This is an article explaining why we believe the crypto market is cooling off alongside the stock market (leading into December). We will discuss the upsides and downsides of being in crypto short term, as well as macro long term news.
Thanksgiving Crash
The crypto market flash crashed on black Friday after a relatively strong uptrend on Thanksgiving. There are many factors leading into the market correction. First the general stock market sentiment has been on thin ice regarding the Evergrande debt crisis. For a quick review, Evergrande is the second largest real-estate company in China and is the most indebted developer in the world. Evergrande owes nearly 300 billion dollars, much of this corporate debt is tied up in America and other wealthier countries. If Evergrande fails to pay their debt each month, it could set off a cascade of other companies failing to pay their own debt crashing the entire world stock market. Evergrande owes debt to nearly 171 banks and 121 financial institutions. This scenario has gotten so bad that the founder of Evergrande recently sold 9% of his stake for cash to assist the company [1]. This market news has been developing for several months and has caused several market fear sell offs.
It seems perfectly likely (sarcasm) that we would receive news of a new covid variant with a coinciding market crash on black Friday. People who are new to crypto were forced to either stop contributing to the market, buy the dip, or sell to pay for the discounts through the weekend. I used the intro Blockfi rewards multiplier to grab some great deals for Christmas with Ethereum cash back rewards. We have a referral link for Blockfi [here]. Do remember Blockfi now allows you to pick which crypto you get cash back in, and also which crypto you gain interest in.
We have discussed leverage before, this is mainly what causes these exaggerated market pumps or dumps. On black Friday we saw nearly 800 million dollars in liquidations because of this[2]. Leverage is when traders borrow more money in exchange for more trading power, this increases their risk enormously. We explained this in detail during the September flash crash [here]. During that recent crash BTC was flirting with the 43k level, we are seeing a correction now and sitting at nearly 10k higher, think long term. We do need to be reasonable; it is entirely possible that we could extend downward with BTC dropping as low as 43k again. Therefore we preach dollar-cost-averaging, because if you go all in on a top of an asset, you will be staring at a red portfolio for potentially months at a time.
Macro Bullish
Now enough with the negatives, lets discuss what keeps me long-term Bullish on the crypto market. Morgan Stanley is one of the biggest market manipulators of any market in recent history. Morgan Stanley has a long history of manipulating the precious metals market, stocks and lately Bitcoin. Just a few months ago Morgan Stanley referred to crypto as “Risky” and added to the FUD during major market dips. Morgan Stanley was later proven to have bought every major dip this year. Today MS now has nearly 300 million dollars in Grayscale Bitcoin funds[3], they admitted to nearly doubling their exposure since April. Combine this with recent Twitter integration, Facebooks “Meta” Announcement, crypto is reaching mass adoption.
Austrailia’s massive retirement fund known as “Rest Super” recently announced they will be buying into crytpo for its 1.8 million users. Rest Super manages 47 billion dollars in retirement assets for users. Just a 1% allocation to Bitcoin would bring 470 million dollars to the market. I personally find it interesting that right as this is announced we see a massive discount on the crypto market, is this coincidence[4]? El Salvador also just bought another 100 Bitcoin; they have been buying most major dips alongside Microstrategy.
The chart above shows crypto Whales (specifically holders of 100-10k BTC) have bought over 59k Bitcoin this past week, over 3 billion Dollars. This combined with MS, Microstrategy, El Salvador, Rest Super and more. Most of these purchases are also over the counter which means you will not see a direct price increase immediately, but the supply will be lowered on exchanges. BTC is still up close to 80% on the year, we just need to zoom out. I believe all of this combined including the short-term negative sentiment is a good thing. We are seeing a lengthening of the crypto market cycle. Every wash out brings new users who can buy in at a discount, this allows large holders to accumulate more BTC away from all-time highs. Over time, Bitcoin and the rest of the crypto market will reduce in volatility and slowly become more like traditional markets. For now, we are still very early, with little to no regulation we will continue to see this overleveraging and liquidations from time to time. This is why we recommend keeping cash on the side or stable coins available for these very red days (10-15% of your portfolio if possible). Crypto will likely revisit the previous support level of nearly 2.45 Trillion dollar market cap. Remember to say safe out there, invest with conviction, this is not financial advice. Thank you for reading!
[2] https://micky.com.au/total-crypto-liquidations-from-black-friday-dump-hits-770-million/
[4] https://cointelegraph.com/news/australia-s-rest-super-retirement-fund-to-invest-in-crypto-for-its-1-8m-members
