Crypto Bloodbath

Crypto Bloodbath

CAB

Crypto Bloodbath

 

The cryptocurrency market have just been an absolute bloodbath. We mean we’ve just seen sell orders after sell orders after sell orders.

You can’t just say, “Oh, I believe this and regardless of everything else, I’m going to continue to believe this.” Something that I learned managing money is that you always have to challenge your own assumptions. You always have to be your own worst critic to figure out: Am I wrong here, or is this just simply the market playing out?

 The fundamental premise here with this asset class is that we are seeing a rotation from an asset being dominated by individuals to an asset that is ultimately dominated by institutions. So again, if we look back in terms of an analog for that handover in the market, it’s ’94­–’95. In ’94­–’95, individuals were running the internet stocks. There were no institutions involved.

Between ’94 and ’95, internet stocks just got hammered, and then in that period, institutional ownership stepped up, institutions stepped in, and by the end of ’95, that market was rocking. So We have been using really two analogs through this process. One is on the actual trading, and that analog is from 1990 to 1991, and that relationship is still holding. The other analog is with institutional ownership, which in terms of the equity market was ’94–’95.

CFTC Investigation

 

The reason why we are getting clobbered right now is that the Commodity Futures Trading Commission (CFTC), which is the regulatory agency for the commodities market, needs to know that the data they are using to set the price on bitcoin futures contracts is accurate. They started reaching out to different bitcoin exchanges, different cryptocurrency exchanges, and they started getting stonewalled. These exchanges didn’t want to share their data.

CFTC says, “Look, we regulate you. We consider you a commodity. You’ve got to give us your data.” And a handful of firms said “no.” So what happened? CFTC says, “Okay, you don’t want to play ball? We’re going to show you just how big a bat we swing, and we’re going to do a price manipulation investigation.” So now the entire industry, all the exchanges, are getting investigated for manipulation.

The cryptocurrency market has never had regulation. Of course there’s been manipulation that’s taken place in that market. We’d be naïve to think that it’s never taken place. Manipulation happens every day in the equity market. You can’t think that it doesn’t happen in the cryptocurrency market… of course it does.

So what we’re seeing is this kind of knee-jerk, panic-selling reaction. There are certainly bad actors in the space. They see the CFTC coming in. They’re seeing that this is a very different world than even a year ago, and they’re dumping. What happens is this creates a cascading effect. So we’re seeing a sell-off in bitcoin. We’re also seeing a selloff in Ethereum, and that probably has something to do with EOS. EOS owns a lot of Ethereum tokens, and there’s a fear that EOS might start dumping its ether. That’s caused the price to come down.

When you have the two biggest cryptocurrencies in the market taking a hit, guess what? The whole market takes a hit. Does this mean this is the end? do we need to pack up our toys, go home, and say, “Well, that was a fun ride, let’s go next?” No, absolutely not. What’s happening here is a positive… it’s a short-term negative, but the market is getting cleaned up. The CFTC is coming in and cleaning up the market. It has to because no one is going to get pension funds—risk billions of dollars—in a market that is easily manipulated.

There have to be safeguards in place in order to allow that institutional money to come into the market… which is why I say this is a short-term negative but a longer-term positive.We have seen it before. We remember in the late ’80s and early ’90s, they used to call the Nasdaq the under-the-counter market instead of the over-the-counter market—it was so distrusted they used to call it the under-the-counter market… Even as late as the early ’90s, the average spread on a Nasdaq list of stock was 50 cents. The spread is the difference between the bid and the offer.

 

So even companies like Seagate, big multibillion-dollar companies like that used to trade with an 8% spread, and it was legal for a brokerage firm to buy Seagate on the bid, and then hold it. They could show that they were taking some risk. They would manipulate the offer. They would move the offer up another 25 cents, and then they would print the whole order at that price so they could hide the 75-cent commission on an $8 stock… then charge another 5% commission on top.

 

They were getting commissions that were 15% to 17%, and that was legal. That was completely legal. And then you saw the Nasdaq start to clean up its act. You saw spreads collapse. They went from an average of 50 cents down to a penny. Many markets are a fraction of a penny, and of course volume in the market exploded. The Nasdaq of the late ’80s and early ’90s was very, very different from the Nasdaq that we have today, and the same is going to be true in the cryptocurrency market. Now, a few things are going on in terms of institutions lining up to get into crypto.

