- So apparently, Bitcoin is garbage.
Investors are fleeing.
It's lost nearly two-thirds of its value.
And now a new survey says 60% of investors
believe Bitcoin is more likely to hit ten $10,000
than it is to rally up to $30.000.
That means that these investors expect
Bitcoin to fall another 60%.
In that survey, a quarter of
investors describe cryptocurrencies as garbage.
They're quitting crypto.
The world has literally never been as
negative about cryptocurrencies as it is now.
But hold on a second, because that might be exactly why
now could be the best time ever to buy Bitcoin.
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So in the past, Bitcoin has followed a
classic boom bust pattern, following it aggressively.
To get a sense of where Bitcoin sits
in that cycle, let's take a look at
the classic pattern of an asset bubble.
As the bubble builds, enthusiasm turns to greed, which
then turns into delusion, and then it bursts.
There's always a burst. Post burst,
you have denial, then fear,
and finally capitulation and despair.
It's only after all of that pain that
you see a return to price growth.
Looking at Bitcoin's price, it looks very much like
it's reaching the capitulation or even possibly despair phase,
which could signify a coming return to growth.
But we can't just look at one chart,
it reminds me like, "that's it". There's always more to the story.
The first question that pops into my mind is,
could this really happen that quickly?
I mean, Bitcoin was at all
time highs just eight months ago.
Typically, an asset slump lasts much longer than that.
But maybe that's not the case anymore,
especially not for Bitcoin, because it looks
like market cycles are accelerating.
Here's how they work.
During times of growth, people and
businesses borrow more money, which leads
to more growth and rising markets.
But over time, this credit expansion leads to inflation,
which triggers a need for higher interest rates.
This causes an economic slowdown
and a decline in borrowing.
Markets fall and inflation eases up, hopefully.
Eventually interest rates settle down, which
makes it easier to borrow again.
And so the economy gets back to
growth and on and on like that.
It's always two steps forward, one step
back when it comes to the economy.
Over the past 50 years, these economic expansions have
typically taken eight or nine years to play out.
But now this timeline seems to be getting condensed.
It was only about five years from the end of
the dot com crash to the beginning of the housing bubble crash.
And now, in 2022, we're witnessing the second
stock market crash in just two years.
And it's even more obvious when
you look at longer time horizons.
After the infamous 1929 stock market crash, it
took 25 years for the Dow Jones to
return, where it peaked before the crash.
But after the Great Recession of
2008, it took just six years.
So why is this happening?
And while no one can say for sure, there are
a number of explanations that make a lot of sense.
The most blatant is digital communications.
Information has never moved faster.
An investor can read an article
on their phone at 9 AM
And make a trade by 9:02.
And not only are investors getting
information faster, they're far better educated.
They can make more informed decisions because they
actually have access to good information, unlike
50 years ago or 70 years ago.
You've probably heard the term BTFD - Buy the f**king Dip.
That wasn't always conventional wisdom among investors.
The average Joe investors who got wiped
out in the 1929 crash, they weren't
thinking...oh, you know, dollar cost average
through this beast of a Great Depression, through a
long enough time horizon, I'll probably be all right.
They weren't thinking that. If they had, the
market might have recovered a lot faster.
But instead, an entire generation of would-be investors
got scared off from the markets forever.
Another explanation for these roided up market cycles is
that central banks are enabling it big time.
Beginning with the dot com bust around 2000,
central banks like the US Federal Reserve,
the European Central Bank, and
the bank of Japan have increasingly stepped
in to rescue markets in a downturn.
They do this first by lowering
interest rates to rock bottom levels.
And since the Great Recession of 2008, they've
also been playing this kind of grand experiment,
thanks to Ben Bernanke called quantitative easing.
It sounds way more complicated than it really is.
Essentially, all this means is printing money in
order to buy up bonds and assets.
Doing this increases the supply of money.
Now, when you buy a bond, the money
supply doesn't change at all because you're using
money that's already in the system.
But if the Fed does it, it's
just making money out of thin air.
So anything they buy just adds
to the total pool of money.
And when there's more money floating around,
people spend more and the economy accelerates.
This process is a huge help during market crashes.
It's like...
But there's no such thing as a free dollar.
And of course, this all
has some unintended consequences.
Some say it leads to rising inequality.
When there's more money, each
individual dollar is worth less.
And people with assets like stocks or real
estate they're impacted, but not as badly, because
those asset prices will eventually adjust to the
new value of the dollar.
However, people making an hourly wage will simply
see their buying power go down, that's a
much, much harder position to be in.
And this QE phenomenon has done
something really weird to markets.
Eventually, over time, investors realize
According to Bloomberg, this is the reason why markets
crashed so fast in the first half of 2022,
when inflation soared and the Fed started fighting that
inflation by raising interest rates and reducing debt purchases.
Investors realized that they couldn't count on the Fed's
magic tricks anymore because they had none left.
All their cards were already on the table,
and confidence in the market evaporated overnight.
But this still leaves the question:
Well, I have a story that might just help.
