Most digital (and traditional) assets are still against the ropes in this exceedingly unfriendly macroeconomic environment.
The US Federal Reserve (the Fed) continues to raise rates in increments – 75bps and 50bps – that we haven’t seen since 1994 and 2000 respectively. The war in Ukraine rages on, inadvertently causing food and energy crises around the globe. And once safe currencies like the Japanese yen are now trading like stablecoins that have lost their peg.
Q2 2022 hedge fund letters, conferences and more
Fear Grips The Market
As one of these investors, the following line from teen pop sensation Olivia Rodrigo continues to echo in my mind:
“God, it’s brutal out here”
(She was talking about investing in risk-on assets, right?)
So, are we at the point where we can say it’s darkest before dawn? Is it too early to abide by the Warren Buffet maxim: be greedy when others are fearful, and fearful when others are greedy? WHEN DOES THIS DIP STOP DIPPING?!
The truth is that no one knows the answers to these questions. But judging by the cope sessions being hosted by traders in Twitter Spaces, we might almost be near the bottom.
And speaking of Twitter, both “Financial Twitter” (AKA FinTwit) and “Crypto Twitter” (CT) feel like graveyards as it seems that almost all of the trading tourists/speculators have either been wiped out or gone home. Hopes of getting rich quick have been dashed, and all the “diamond hands” have reported to their former employers for duty.
If you’re a rational investor, though, you might take these present conditions as an opportunity to use dollar cost averaging (DCA) to get into assets that are now selling at a discount.
As Jason Calacanis – venture capitalist and host of the popular All-In Podcast – recently stated, “Fortune[s] are made in the down markets and collected in the up markets.”
The great challenge that comes with planting the seeds for your fortune in a bear market is learning how to counter trade your emotions. This entails buying certain assets when everyone is sour on them, patiently waiting for a bull market to return, and then selling these assets when everyone is excited about them again. It sounds easy in theory, but it’s difficult to execute. We’re emotional creatures, and it’s tough to go against the herd.
Investing In Cryptocurrencies
On a recent episode of The Tim Ferriss Show, guest Balaji S. Srinivasan, polymath and venture capitalist, shared the following advice as he discussed investing in assets like Bitcoin (BTC) and Ether (ETH):
“The worst thing to do is buy an asset when it’s in the news and sell it when it’s in the news.”
Srinivasan continued:
“It’s inevitable that something will pique your attention. And then what you do is you set a calendar reminder, let’s say 30 days, 60 days, 90 days…and then you go and you actually do research on it outside of the scrum, outside of people yelling about it. You intentionally do it async (short for asynchronous) to the market sentiment.”
As I mentioned earlier, though, tuning out market sentiment – or investing unemotionally – is much easier said than done.
One of the reasons for this is that once an asset price starts hitting new lows, we tend to think it can always go lower. And this isn’t an irrational thought (though, you probably have better odds of getting struck by lightning than buying the exact bottom).
Can we go lower in both crypto and traditional markets? Of course we can. But maybe not too much lower.
BTC’s price in US dollars has already retraced 75%. In the 2018-2019 “crypto winter”, BTC’s price retraced 84%. This may indicate that we are near the bottom.
Will BTC’s price retrace as far as it did in the depths of the 2018-2019 crypto bear market this time around? Again, no one knows the answer to that, though, some have predicted that BTC’s price may sink as low as $13,676.
But we do know that BTC is now an institutional-grade asset and that the Bitcoin network is much larger and more mature than it was in 2018-2019, so maaaybe BTC’s price won’t retrace as much.
At the same time, in 2018-2019, we didn’t have the Fed fighting rampant and persistent inflation via both quantitative tightening (QT) levers – raising interest rates and rolling assets off of its balance sheet – in efforts to cool financial markets off and to bring the prices of consumer goods down.
When I think about how the actions that the Fed is taking now are the actions it should have taken a year ago, the words of former teen pop sensation Avril Lavigne echo in my mind:
“Why’d you have to go and make things so complicated?”
(She was addressing that question to the Fed, right?)
If you’re relatively new to markets and you’ve made it this far, congratulations! You’re learning the ups and downs of investing.
Or you’re just a glutton for punishment.
Survival Is In Style
Whatever it is that’s kept you here, keep in mind that it’s particularly important to proceed with caution in such an environment.
If you do choose to deploy capital, consider putting the highly speculative plays on hold for the time being, and use DCA to get into blue chip assets that you have a deep conviction in. (Not financial advice.)
Survival is in style right now. Aping into risky assets is so last year.
About the Author
Frank Corva is a senior analyst for digital assets at Finder.com. He began his career as a writer as a music journalist in the early 2000s. He went down a crypto rabbit hole in 2018, though, and has yet to crawl his way out of it. You can follow him on Twitter at @frankcorva.
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