March 28, 2025
Rise Above Crypto Conditioning
Dear Subscriber,
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| By Juan Villaverde |
I’ve noticed something interesting … and potentially dangerous to your investing strategy.
The most concerning thing is how subtle this danger is. It can slowly erode your ability to evaluate the markets clearly.
That means you’re at a disadvantage in a market that requires quick, decisive action.
Luckily, avoiding this trap is easy … once you know about it, that is.
Crypto/Liquidity Conditioning
Those who follow the crypto markets have begun to resemble Pavlov’s famous dog.
In Pavlov’s classic experiment, dogs were conditioned to salivate whenever they heard a bell — even in the absence of food — because they had learned to associate the sound with mealtime.
Today, you can see a similar conditioned response whenever there’s a hint of market trouble: Investors expect the Federal Reserve to step in, flood the economy with liquidity and send asset prices surging again.
Arthur Hayes, a prominent crypto investor, is a prime example of this. And it’s surprising how many share his views.
In years past, this reflex was almost justified. Each time there was a downturn — whether it was a mild correction or a more dramatic plunge — the Fed (and other central banks) all did the same thing …
Inject trillions of freshly printed money into the system, to keep financial markets safely afloat!
Indeed, just about every corner of the investing world came to anticipate and bank on this pattern.
Crypto traders, on the lookout for big moves and accustomed to volatility, seem especially eager to embrace the idea of an ever-present monetary safety net.
And that’s where the danger I spoke of earlier lies.
See, investors have convinced themselves that the Fed’s printing press will always roar to life at the first hint of distress.
But relying too heavily on a bailout mindset can lead to complacency and foolish risks.
Believing every dip will promptly be reversed with another liquidity injection can lead you to double down when a more objective analysis would lead investors to cut their losses.
It can also blind you to policy shifts and broader economic signals.
What if inflation surges? Or political pressures mount? Suddenly the central bank’s hands are tied — or at least more constrained than before.
This is precisely why I’m glad you follow Weiss Crypto Daily. Because we’ve arrived at exactly that point.
And by staying up to date with our updates, you can better understand and account for …
How the Liquidity Equation Adds Up
With inflationary forces still at play, Fed interventions aren’t guaranteed to come with the same speed or scale they once did.
Yet some crypto traders keep hitting the “buy” button at the first sign of a pullback. Because they’re conditioned to expect central banks will come to the rescue — much like Pavlov’s dog salivating at the sound of a bell.
That reflex may have worked for a time. But if that reality shifts, it can leave portfolios dangerously exposed to deeply painful drawdowns.
Don’t get me wrong. The “wall of liquidity” that crypto investors anticipate is not some flimsy theory, but a very real thing.
Here’s why:
- More than $100 trillion in government and corporate debt presently exists worldwide. Of that, roughly $30 to $40 trillion must be refinanced between 2025 and 2027.
- Much of this debt was run up during the COVID years at significantly lower interest rates, supported by central banks that were buying it up.
- There simply isn’t enough private money in the world to absorb $30 to $40 trillion in newly rolled-over debt. Which means central banks will have to intervene. And that implies they’ll need to print money. Mountains of it!
So, you see the big question is not if, but when will the intervention come — before or after a global debt financing crisis?
Based on recent behavior, the answer seems obvious: Central banks tend to respond to crises that have already metastasized, not before.
That means support only kicks in after the “debt-maturity wall” hits global markets like a ton of bricks. There will be no heading it off in advance.
But afterward, central banks (like the Fed and Bank of China) will jump from “inflation-fighting” mode straight to “global-meltdown-prevention” mode.
Final Thoughts
Investors already salivating at the thought of a juicy Fed liquidity injection may have to suffer hunger pangs a bit longer.
The looming debt-maturity wall has to hit markets before we can expect a money flood. So, it’s unlikely to show up in time to benefit the current bull cycle.
That doesn’t mean Bitcoin (BTC, “A-”) and select altcoins won’t rally with strength in the coming leg up.
Indeed, my Crypto Timing Model indicates a relief rally is on the horizon. And savvy traders should be able to make the most of that upside volatility.
But it does mean we should temper our expectations on how high they can go.
That said, the debt-maturity wall is poised to ignite the next big bull market. That will likely be in 2027, according to crypto’s grand four-year cycle.
That’s still two long years down the road. For now, crypto investors, like Pavlov’s dog, are likely to be left salivating for a rescue that won’t show up in time for this cycle.
Chances are reflexes formed in a very different, long-ago economic era are no longer relevant today.
The challenge is to rise above that conditioning and stay alert — especially to subtle changes in underlying currents that move markets.
That way, you can outmaneuver the rest of the pack to find the profits in any market.
Best,
Juan Villaverde
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