The End of The Asset Bubble and The Death of Bitcoin
已更新
Over the last eight months or so I have been writing about the asset bubble, and why I speculated about one final rally for the stock market and crypto before widespread deleveraging and massive shifts in financial markets. Unfortunately, Bitcoin was unable to sustain much of a new high before the pressures of the established system began to take hold on financial markets. In a nutshell, this is why my stance on crypto's fundamentals and technicals have shifted. Below are a few of my posts about the asset bubble, leverage, and when it could be better to be in cash:
From July, 2021:
From August, 2021:
From October, 2021, when I was still speculating about new highs for markets. Things changed with inflation, U.S. FED policy, and the Russian invasion of Ukraine:
From November, 2021:
From these posts, any reader can see that this has been on my mind for a while. Unfortunately, the market is confirming a lot of my theories about the debt cycle, war, inflation, and bubbly conditions. The hardest thing to do for fund managers is to take profit. I think we're likely to see them begin to capitulate, as disappointing earnings seep in. Capitulation can occur extremely quickly. The stock market is not immune to 30%+ drops, as seen recently with Netflix. I believe cracks in "sustainable" business models will begin to emerge, as pressures continue on the everyday consumer, and from the workers themselves. We're seeing this now with unionization movements.
Now, why the death of Bitcoin? You can read at length about why my opinion about crypto has shifted from "cautiously hopeful" to "skeptical at best." From a logical standpoint, Bitcoin is not a necessity. Demand for crypto is very unlikely to go up during a time when material resources and cash are in greater demand. Once a real recession/depression hits, eventually prices of goods and services become cheaper, but we're a bit of a ways from that economic shift. Pressures also shift from the poor to the wealthy, when the rich are expected to bail out the economy. The wealthy are not immune to such conditions, and they are not necessarily stupid either. This is partially why deleveraging is so important. The wealthy are not necessarily to blame here either - it's crappy/unsustainable economic policy (Neoliberal Capitalism).
In any case, on the righthand chart above, you can see that Bitcoin is in very severe danger of ending the uptrend against SPX. Here is a better view of the trend:
Although the trendlines I've drawn don't have too much historical significance as of yet, it's drawn to show that Bitcoin is not so far off from its 2018 peak against traditional markets. In fact, the Summer 2021 lows tested those levels as support. If traditional markets are beginning a multi-year correctional period (which could last up to decades), and if Bitcoin is tied to traditional markets, I expect to see Bitcoin return to 2018 lows at best, as shown on the lefthand chart. Most bearish posts at the moment are speculating that Bitcoin would recover after a drop towards 20k. I do not think this is likely. This is because Bitcoin will no longer be seen as advantageous in any way by investors, as it would perform even more terribly than other asset classes during this period. It also does not have any intrinsic properties that make it a necessity, as I mentioned earlier. Sure, one could argue that it's decentralized...but decentralization is not a great thing for society. It just further facilitates degradation of human trust, and we just end up back at square one.
Now, what about on-chain? Why are people still stubbornly accumulating? In this analysis, I speculate that those long term holders will begin to capitulate, and it won't occur until it's too late for most. Of course, those who believe in it and those who have the means will continue to accumulate, regardless of price. These entities or individuals still believe Bitcoin is in a long term bullish trend (and it is). Fundamentally, they will also always be bullish on Bitcoin, but that does not mean it needs to increase in value. Unless they can find demand from new buyers, they're in a tough spot. If they just hoard everything, why would anyone buy into it if they can't use it, particularly during such uncertain times? What do we do, just wait 5 years for it to merely double in value, and then sell? Seems rather pointless under current economic conditions. I've noticed that crypto is not the kind of investment your average person can be convinced to care about. Either it's interesting to you, or it's not. In contrast to the Internet in its early days, I think the tech is arguably superfluous (unnecessary and overcomplicated).
I am also clearly biased. I do not advocate for a future where cryptocurrencies are the primary unit of account, but I suppose blockchain tech and the theories behind it can eventually evolve into something else that's beneficial to human society. For now, crypto ain't it. We're living in an era where people trust each other less and less. Crypto does not solve this fundamental issue. It's more of a symptom than a solution.
