Vampire Phase Of The Bull Market
In the space of a month, we've seen bitcoin nose dive from $52k to today's 35k range, with two 7% down days in a row as more longs get liquidated. A lot of traders are new to bitcoin and the bull cycle tends to attract novice retail that thinks they can make their fortunes either using leverage or leverage adjacent by buying shitcoins.
But none of these people hold these positions with any conviction, they hold it because they want to flip it for fiat in the near future. The bull market is normally described as a period when prices are on the rise for a consistent period. It lulls you into a false sense of confidence thinking this is the way things are or how it always will be, and you place bets based on a recency bias.
The drop from the ATH
Bitcoin peaked out at close to $70 000 so you can imagine there are a bunch of people with no conviction who bought at prices all the way between 35k to 70k and experiencing as much as a 50% drawdown on their initial purchase. It's a tough lesson to learn and when this is the first rodeo you tend to want to cut your losses.
Bitcoin's rally from $3000 to $70 000 has been one heck of a ride and with it came overconfidence and a lot of leverage trading. Trades that have now started to go against these longs that were making easy money during the price spikes.
They felt like geniuses and any marginal dip could be covered because it would rally again in a few days. A deviation of this thesis has crushed a bunch of longs and liquidations continue on, with plenty of leverage still left to be flushed out of the system.
The bleeding continues
I spoke about some of the possible reasons why bitcoin took a nosedive yesterday as we approach 30k resistance, a figure that is still 50% higher than the previous all-time highs. Many are calling this a bear market which I don't yet agree with since we haven't dropped below previous all-time highs.
A 50% drawdown is not new to bitcoin during a bull cycle and the bear market really only arrives historically once we draw down to around 80% of the all-time high. A figure I don't see likely to happen but who knows right? Bitcoin humbles us all.
Financial market fumble
Bitcoin continues to get bigger and as it gets bigger in liquidity and market cap it starts to get affected by larger macro forces. In previous years it wasn't so tethered to traditional markets but now that it's a national currency, now that it's used to settle high-end real estate, now that it's on the balance sheets of companies, waves in other markets will affect bitcoin as it's the same investors with different allocations in different assets.
The markets have been rather bullish as they respond to the government's easing policies. Despite it being hit by COVID, equities and risk assets soared to new highs during these uncertain times. A strange phenomenon, logic would dictate in uncertainty cash, gold and bonds would be the go-to assets, yet they've all performed poorly compared to equities and bitcoin.
Markets are clearly overly financialised and have very little tie to the real economy. The largest central bank the Federal Reserve and other financial authorities who follow their lead have created the 'superbubble' using COVID as a reason to lower interest rates, influencing mortgage and lending rates. It's created a market rife with speculators and judiciously overstated views of our real wealth.
If the mere promise of higher rates, is the catalyst for this downturn due to soring price inflation, then what would actual tightening do to these markets? Higher interest rates can put pressure on assets rising prices, but will also increase the rates for mortgages, credit cards, and consumer borrowing. Reducing the amount of access to new fiat and overall spending.
Stackers be stacking
It's going to be interesting to see how people rebalance, and clearly, most market participants are thinking it's time to get out of bitcoin and look for relative safety as they measure success in fiat. As for bitcoiners, we are fleeing to safety at a discount.
Bitcoin is fire insurance, and just because the value of your fire insurance goes down, doesn't mean you sell it. Especially when the fire is raging outside your home.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, "I am a Jessie."
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