot of space.
“The only trouble is there is every chance that in our dystopian future our electronic devices won’t work so neither will crypto.”
I used to agree. I don’t anymore. There is a chance of that, not every chance. I think it’s far more likely that such a future would have some kind of “connection” that would allow for the transfer of tokens of some sort. Whether it’s Bitcoin or Ether is irrelevant for me. I just wanted to be involved and get some experience with it.
Ultimately, my decision (years in the making) came down to this: I’ve invested in more speculative things than crypto. And more dangerous things than crypto. Quite a few of them worked out. Some didn’t. But that’s life in general, isn’t it?
What use will a crypto stash be if the internet is unavailable? I’d rather count on gold and ammo. Especially the latter. You’ll likely be able to trade ammo for food.
“What use will a crypto stash be if the internet is unavailable?”
Not much. But I’m no longer convinced that a future dystopia will be internet-free, let alone “connection”-free.
Plainly, a dystopia like “The Road” is a different story. But I think that’s less likely than a digital dystopia. In an apocalypse, none of it matters.
First, I set up a wallet when bitcoin was at $100, walked away for the day, and neglected to fill the wallet. Hard to go back now to buy at $45,000…
I understood bitcoin as a digital gold. It needed to be mined with increasing difficulty, and, due to the ultimate limitation on the number of coins, it would always be scarce. All of the attributes of gold.
I never foresaw the plethora of other coins that would be issued. To me, the multi-thousand coins now available makes the total digital coin universe a joke, and undermines the well thought out design of bitcoin as a store of value.
If I read right, there is now $2.5 trillion in crypto value. Most of that literally came from nothing but speculation. Bitcoin at least requires more and more difficult “mining”. I’m not aware of how the others are created, but I imagine that each relies on a marketer for creation, and a greater fool to maintain their value.
This is likely sour grapes on my part, or just my age showing, but in an age where loss of trust is rampant, its hard to see the population relying on any one of the current 12,900+ crypto currencies to maintain their wealth. I do agree, however, with diversification when you can afford the loss.
The US Navy is developing neutrino technology in case the global GPS system gets wiped out. If GPS can be wiped out, so can the internet.
What about my landline? 🙂
What is that??
The US Navy is training early-career service members in how to use ancient but effective technologies such as astrolabes and sextants, in case of emergencies such as EMP (electro-magnetic pulse events).
I have no doubt there is advanced research somewhere in replacements for GPS (as well as GLONASS and BeiDou), but for some reason I find it very reassuring that someone is making sure the next generation understands the basics of navigation without computers.
Hate to disappoint the preppers but there will be no dystopia. We’re going through a “fourth turning” (as Howe and Strauss termed it) driven by rapid technological change and generational dynamics. It won’t be pretty, but we’ll be through the worst of it by the end of the decade — and well on our way to “solving” climate change (through a combination of mitigation, adaptation, and a large-scale switch to renewables and fourth-generation nuclear).
So a dystopia more akin to Snowcrash than Mad Max?
Crap, H owning crypto has to be a sign of a cycle top… just kidding, I own a lot in large part for some of the reasons you mentioned in this piece, particularly my faith in the traditional system and actors diminishes by the hour. I have no way of knowing if crypto will be successful as a revolutionary technology or a hedge, but the more I learn about the space the more it becomes at least a viable option for me, sadly as you pointed out, it is not uncorrelated and it will become less so if it does succeed.
I’m late to this party but I think the dystopia we all fear is already here. The US Capitol being breached with full support from the incumbent president is as clean a marker as you need to signal that. The EMP fears have been around for decades, they are overblown the same way the nuclear winter scares were. Western society has had no answer to widespread propaganda and social networks driving mass hysteria. Kleptocracy is widespread and has supported Oligarchs everywhere. If you wrote a novel about the past 30 years in the US it reads like a Dystopian novel already. I think the Crypto trade is interesting, I also think it’s a lot like the dot com bubble right now. Every new crypto is immediately invested in and pops. Eventually this will end in a lot of people going broke but, just like the web, some tokens will survive because they have actual utility. Ethereum has always made more sense to me than Bitcoin because it’s designed to facilitate transactions on an unimpeachable ledger. Right now most of those transactions are just pump and dump variants of Ethereum. I hope eventually real transactions start showing up on there.