There are still a few projects that I like - Stellar (XLM) and Nano (XNO), for instance. But these projects are not focused on hype or profiteering.
In sum, if Bitcoin cannot hold its trend against traditional markets, I think the "jig is up," and the market will collapse, lying dormant for many years until a "necessary" application of the technology emerges. I actually think my yellow trajectory is conservative. The collapse can happen much faster than illustrated, but it just shows how it can play out over a couple of years.
As always, I will mention the bullish side. Funding remains largely in negative territory on derivatives exchanges, and on-chain continues to show accumulation. This means that despite my bias, Bitcoin has fuel for a big rally. However, I do not believe such a rally would sustain, and I would liquidate the small remainder of my crypto. I have booked most of my profit since 2018 already. Additionally, me calling for the "Death of Bitcoin" could be a classic bottom signal. For those who are still bullish on crypto valuations and this is the bottom, thank me later :)
I see people constantly saying, BUT BUT NOWHERE IS SAFE! WHERE DO I PUT MY MONEY??
There are always places to invest. Contrary to popular belief, one can actually just hold cash. Or even better, one can use their profits or their cash to invest in themselves. Time and experience are incredibly valuable. We often forget this. Learn a new skill that's always in demand. Learn how to grow things. Learn survival skills. Go to school, make art. There's a lot more to life than financial markets.
This is a biased post, and it reflects my beliefs at the moment, and this is subject to change. However, my fundamental stance on crypto is unlikely to change again, unless the space begins to look radically different. From a technical standpoint, I will of course post an update if things begin to look better. Unlike many posters on here, I do not often flip flop from day to day. From 2019 until 2022 I was mostly bullish, and posted mostly bullish analysis. Now, I post mostly bearish analysis since my macro stance has shifted. It's as simple as that.
This is of course not meant as financial advice. Everyone's circumstances and risk tolerance are different, so please work with a professional financial advisor who can give you solid advice based on your needs.
Thank you for reading, and for your support.
-Victor Cobra
From July, 2021:
From August, 2021:
From October, 2021, when I was still speculating about new highs for markets. Things changed with inflation, U.S. FED policy, and the Russian invasion of Ukraine:
From November, 2021:
From these posts, any reader can see that this has been on my mind for a while. Unfortunately, the market is confirming a lot of my theories about the debt cycle, war, inflation, and bubbly conditions. The hardest thing to do for fund managers is to take profit. I think we're likely to see them begin to capitulate, as disappointing earnings seep in. Capitulation can occur extremely quickly. The stock market is not immune to 30%+ drops, as seen recently with Netflix. I believe cracks in "sustainable" business models will begin to emerge, as pressures continue on the everyday consumer, and from the workers themselves. We're seeing this now with unionization movements.
Now, why the death of Bitcoin? You can read at length about why my opinion about crypto has shifted from "cautiously hopeful" to "skeptical at best." From a logical standpoint, Bitcoin is not a necessity. Demand for crypto is very unlikely to go up during a time when material resources and cash are in greater demand. Once a real recession/depression hits, eventually prices of goods and services become cheaper, but we're a bit of a ways from that economic shift. Pressures also shift from the poor to the wealthy, when the rich are expected to bail out the economy. The wealthy are not immune to such conditions, and they are not necessarily stupid either. This is partially why deleveraging is so important. The wealthy are not necessarily to blame here either - it's crappy/unsustainable economic policy (Neoliberal Capitalism).
In any case, on the righthand chart above, you can see that Bitcoin is in very severe danger of ending the uptrend against SPX. Here is a better view of the trend:
Although the trendlines I've drawn don't have too much historical significance as of yet, it's drawn to show that Bitcoin is not so far off from its 2018 peak against traditional markets. In fact, the Summer 2021 lows tested those levels as support. If traditional markets are beginning a multi-year correctional period (which could last up to decades), and if Bitcoin is tied to traditional markets, I expect to see Bitcoin return to 2018 lows at best, as shown on the lefthand chart. Most bearish posts at the moment are speculating that Bitcoin would recover after a drop towards 20k. I do not think this is likely. This is because Bitcoin will no longer be seen as advantageous in any way by investors, as it would perform even more terribly than other asset classes during this period. It also does not have any intrinsic properties that make it a necessity, as I mentioned earlier. Sure, one could argue that it's decentralized...but decentralization is not a great thing for society. It just further facilitates degradation of human trust, and we just end up back at square one.
