Umair
The “fear and greed” index reached Extreme Fear
I’ve never seen a bigger disconnect between prices and fundamentals in crypto.
Crypto has shed $1 trillion in market cap since December. Yet we’ve also witnessed the most bullish regulatory and institutional developments in the industry’s 15-year history.
Let’s dive into the big contrarian opportunity and how we’ll profit.
November 2022 is a month I’ll never forget.
It was the month I got married. And then on my honeymoon, when I’d promised my wife I would take a vacation for the first time in six years, crypto exchange FTX collapsed. Sorry, honey.
What if I told you sentiment among crypto investors in recent weeks has been even lower than during the unearthing of one of the biggest frauds in financial history?
Crypto’s “fear and greed” index recently hit one of its lowest levels ever:
Source: Coinmarketcap
For sentiment to be this catastrophic, surely, we must be witnessing another industry-shattering collapse… right?
- The US Securities and Exchange Commission (SEC) dropped its lawsuits against Coinbase (COIN), Robinhood (HOOD), Uniswap (UNI), Binance, OpenSea, and Gemini.
- The SEC created a Crypto Task Force focused on providing regulatory clarity to the industry.
- Operation Choke Point 2.0 — the banking blockade against crypto — was officially ended.
- The harmful SAB 121 rule that made it impossible for banks to hold crypto was scrapped.
- The biggest banks in the world, including Bank of America (BAC), stated they’ll offer crypto services.
- President Trump signed an executive order creating a Strategic Bitcoin Reserve.
After a decade in the markets, I’ve developed a certain numbness to volatility. Prices rise and fall, sometimes for no reason at all.
But even by crypto standards, this disconnect between prices and fundamentals is unprecedented.
This has been the most bullish month for crypto (maybe ever). So why are prices falling to multi-month lows?
The answer lies in market structure.
It’s moving in lockstep with the stock market, which is under pressure as investors grapple with economic uncertainty.
It’s never nice looking at your portfolio and seeing a sea of red. But it’s important to put this selloff into context.
Crypto has been the best-performing asset class by a mile over the past decade. Volatility isn’t just a bug; it’s a feature of exponential growth.
Since 2010, bitcoin (BTC) has experienced 16 separate 30%+ corrections. That’s roughly one per year. And yet it was still the top-performing asset. Volatility is the price you pay for returns.
After the 2016 US presidential election, bitcoin surged through December before falling 38% starting in January.
After the 2020 election, crypto prices rallied into the new year, then fell 32% in early January.
This time, BTC peaked on January 20 and is again down 30%.
What matters is that BTC has been substantially higher 12 months after the past three presidential elections (2012, 2016, 2020).
These selloffs can be scary, especially if this is your first time experiencing a drop like this in crypto. While prices could dip lower from here, our research continues to suggest this is a mid-cycle pullback and prices will be much higher over the next 12 months.
My guidance right now is to sit on your hands and do nothing. And if you have some dry powder, buy some more of your favorite cryptos.
These are great prices for quality cryptos. The hard thing is that great prices never feel great at the time.
If you already know which crypto to buy that’s great.
