This past Friday (August 2nd) saw a major selloff in the markets, seemingly hit with a convergence of factors, including:
- A worse than expected jobs report
- A rate-hike surprise out Japan and ensuing chaos there
- Recessionary fears
There was also anecdotal evidence to add fuel to the to fire, such as the disclosure that Berkshire Hathaway had been selling stocks – including half its stake in Apple – and was now sitting on $277 billion in cash.
Bitcoin and cryptos were down on this, along with everything else, but nothing too worrisome – a brief dip down to the $60K handle, and then recovering up to $62K into Saturday.
Then on Sunday, things began to go south as the news emerged that Iran and Israel were about to face off (so far, no major escalation), and to add some colour it, North Korea seems to be massing missile launchers near the border to South Korea.
As the Monday opening came into view, Japan came completely unglued, as circuit breakers kicked in everywhere from the Nikkei index (worst two-day drop in history) to Japanese government bonds – all from a 25bps rate hike, the first since 2007.
It looks like Japan is finally hitting the wall, the decades-old Yen carry trade unraveling, and all sorts of contagion radiating out from that.
Once markets opened here in North America, about $2 trillion of market capped was wiped out instantly (by comparison: the entire GFC bear market took out about $7 trillion).
As the only markets open over the weekend leading up to this, cryptos tanked hard. Ethereum plunged 20% in something like an hour and Bitcoin didn’t fare too much better, down at times 15% and even peaking at about 21% itself.
There was a brief dip below $50K (props to anyone who caught it), we’re now a little more stable and hovering in the low-to-mid 50K’s, but it’s hard to believe that just over a week ago we were flirting with retaking $70K.
Life comes at you fast in this space.
My view is that this entire selloff in crypto is 100% a macro induced liquidity crisis and globally contagious margin call.
It has very little (nothing?) to do with Bitcoin, it has everything to do with a few chickens coming home to roost and a mad scramble for solvency.
Pretty well everything is down hard and the reason cryptos are down harder is because, as we all no, there are no circuit breakers or “plunge-protection teams” for Bitcoin or anything else in the space, and it trades 24x7x365.
That’s why it tends to overshoot to both the upside and down.
Let’s remember our own advice for surviving the volatility in this space:
It all comes down to whether you still believe “The Crypto Thesis” or not, in other words, it’s all about conviction.
If you do, then:
The only decision during volatility events like these is whether to hold or buy more.
If you no longer believe the thesis – either the macro crypto thesis or your position in an individual altcoin or stock: you sell regardless of the price.
Anybody who tries to preserve profits or minimize losses on their crypto positions from here (as distinct from say, 24 hours ago) runs a very real risk of being whipsawed and chasing.
Our advice on timing exits and sales remains that you take lifestyle chips off the table when your individual financial targets are hit – other than that it’s either buy the dips or hold through for dear life.
We have not had a meaningful pullback since the post-ETF approval drop in January and that was only about 17%, from (get this) $46K to $39K.
A year ago we were at $29K.
If you have any dry powder in your equities accounts, then go in and either put in your second or third tranche into the entire portfolio, or add to the heavyweights: Microstrategy, Coinbase, Galaxy and maybe DeFi, HUT and/or MARA.
It looks like I’m not the only one thinking this: MSTR and COIN opened down hard, yet all that initial volume on open seems to have pushed them both up, so that means investors stepped into those two:
Galaxy went the other way all day, now trading at a P/E of 2.35. Wow.
In some ways this reminds me of March 2020, when the pandemic hit and everything tanked hard – including Bitcoin, to the now unfathomable low near $3K.
Granted – back in 2020, as soon as the central banks panicked and started emergency rate cuts, it was “risk on” across the board.
While there have been rumblings and increased expectations of a rate cut from the US Fed – it remains to be seen if this panic progresses to the point where they do so before September.
If that happens, then it means the system really is coming apart at the seams.
It certainly feels that way.
Nothing has changed in our overall thesis – which actually expects systemic crises like these. If anything, this confirms it.
Recall the chart of gold volatility in times of crises during the Weimar hyperinflation – it was all over the place:
The thing to pay attention to is the right hand axis of that chart.
Bitcoin is following the same trajectory with the exponential function corresponding to each halving cycle.
This is almost a text-book setup for the “banana chart” portion of this cycle.
Buckle In.
— mark
P.S If you have any dry powder, now’s the time to load up on more Bitcoin before we hit The Banana Zone 
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