The Power of FUD and Coming Clean
Well, welcome to a fresh new hell in recent lows in the crypto market! Ain't it great? For all those that got out on the recent highs, well, congratulations. As for the rest of us, well again, here we are bleeding from virtually every orifice. I've posted in the past that it's likely that the overall stock market would be the arbiter of the eventual move in the crypto market, but I was mistaken to an extent. I did underestimate the power of negative news' effects on our little nascent crypto corner of the world.
So, welcome to a great a crypto buying opportunity once BTC does finally level out. For now, prepare to be eaten...
In any event and cute bear pictures aside, it seems we're caught in a hideous downdraft. For the most part, everybody's portfolios are covered in red. My prior post click here for some untimely ideas said that due to the hunt for yield it was unlikely - barring some overall market correction - that crypto would take a big plunge.
Well, here's the thing. We still haven't seen a big plunge in the overall stock market, but we have seen a big one in crypto. Why is that? There are a number of effects at play that have coalesced over the last couple of days. In the first place, South Korea had some confusing news pieces come out that said they were going to close down their exchanges. That changed to not. Then the SK news changed to government regulations to put a cap on rampant speculation. Then out of China they decided to clamp down on BTC miners and work further to undermine the VPN-driven, decentralized exchanges that still allow people on the mainland to trade in crypto. If that wasn't enough apparently there's a seasonal effect at play where the Lunar New Year is coming up for China and there's been a yearly seasonality to prices in this period (namely January dump to spring recovery) as people take profits to buy presents and tickets for what amounts to something akin to December in the US for Christmas. All those factors have come in to shake the living crap out of the weak hands and have them fall off the tree, which creates a profit-taking or "RUN FOR YOUR LIVES" environment.
My mistake was that I underestimated the potential effects of government regulations; however, it's reasonable to assume that there is money circulating that is looking for a home, i.e. yield. In truth, BTC along with all the other alts had a correction due in one form or another. So, we're seeing that.
But to what extent will it go?
If this were the death of crypto we wouldn't be seeing an orderly exit to the market. At the moment, the infrastructure surrounding the exchanges to get out of crypto into fiat is actually pretty cumbersome and if there had been a run to get out of the market we would have seen a spectacular crash as people panic sold into the hole then tried to get out of BTC or ETH. (Spectacular crash in the crypto world would be bouncing off the zero bound in humble my opinion.) This isn't a spectacular crash in crypto - this is just another day. I know, I know many of you have lost boat loads of money, but I'm saying the complete efficacy of the market remained in tact. That is great news. People weren't terribly trapped getting out of positions. In effect, this is just a normal crazy-crypto correction and profit-taking.
So where does it go from here?
Well, the markets and exchanges haven't lost efficacy (even if there are some that go in and out because of regualtory hurdles). It looks like the US tax system is slowly onboarding crypto regulations-wise, so it doesn't seem like it'll be stamped out legally any time soon. The stock market is still climbing, which means a lot of people are still looking for yield and trading opportunities. And as the crypto marketspace matures there will be setbacks like this as price seeking behavior tries to cope with governments trying to cope. So, the tools are still available to invest, move forward, and develop, which in the long-run is good for crypto prices. However, in the near-term there's a lot of pain as people panic thinking that they're losing everything.
As a caveat: It's also reasonable to experience some sea changes coming along as BTC gets replaced as the go-to crypto for newer entrants (noobs). It's also reasonable to assume that as the rest of the world watches BTC as the proxy for the entire world of crypto, in reality another smaller coin is positioning itself to be the next biggest player in total market cap. That seasawing effect will probably cause some pain as people digest the idea that crypto is more than BTC and BTC loses some of its relevance going forward.
The only formal suggestion I have for the moment is to kick back and watch a movie/drink a beer. It'll be better than freaking out about a week's worth of loses. If you're below your break evens I'm sorry I might add. Welcome to the bagholding club with the rest of us. However, without the overall picture of the economy changing and straight up illegalization of crypto things will start to look up again, but hopefully more in moderation so that people stop freaking out and the capital remains available to develop and use blockchain technology.
We're all gonna make it!
Minderbinder
[Disclaimer: All the opinions expressed in this article are my own and are in no way meant to be construed as investment advice. Please exercise your own judgement in any investment or money management ideas that you happen to undertake in the traditional finance or cryptocurrency spaces. All images come from either personal files or websites that allow free images and each has an inline citation for reference. Good luck out there!]
@originalworks