This is a free preview of MTC 34…
In this note:
Why ETH was buy the rumor / sell the fact. But not really.
When will crypto find a big bottom? I look at other bubbles to estimate the timing of a crypto bottom and guess the timing of new all-time highs.
Behavioral signposts of a bottom. Are we there yet? (No.)
Today’s note is 1800 words (9-minute read)
MTC 34
Market Update
I was right for the wrong reasons. I expected a mix of buy rumor / sell fact on The Merge and stable macro conditions to lead to modestly lower ETH but really it was weak macro conditions and absolute crickets on The Merge that was the end result.
Here is 1-minute price action in ETH around The Merge. There is a jiggle at 6:42:42 UTC but not much more. The movements are dominated by CPI and the dump in the NASDAQ. The Merge was fully priced and so ETH barely moved.
ETH 1-minute chart
This goes back to the issue right now for crypto as discussed last week in “Can Crypto Cross the Chasm?”
Taking the ideas from last week a bit further, you could say that there are two ways that crypto can cross the chasm. One is as a technology with use cases that enter the mainstream. The other is as a financial asset with use cases that enter the mainstream. This is the “institutional adoption” narrative that was red hot in 2021 but doesn’t get as much coverage these days.
The key selling feature of crypto if it were to cross the chasm on the investing side is that it performs some function in a portfolio that traditional financial assets do not. There are idiosyncratic risks and costs to crypto (regulation and custody, particularly) so if crypto only mirrors TradFi assets, it’s only useful as a high-beta MMT hedge.
For a complete explanation of why I think crypto is mostly useful as an MMT hedge, see here. For an MMT explainer, see here.
Here’s a chart of NASDAQ, HYG (high-yield ETF), and ETH back to mid-August.
1-minute NASDAQ, HYG, and ETH
Correlation is not static or stable forever, but crypto / tradfi corr has been hella static and stable for a long time now, and this is not great news for further institutional adoption. And it might be an argument for the idea that institutional adoption is the worst thing to happen to crypto since the ICO craze of 2017.
On-chain synthetic digital yield stuff is not a zero, but I maintain that is a niche market and not big enough to make a bull case for the price of ETH or crypto in general. For now, ETH remains NASDAQ on crack.
Wen Big Bottom?
The bubble in Web3 and crypto in 2021 was a lot like the dotcom bubble in 2001 on so many levels and also a bit like the bitcoin bubble in 2017. Let’s see how they compare in terms of duration and magnitude.
Comparing crypto to Dotcom 2000 is a depressing analogy for HODLers. The NASDAQ was dead money for more than ten years and took fifteen years to make a new high beyond the year 2000 apex. Here is how it transpired.
NASDAQ with key moments marked
If bitcoin follows this timescale, it will bottom in late 2023 and break $69,000 in the year 2036. Financial markets will be a distant memory for me at that point, as I will be writing bestselling contemporary fiction on a beach in Portugal.
That 2036 timeline feels insane and farfetched but I can assure you that such a long timeline would have felt insane and farfetched to NASDAQ bag holders in 2001, too! People that bought the Nikkei bubble in 1990 were not back in the money for more than thirty years! US housing buyers in 2006 broke even in 2020. So, this isn’t ludicrous at all. Rebounds from bubbles are long and highly variable.
Then again, all we have to do is look to the 2017 bitcoin bubble for the optimistic scenario.
BTC 2017 to now
If we use the 2017 timeline following the November 2021 peak, we get 361 days from peak to bottom and 1094 days from peak to new highs (December 2017 to December 2020). Measuring from the November 2021 high, this would give us a bottom in November 2023 and a new high in November 2024. That is probably an optimistic scenario because it’s going to be very difficult to convince new buyers to come into crypto at the highs after two massive collapses. Then again, humans are funny, and fiscal and monetary policy will probably be plenty scary enough at that time to cleanse the dark memories of 2018 and 2022.
The point here is simply to get an idea of the range of outcomes. From looking at other bubbles, my takeaways are…
This has been a free preview of the latest MTC. The rest of the note outlines my thoughts on when crypto will find a major bottom.
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Thanks.
bd
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On the very specific topic of the 2017 crypto top, my question is: what part of Portugal are you considering? 8-)