Joe Kennedy, the father of President John F. Kennedy
shorted the market ahead of the
1929 crash and made a fortune.
But even more interesting is why he did it.
He had a conversation with a shoeshine boy, and you
might be wondering, this shoe shine boy told him to
short the market and he made a fortune?
No, actually, the opposite.
The shoe shiner knew all the latest
market news and eagerly tracked his investments.
He made it seem like the markets were some
kind of casino where everyone comes out a winner.
Total euphoria that set up the
warning alert for Joe Kennedy.
In Joe's view, when even the shoeshine boys
have jumped into the market, it means the
stock market mania is reaching a fever pitch.
The market is overbought.
It's time to sell.
So we acted on that intuition short of
the market and made a boatload of cash.
So did we have a shoe shine
boy moment before this market downturn?
I think so.
I think it was the entire
meme stock, meme coin craze of 2021.
Chances are, if you're watching this video, you're
the investor of your family or friend group.
You tend to hear about big finance
news first, and you'll always make better
investments because you get in early.
Because you monitor this stuff on a daily basis.
People probably message you to get your opinion
on some investment that they're looking into.
You're a great person to be, but when everyone
you know starts asking about a particular stock or
crypto, when brokerage accounts are being set up in
record numbers, when marketing becomes more important than fundamentals
in investing, that's when you should be the most
concerned with the markets.
So I propose a new measure telling us
when markets are overpriced - the stock indicator.
When stocks become stonks, the party
is probably about to end.
It's 4 AM, people are passed out, and you wish you
just went to bed at 11 like you wanted to.
Does this mean you should sell everything?
No, not necessarily.
You can still find a good deal in a bad market
or a hot market, but this is a good time to
reevaluate your positions and take profits if you have them.
Maybe set a reminder on your phone to watch this video
again in December 2023 when the market is hot again.
And while you do that, let me tell you about
a little app that I use called Kucoin. With Kucoin,
you can buy and sell hundreds of cryptos.
You can short stuff, you can do futures.
You can do pretty much anything
you want to do in crypto.
But what I really enjoy is the lending.
Theirs is market rates.
You don't have to worry about
liquidity issues on the platform.
In the past year, I've made just over
$25,000 lending on the Kucoin platform.
A lot of that is from stablecoins, but those
rates are down right now with the bear market.
But other rates are still strong, like BNB at 14%.
So if you want to try it for
yourself, there's a discount link in the description.
Works pretty well.
Okay, back to the question, if there's a shoe shine boy rule,
or a stonk indicator telling you when to
get out of the market,
There is.
And the simplest version is,
- Buy low sell high, that's my motto.
I may just quit my job at the power plant
and become a full time stock market guy."
- Or as Baron Rothschild said in the 18th century,
That worked quite well for him, because he
made a fortune buying in the financial panic
that followed the battle of Waterloo.
In his case, the blood in
the streets was sort of literal.
So maybe we want a more modern example here.
Let's look at Warren Buffett instead, who was probably
alive during Waterloo, but that's neither here nor there.
When markets crash, Buffett is known to get
pretty busy buying up companies at a discount.
But he doesn't just buy any old
business because it's a cheap price.
He looks for companies with a proven track
record and competitive advantage, meaning market share, brand
recognition, or control of a scarce resource.
When he finds a business like that,
he's ready to buy the dip.
Now, Buffett is no fan of crypto,
not even Bitcoin, arguing that it's an
asset that never proved its usefulness.
But if you are a fan of crypto,
the Buffett strategy implies that you should be
bullish on Bitcoin for the long term.
In crypto, Bitcoin holds the market dominance
that the Buffett strategy calls for.
So, in other words, the
coin with the strongest fundamentals.
But how do you know when there's enough blood in streets,
that things are starting to get better?
There's no guaranteed way to know exact dates, but
one measure of how well or badly an asset
is doing is the Relative Strength Index.
This measures an asset's market performance
as compared to past performance.
The Bitcoin RSI hit an all-time-low this summer.
It's the weakest it's ever been.
And that might be a solid sign
it's bottomed or near bottoming right now.
Another good sign for Bitcoin is that in
recent weeks, it's stabilized at a price level.
That's the same as the peak
from its previous bubble in 2017.
And one of the biggest talking points that Bitcoin fans use
is that it's a hedge against inflation.
So, in other words, it will maintain its value
even as the value of fiat currencies erodes away.
That's because the total number of
Bitcoin is capped at 21 million.
Now, that may or may not prove
to be true in the long run.
But one thing seems to be true.
A report earlier this year found that more and more
Bitcoin moves in the same direction as the stock market.
If high inflation persists, the Fed and other central
banks will keep hiking rates, spooking the markets.
If this is the case,
But here's the thing.
Bitcoin has decreased far more than
the markets as a whole.
It's down two thirds, while the S&P is down 21%.
Remember, 60% of investors believe
Bitcoin will keep falling.
So the big question is, Has all hope been lost?
Because if so, there may already
be enough blood in the streets.