While maybe painful, the current environment is just fascinating to watch. I bought my first stock in Feb 2008, a little while after turning 18. Since then, I’ve pretty much only evolved in a super accommodative monetary environment and an ‘up-only’ environment (although, to be sure, there were drastic pull-backs along the way, which were great times to load up).
Today, I feel the same glee as during March 2020 or in the correction of 2018, of August 2015. Stuff that felt expensive now feels discounted.
The difference might be this: the era of easy money might be gone. It might not -not really- but inflation is forcing central banks to raise rates and move forward with quantitative tightening.
With that backdrop, risk assets and especially growth stocks are getting killed. It’s interesting that a lot of the world news is almost irrelevant. I listen to traders (professional ones) and they seem to talk only about: bonds, yield, long-dated, front-end of the curve, TIPS, etc… it’s all about expectations on fixed income assets. And then only it translates into pricing for equities.
Clearly, the interpretation is that things are still not cheap enough. The S&P and the Nasdaq are down 25% and 30% respectively, from their all-time high.
I personally feel like we could be finding a local bottom -that is, not a long-term one but an intermediate one. This is because, broadly speaking, there’s no impetus to go back up in any significant fashion; we haven’t seen a resolution in geopolitical tensions, in Chinese lockdowns, in supply-chain resolution, optimistic views on food stuff, nor from the Fed.
Simplistically: the path of least resistance is down, not up.
Before moving onto crypto, though, the silver lining of this whole dynamic in traditional finance is that a slew of indicators are at extreme oversold levels. This might hint at a true paradigm shift, where things need to be reevaluated in a dramatic way and charts don’t make sense anymore, or, it means that we’re close to done, that eventually we’ll see something improve and change and things can bounce back up. It’s about whether you think “this is time is different” or not.
What about crypto? Damn, what a wild ride. Testing my resolve.
To clarify, I’m not a trader, just an investor, an accumulator, a buy-and-hold guy, a hodler, whether it’s crypto or traditional assets. I think of everything like I think of real estate: I buy to hold for 10–20–30 years, actually maybe for later generations.
That means I refuse to try to optimise by selling and trying to buy back lower. I just flow cash -which I hate- into assets that I love (US stocks, EU stocks, EM stocks, physical real estate, REITS, precious metals, TIPS, long-dated bonds, collectibles, whisky casks and, yes, crypto).
Right now, that crypto portfolio that was worth, say, 100 is now worth 30… it’s 70% down. There’s just no way around it, if you’re holding alts those are down massively (not to speak of LUNA -now LUNC- that went to zero).
It doesn’t help that we’ve suffered major drama that somehow is all linked to the LUNA and UST collapse. With Celsius, Alameda, Galaxy Digital, Three Arrows Capital and Genesis. Celsius going for the door and front-running its peers only to find itself under pressure, not long afterwards, in the closest thing you can get to a ‘bank run’ with users withdrawing and most of its holding locked in stETH (staked ETH) and unable to unstake quick enough, or get out of leveraged positions, or call back on the under collateralized loans it would’ve made. Then 3AC suffering from leveraged positions and, it seems, in the process of blowing up and defaulting on its loans with many partners. The contagion seems to spread to Babel Finance, Galaxy, BlockFi, maybe Genesis to a certain extent.
Yet, even with all that happening, I can’t help but be a buyer. Early this week I was buying BTC at 21K and ETH at $1,200. No alts in this environment, I’m probably not man enough for that level of risk.
I feel confident adding here, though, even as we’re dipping below 20K (as I’m writing this!). The point is never to catch the absolute bottom but to average in. I was already buying in the lower 30Ks, in the upper 20Ks, in the lower 20Ks and probably in the upper teens.
My point is this: do you believe BTC has value and will keep on growing over the next 5–10–20 years, or do you think it’s all going to zero? A similar question can be asked for ETH.
If you think it is going up, if you hated yourself for ‘not buying earlier’, if you said you should’ve bought at lower levels… this is the time for you. But of course the reasons that got us back to that price now make you doubt to actually pull the trigger.
To be fair, from a technical perspective, there’s not much stopping BTC from dropping much more. It’s all about supply and demand; nobody can truly justify that BTC should be worth x-amount of dollars. And again, as said at the very beginning, BTC like me, has not traded in an environment other than super accommodative.
And yet again, the silver lining: indicators are at extreme levels, historically speaking. We’ve just dipped below the 200-W moving average, the RSI on the weekly is at its lowest reading ever, slowed stochastics seem to want to draw a bullish divergence.
My suspicion is that we’re in the process of forming a long-term bottom. But it’ll be a bottom that won’t looked like the usual V-shape we’ve come to know and love. It’ll be a painful, range-bound and test investors patience.
Note that the bottom could arrive only by the mid-teens, with visits further down.
What will yours truly be doing… still accumulating.
And the longer bottom formation, whether it happens in the lower 20Ks or the teens means we have more time to allocate free cash to assets we love and are willing to hold like real-estate.
ETH also deserves an honourable mention. The merge is upcoming and will dramatically change the supply dynamics and therefore the pricing of each coin. I think of it almost in parallel of the quantitative tightening to the dollar (which can’t stop to gain value in this environment); there won’t be many Ethers to go around and yet the safest and broadest DeFi ecosystem around.
When things pick up, I expect the volatility that we hate now to work in our favour.
There’s also another “this time it’s different” angle which is the ecosystem which now involves in a truer way: banks, large brokers, high-frequency funds and market makers, big payment providers, investment vehicles, structured products, asset managers and pension funds, countries, and then a flurry of family offices, HNWI, etc.
See you next week.
Disclaimer: none of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.