Institutional Framework

 

Coinbase just launched its index fund. It’s open for investment. This is directly from a story that it posted. Coinbase says, “We’ve seen overwhelming interest from investors since we announced the fund earlier this year. At this stage, we have opened the fund to those who wish to invest $250,000 to $20 million.” So, you’re either an institution or an accredited investor in order to get involved with this, and it’s going to be a market capitalized weighted index of some of the biggest coins in the market.

 

Then Coinbase acquires a financial services firm. It’s going to become an SEC-regulated broker dealer. This is the largest exchange in the world… Tens of millions of customers are going to become regulated.

 

Now, this news is huge. This is new. Susquehanna, a global trading and technology firm—one of the largest financial firms in the world—has just opened up bitcoin trading. It’s opened up a trading desk that’s going to allow trading for bitcoin. It’s also going to offer digital currencies to some clients.

 

This is a major step forward. Google Susquehanna. It’s not a small outfit. It’s going to start trading bitcoin futures, then Ethereum, and bitcoin cash, and this is what it said, “We believe that this technology and this asset class is going to change some facet of financial services, and we think it’s going to exist forever.”

Friends, this is not our talking my book, or this is not some interested party. Susquehanna makes billions of dollars in fees per year. They don’t need the cryptocurrency market. But the fact that it sees this and is positioning itself to get involved tells me, absolutely tells me, that we are in the right market, and that regardless of the volatility we are seeing, our job here is simple. Sit back, relax, put on the blinkers, go play with the kids, the grandkids, the nieces, the nephews. Forget about this day-to-day activity, because it is not going to change the long-term trajectory of this market—which is significantly higher.

Mike Novogratz just gave an interview recently, Excellent interview, and they were asking him point blank, “Is this over? Was that the boom that we saw in 2017?” And he said, “That was the retail boom that we saw in 2017.” He said, “We have yet to see the institutional boom.” He actually called it the “institutional FOMO boom.” And he says, “That boom will take this market to $20 trillion

This is what We have been saying all along: We have to be patient. As much action as we’ve seen in the cryptocurrency market, there is still so much more to come. Now We know that’s difficult!

We need to have patient and allow this to play out, allow the CFTC and the other regulatory bodies to create a framework that institutions can use to come into this market, that We will make for All of us A lot of money A LOT!

That payday is going to be different for everybody watching right now. Some of you have less invested, some of you have more invested.

The bottom line is that the opportunity here for transformational wealth has not gone away. It’s still here, and that’s the key thing that you need to key in on. Is the opportunity for transformational wealth, generational wealth still here? The answer is absolutely yes. Absolutely yes, there is no question that the opportunity is still here. There is just so much money marshaling on the sidelines, getting ready to come into this market.

We can see it with Susquehanna. We can see it with Goldman Sachs creating its desk. We can see it with Coinbase becoming a regulated broker dealer. We can see it with VanEck. They’ve just put in new filings for a bitcoin ETF. And Thomson Reuters is now creating indexes to track 100 crypto funds. The pieces are starting to come together, but just like in 1990 to 1991, just like in ’94 to ’95, we have no control over when the market wakes up to this. Our job is not to let the tail wag the dog, and the tail wagging the dog means making decisions based on price action.

We’ve got to make decisions based on the pace of innovation of the technology, and the pace of institutional adoption. Institutional adoption is predicated upon a couple of things: having a regulatory framework where the fund manager is not going to get in trouble by buying the asset, which is happening right now, and then having a custody solution, where the fund manager doesn’t have to worry about holding the actual underlying asset—where somebody else can hold it.

Coinbase is launching its own custody solution, and again, in that Bloomberg interview that Novogratz did, he said he believes there will be some type of consortium of custodians, of Wall Street custodians, that will launch a project later this year. So everything we need to propel higher is in place, but it takes time. Institutions don’t move quickly. It takes time, but that framework is being built.

It’s the same process looking at the cryptocurrency markets. Everything that we need to have happen is happening. But in the interim, the market is going to be susceptible to headline risk. Sentiment is very low. People are very scared. A lot of people came into this asset class without really knowing what they were getting into, and now they’re getting hurt. You’re going to see this classic case of selling at the bottom and buying at the top, and they’ll do that all through this cycle.

This is going to be a multiyear uptrend that we’re going to see in cryptocurrency, and repeatedly what you will see people do is sell at the bottom and buy at the top; sell at the bottom and buy at the top. We saw people do that all through the ’80s and ’90s when we was involved in managing money. They would sell at the bottom and buy at the top; sell at the bottom and buy at the top.

Let the Game Come to You!!! Best Regards



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