Crash Or Boom? Bitcoin, Ethereum, DeFi And Gold In Focus
Anyone who was overconfident about bitcoin at around $58,000 is either bombed out by margin or stop losses or at very least looking at their positions with a new more sober eye.
First things first. There are billions of profits to be made closing out stop losses and leveraged traders by smashing the price of assets traded by the novice in a “flash crash.” If you can smash the price and cause an avalanche you can make gigantic money. This technique has been pestilential in equities forever, it is even in 19th Century literature and is definitely a big thing in crypto. Don’t put yourself in a position that a 20% move can pump all your money into someone else’s pocket because it will happen. If parties can know or work out where the stop losses are or where the close out margin call levels are, they will drive the price in an instantaneous flash crash to pump those close-outs into their opposing positions making them a fortune.
Never trade on any platform you feel may be short, because they will drive long stops to close those positions. That is totally illegal in equities. In crypto? Not so much.
If you are a centralized exchange with no ethics you can sell people as much crypto as they want to buy and back it with very little real crypto. Centralized crypto platforms are “fractional banks” just like your fiat bank. When it says you own 1 BTC, that is an accounting number, not actual BTC. The 1 BTC is a number in an accounting database not on the blockchain. The platform could have spent, stolen, rehypothecated the BTC you put in months ago or bought with “fiat,” but as long as customers don’t withdraw more than their actual balance, you will never know until the message on the front page says “byeeeeeeee.” Or we’ve been hacked, sorry, or some such other explanation, other than we spent it and our wallet is empty. The equivalent of “bank runs” on exchanges that were short crypto in rallies, has closed a huge number of exchanges over the years and it’s an easy trap for them to fall into, a hard one to escape and the mother of many “exit scams.”
If you are a centralized exchange, you have all kinds of banker-style options beloved by felonious Wall Street. They can put your—that’s yours’ not theirs’—token balances on Aave or some funky yield farming site in an attempt to get 10% interest for themselves on your balances. On aggregate that is a ton of money they can make. It’s probably legitimate to do so, too from a legal perspective, but how would you feel to know your balances were out there somewhere not in your trading platform’s wallets but in hack-prone DeFi?
This is just to say, centralized platforms have a lot of tools, currently unregulated, to make money at your expense or at best, your risk. Many will take advantage of that and those that are ruthless will go for the jugular of overleveraged players and the stop loss levels of others.
Those multithousand-dollar spikes that keep popping up on BTC, they are highly likely to be stop drives and they will fill platforms’ shorts by pumping BTC out of your accounting balance into theirs without ever touching the blockchain.
Markets treat gamblers in the same way as casinos do. Beware.
So here we are with a market full of gamblers. That in itself is a very bearish signal.
Thirty thousand dollar on bitcoin was always going to happen, $40,000 was quite likely, $60,000 not very likely and $100,000 will take an amazing piece of market mania to reach.
You can see me on all my articles over the last year doing a reasonable job of calling this market and anyone that followed my logic would be sitting very pretty.
The strategy was to get out of BTC and into DeFi and anyone who did follow that logic should send me a case of whiskey for Christmas (just kidding). Some of those tokens have gone x5, x10 and not many have not gone up 2 to 3 times. Twenty-five percent of my cashed BTC has outperformed in fiat the jump from $32,000 to $58,000 of bitcoin. Tokens like matic, sushi and rarible had just the right level of insane alpha to provide a low VAR way of playing the upside of the crypto boom with a lot lower capital risk.
But now I’m out of DeFi, too. I thought I need to say that because when you get out is as important as when you get in. I’m not entirely out, but say 90% out of DeFi.
For an old equity guy, this current market feels exactly like a top. Crazy volatility is a signal that the market doesn’t know and when it doesn’t know, it knows it doesn’t know and that’s bad.
Noise is noise and when the signal is gone in the price action you better have a message from the divine to stick around hoping for a rise.
To stick around in BTC or ETH or DeFi you need to believe in a next jump to $100,000 for bitcoin and for me that is four years away after the next halvening. So the near future is a bear move.
Bitcoin believers are sticking to their faith in the entry of “institutional money.” Remember institutional money is not brave and to buy in this whipsaw market you need the sort of crystal balls that few institutions have. Also perhaps recall, institutions are not your friend. Those folks tend to live off slicing and dicing you and the best way to do that is to scalp you at every turn, not drive BTC to the moon.
However, if you want to “hodl” for four years to see BTC at $100,000 then that’s a viable strategy if you don’t mind a march through the wilderness for the next couple of years.
For me the strategy is to sit on a dragon’s pile of USDc and wait out the next few weeks or months until the market calms. I will not be buying any dips. My super spicy 10% in DeFi will do some heavy lifting if bitcoin goes vertical again and I may sell that if I get more confirmation that we have seen the medium-term high.
The cash stockpile will go back in if crypto crashes back down to sub-$20,000 BTC levels but it will also be looking at gold, because gold is in a very obvious down trend and that is caused by trinket buyers not being able to pop into retail and buy their golden adornments. That will change and now the mainstream seems to be coming to agree with my Paul Revere impression of “the inflation is coming,” gold has got a big rally on the cards. The Reddit crowd will soon say, “gold go boom.”
Bitcoin can go to $100,000 but it’s a 2x move at a 10% probability. I won’t play those odds. The odds of BTC $30,000 are easily 50/50 and when it hits that everyone will say it’s the end of the world and it won’t be. $15,000 will not be the end of the world for bitcoin and in 2024 or 2025 BTC will probably be at $80,000 and everyone will be saying it is going to $250,000—and it won’t.
For those dithering between die hard hodl’er and “weak hand” scared rabbit seller, like me, ask yourself this: If you sold all your crypto into cash, would you buy back at the current price? If the answer is no you should not hold. If the answer is “I’d buy some back” sell down to that level. If the answer is “heck yes,” check you can afford to be very wrong and buy some more.
For me, I’ll be stalking crypto and gold, and playing in the equities arena because the downside now in crypto is too large and the upside too incalculable to risk putting all that lovely fiat back into the hands of others. There is value in stocks, mainly in Europe, but there is still value in the U.S. non-techs.
It won’t be long before bitcoin establishes whether it’s off below $20,000 or up to $100,000 and I suppose if it does do the miraculous, I’ll re-enter in DeFi and not bitcoin, because it will be in DeFi where the profits will be in multiples rather than percentages.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.