CC#011 - Crypto Is Dead (again), or is it?

Examining the data & not the narrative.

Crypto is dead.

At least that’s what many people who, six months ago, were either basking in record (primarily paper) profits (or, more likely, were wishing they were) would have you believe.

However, if you widen the lens of time to years rather than weeks, we have literally been at these prices before, just not with this psychological perspective.

Crypto progresses in waves of ebb and flow. Both sides generally catch most investors out, with the highs being higher than expected and the lows being lower than imagined. We can use history to determine where we will likely go next.

It is often said that history doesn’t repeat itself, but it does rhyme.

If you have read in the media or on social media that ‘crypto/Bitcoin is dead’, remember that Bitcoin has been declared dead almost 400 times since 2011, and if you had invested following 80% of these predictions, you would now be in profit!

If the last three months have told us anything, it is that we are in a crypto bear market.

A bear market is where prices are depressed while everyone psychologically adjusts. Descending prices causes investors to think more carefully about liquidity, short-term cash flow and risk than rising prices. After they have adjusted, which could be weeks or months, prices will appreciate again, following a catalyst. For Bitcoin, in particular, this catalyst is the highly predictable reward halving, explained in my book Crypto Profit.

Fortunately, I became interested in the crypto sector six months into the previous bear market (summer 2018). Therefore, I am not concerned about the current depressed prices (from a long-term perspective), which are currently well within the usual range of 85% from the peak ($68,990) to the trough (currently $17,600).

A bear market is akin to an evolutionary cull. Dinosaurs die, but (highly adaptable) birds remain. The sector will and is already experiencing the pruning of projects that took on too much risk (Celsius, Three Arrows Capital, and Luna/UST), taking out almost $100 billion in the process in realised losses against a $2+ trillion drop in the overall sector.

Projects that did not have a sustainable business plan or were scams have also been forced to face the music and will continue to do so.

More legitimate crypto companies will continue to lay off their staff, hired when revenue from trading fees contributed to bloated budgets, which are now unsustainable.

In addition, some of the marketing decisions of these companies, such as Crypto.com sponsoring a US stadium for $700 million in November 2021, now look a little foolhardy.

Despite how it feels to investors, all of this is healthy.

In November 2022, the crypto market was awash with unbridled optimism. Every project made investors money, no matter its quality, and everyone seemed convinced that ‘this was it’ for crypto. Using this as a sell signal is simple, but it’s not easy to spot the corresponding buy signal during what is now referred to as the ‘crypto winter.’

Now that the bloat, euphoria and chaos have gone, the market has lost its excitement (maybe drama is a better word?), is more transparent, and has more potential thanks to the upside created by depressed prices.

The one question on everyone’s lips is ‘when can I buy without a lot of pain’ - usually phrased as ‘Have we bottomed yet’?

The data tells us exactly when to expect the bottom of the market to be (it’s probably sooner than you think) and even what the price may be (it’s probably higher than you think)!

Let’s examine the data and find out.