June 28, 2024
The Calm Before the Crypto Storm
Dear Subscriber,
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| By Juan Villaverde |
We’re nearing a critical cycle low in the crypto markets.
How can I tell? Well, let’s go back in time to the last cycle top, back in early March.
Sentiment was wildly bullish back then. Talking heads on YouTube and influencers on social media spoke of $100,000 Bitcoin (BTC, “A”) as a foregone conclusion.
Historically however, such euphoria tends to mark 320-day-cycle highs. And indeed, that’s exactly what we got.
Today, we’re seeing precisely the opposite. A thick cloud of pessimism and despair is creeping in, bordering on panic. The cycle is turning … and with it, the narrative.
Back in March, inflows into spot ETFs and Wall Street’s embrace of crypto filled the headlines.
But now, as we approach a cycle low, the very same voices are suddenly questioning the validity of ETF inflows … and casting doubt on the very fundamentals that propelled Bitcoin to its March highs.
For example, the inflows to ETFs may not have been new money coming into crypto after all, they say. Maybe it was just a bunch of hedge funds arbitraging the futures markets. And BTC token-holders swapping their coins for the embrace of ETFs.
Let’s debunk this nonsense ...
When Bitcoin rallies, outflows from crypto exchanges are expected. That’s because investors move assets to cold storage or other platforms. With ETFs, you’d anticipate inflows.
The substantial demand for crypto leading to the March cycle high was real. The fact that it’s now being questioned is a clear sign that we’re near a cycle low.
Macro Climate Angst
Adding to the gloom is a sudden rash of worries about the interest rate climate, as the chattering classes fret: “Maybe the Federal Reserve won’t cut rates after all.”
This is sheer hokum. The Bank of Canada and European Central Bank have already cut interest rates.
The Bank of England and Swiss National Bank are widely expected to follow. That’s because interest rate policy among developed economy central banks is closely coordinated.
Back in 2021, they were all busily hiking rates — which they were forced to stop around October 2022 because of the U.K. gilt crisis.
Now they’re coming back into cutting mode. The Fed will join them soon enough. It’s just a matter of time. And this easing of financial conditions will be very bullish indeed for crypto.
So, let’s recap: Prices are crashing. Sentiment is in the gutter. Folks are throwing their hands up in despair.
Investors prone to panic are selling into what is likely a cycle low. Because they suddenly doubt virtually all the bullish factors pointing to higher crypto prices in weeks to come.
But here’s the thing: Despondency, doubt and despair are classic signs of a market bottom.
As I said a few weeks ago, the majority sentiment is almost always wrong at the extremes. When everyone is bullish, it’s time to be cautious. When everyone is bearish, it’s time to prepare for the next leg up.
The big takeaway? Now is not the time to throw in the towel.
The macroeconomic environment remains favorable, and the regulatory climate is shifting positively for crypto.
Higher prices are on the horizon. Stay the course.
Best,
Juan Villaverde
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