Now, what about on-chain? Why are people still stubbornly accumulating? In this analysis, I speculate that those long term holders will begin to capitulate, and it won't occur until it's too late for most. Of course, those who believe in it and those who have the means will continue to accumulate, regardless of price. These entities or individuals still believe Bitcoin is in a long term bullish trend (and it is). Fundamentally, they will also always be bullish on Bitcoin, but that does not mean it needs to increase in value. Unless they can find demand from new buyers, they're in a tough spot. If they just hoard everything, why would anyone buy into it if they can't use it, particularly during such uncertain times? What do we do, just wait 5 years for it to merely double in value, and then sell? Seems rather pointless under current economic conditions. I've noticed that crypto is not the kind of investment your average person can be convinced to care about. Either it's interesting to you, or it's not. In contrast to the Internet in its early days, I think the tech is arguably superfluous (unnecessary and overcomplicated).
I am also clearly biased. I do not advocate for a future where cryptocurrencies are the primary unit of account, but I suppose blockchain tech and the theories behind it can eventually evolve into something else that's beneficial to human society. For now, crypto ain't it. We're living in an era where people trust each other less and less. Crypto does not solve this fundamental issue. It's more of a symptom than a solution.
There are still a few projects that I like - Stellar (XLM) and Nano (XNO), for instance. But these projects are not focused on hype or profiteering.
In sum, if Bitcoin cannot hold its trend against traditional markets, I think the "jig is up," and the market will collapse, lying dormant for many years until a "necessary" application of the technology emerges. I actually think my yellow trajectory is conservative. The collapse can happen much faster than illustrated, but it just shows how it can play out over a couple of years.
As always, I will mention the bullish side. Funding remains largely in negative territory on derivatives exchanges, and on-chain continues to show accumulation. This means that despite my bias, Bitcoin has fuel for a big rally. However, I do not believe such a rally would sustain, and I would liquidate the small remainder of my crypto. I have booked most of my profit since 2018 already. Additionally, me calling for the "Death of Bitcoin" could be a classic bottom signal. For those who are still bullish on crypto valuations and this is the bottom, thank me later :)
I see people constantly saying, BUT BUT NOWHERE IS SAFE! WHERE DO I PUT MY MONEY??
There are always places to invest. Contrary to popular belief, one can actually just hold cash. Or even better, one can use their profits or their cash to invest in themselves. Time and experience are incredibly valuable. We often forget this. Learn a new skill that's always in demand. Learn how to grow things. Learn survival skills. Go to school, make art. There's a lot more to life than financial markets.
This is a biased post, and it reflects my beliefs at the moment, and this is subject to change. However, my fundamental stance on crypto is unlikely to change again, unless the space begins to look radically different. From a technical standpoint, I will of course post an update if things begin to look better. Unlike many posters on here, I do not often flip flop from day to day. From 2019 until 2022 I was mostly bullish, and posted mostly bullish analysis. Now, I post mostly bearish analysis since my macro stance has shifted. It's as simple as that.
This is of course not meant as financial advice. Everyone's circumstances and risk tolerance are different, so please work with a professional financial advisor who can give you solid advice based on your needs.
Thank you for reading, and for your support.
-Victor Cobra
注释
I will add a "somewhat" positive thing: The crypto market has shown the power of community and belief. These human traits are so powerful that they can create entire markets, ecosystems, and even generate value. However, that value is only generated for those who got in early, and it becomes a game of hot potato if the project eventually collapses. Rather than community & belief being a positive facet of crypto itself, it's a positive facet of humanity exploited by the crypto market. What this indicates to me is that if we put our time and our passion into something collectively, we can get a lot done. I just hope we can do this outside of the metaverse.
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