Steady Hands, Clear Mind

This market isn't going anywhere. (April monthly issue.)

Listen to this post:

In last month’s issue, Uncertainty is Your Edge, I talked about the disconnect between what people tell you and what the facts say.

In this month’s issue, I look at the importance of sticking to a plan, preparing for market fluctuations, and focusing on long-term wealth accumulation despite the uncertainty and unpredictability of the market.

If you want to hear an auto-narration instead of my voice, head over to the Medium version, which also has auto-narration.

Earlier this month, a swath of the US saw a solar eclipse.

This reminded me of the ancient folklore about Aztec priests who would sacrifice prisoners to appease the Gods and restore the sun. It worked! Soon after the prisoner died, the sun emerged.

Those priests later applied the same logic to monetary policy. Now, they're called central bankers. 

Not too different than our contemporary crypto commentators.

Stock to Flow recaptured its 2020 magic. Liquidity cycles are the rage. “LTH/STH” ratio looks good. 

If those terms don't mean anything to you, don't worry. Lines always work, and you can draw them anywhere.

People who told you to sell at $25k last year are telling you to buy “any price below $70k” now.

Last year, they drew their squiggles downward. Now, they draw their squiggles upward.

Traders tell you to buy when the price goes up and sell when the price goes down. On-chain gurus tell you we have 18 more months of upward prices with no signs of danger. 

Tony on the TV tells you Bitcoin’s price will hit $3 million by 2030, so it doesn't matter what price you buy at today.

Priya in the Park tells you everything's going to zero.

We take the market as it comes.  

If you try sometimes, you get what you need

With an asset that goes up and down 50% at tops and bottoms, pumps 100 to 300% in bear markets, and crashes 30 to 70% in bull markets, close enough is good enough.

Trading charts and macro models are great! It's fun to project a price forward. Helpful, too. We need a sense of perspective to make sense of market movements.  

You want certainty. Sometimes, perspective is more important.

Unfortunately, perspective has no predictive value. For that reason, I stick to my plan.

With my plan, you’re up 30% at worst or up 1,100% at best. Most likely, you’re up 165% with plenty of cash to spare. 

You sold some Bitcoin last month. You sold some altcoins earlier this month. You still have a strong allocation to the market.

Your actions look like this:

Now, you’re waiting for Bitcoin’s price to go into the buying zone. It may have already done that by the time you read this post. 

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Mark, what about altcoins?

My plan doesn’t cover altcoins, but generally, when Bitcoin’s price is in the buying zone, you can feel comfortable buying altcoins, too. They all move in the same direction. I treat them as their own investments in my portfolio strategy.

I’ll make an initial allocation to an altcoin in any market conditions. I only raise that allocation at opportune times—specifically, November 2020, July/August 2021, and June 2022 to April 2023 (I’ll tell you when I do it).

Most altcoins will fail. Some will never beat Bitcoin’s performance over any timeframe of significance.

We make up for the losers with the winners. A handful have already delivered 1,000% returns, even after this most recent drop.

Make it your own

I like my plan because it’s an easy, efficient way to get a source of wealth that does not depend on any government or institution, an asset to draw from as needed forever, with the expectation that it will generally grow over time, and a low-stress way to get results that beat dollar cost averaging without trading or timing the market.

At the same time, the plan comes with a lot of volatility. You need patience! 

Sometimes, you have to buy when everybody's telling you to sell or sit on your hands as the market goes up. You can't plan your entries and exits around life events, like if you get a bonus or if you need to take money out for some urgency.

Before you decide whether my plan is the best choice for you, consider the questions I raised in the April 11, 2024 update and the April 1, 2024 Buy/Sell/HODL Alert.

Act according to what feels best for you and makes the most sense for your situation and goals. