(R)evolution
The first three weeks of 2022 have been brutal for risk assets including stocks and crypto. Long forgotten is the traditional Santa rally and suddenly cheerful $SPX 5,000–5,300 price targets seem much farther away. The culprit can be multifold: Midterm seasonality, profit taking on last year’s winners, continued capitulation on last year’s losers, a long overdue technical correction, but more importantly and perhaps more profoundly the realization that the asset bubble brought about by excessive monetary intervention has started the process of imploding all around us as the Fed is now forced to raise rates and end QE having completely misjudged the persistence on inflation. In short, carnage:
The Fed may well try to engineer this market correction with hawkish talk versus hawkish action to produce a soft landing to lead to further rallies as alluded to in the 2022 casino, but the tape highlights the devastating damage that is now inflicted on the exuberant investors of 2021 and again the now obvious point:
The monetary dominance over all things price discovery with all their dreadful consequences is again playing out in front of us and yes, my repeated contention last year of correlated liquidity flows is playing out with the 50% crash we’re currently witnessing in Bitcoin:
You’d think this price action may prompt a “told you so” type article, but rather I find the macro backdrop actually steer me in a different direction, that of becoming a Bitcoin supporter which seems odd given that currently my notion of the everything bubble apparently beginning the process of playing out.
Which brings me to the point of this article: (R)evolution. Revolutions are a rebellion against the status quo. Sometimes they are done for nefarious purposes, sometimes out of necessity against relentless and unjust oppression. In a political sense they can be violent, in the intellectual sense rebellions can be of the mind. Evolution is adaptation to changing circumstances. Both terms I sense apply to me in assessing the world we live in.
I’m not writing this piece to push any particular agenda, rather I’m sharing my macro assessment to highlight how I’ve become a supporter of Bitcoin I’ve called it a highly emotional space and it continues to be. I’m not a FOMO guy or relentless cheerleader, my personality is too analytically wired for that, hence my focus to call things as I see them and I’ve charted Bitcoin for a couple of years now publicly offering my as objective as possible view. Specifically I am referring to my evolving views of our global monetary system and in contrast the efforts undertaken by many to create an alternative, Bitcoin being the current dominant expression of such an alternative.
Yes there will be rallies, heck maybe even new highs still, but downside risks remain vast for years to come and the recent obliteration of many individual stocks serves as a stark reminder that last year’s bubble warning were well rooted in fact.
Which brings me to the unproven hedge argument from earlier: While Bitcoin has rallied with everything in recent years equity allocations last year took on historic proportions. I propose that the coming long valuation adjustment in the broader market will have current holders of equities eventually seek for an alternative and Bitcoin as a digital asset class will offer such a long term venue. There is a hell of a lot of more money in equities than there is currently still in Bitcoin. And heck, perhaps my own conversion process is sign of things to come. Or perhaps I’m pulling a classic Isaac Newton and join the party late just before it all blows up for good. But I don’t think so because I’m not coming here near a top, but rather with a view to patiently look for entry opportunities in the year ahead letting technicals be my guide.
No, the revolution may still be in the very early stages and it may yet have to suffer a much larger drawdown in time versus the current 50% shellacking from the November highs. After all the Fed hasn’t even started to withdraw liquidity and regulation is still outstanding which brings me to other points in favor of Bitcoin:
Regulation is coming but it’s not coming in the form of a ban, institutions are looking to invest but they hate uncertainty and regulation will give them certainty. While retail may have gotten burned to a certain degree by shorter term leveraged trading strategies institutions will have a longer term horizon and more stamina to withstand drawdowns.
The final point is a human component. Yes, there is all kinds of craziness in the space and scams and bots, but my impression is there are people, many of whom much smarter than me, who generally care about making a contribution to changing the world for the better by creating an alternative to the monetary North Koreas that rule our financial world. Jack Dorsey strikes me as such a person and his effort with CashApp is such an example.
Michael Saylor gets a lot of hate and derision on social media, he strikes me as very earnest in his conviction and arguments. Doesn’t mean he is right, or that I am right. Only time will tell. He has now got more skin in the game than anyone I know. I can’t speak to his investment strategy, nor is it my place nor is it anyone else’s. We are all responsible for our own decision making and our investment allocations and I am making a choice of wanting to seek exposure into Bitcoin this coming year.
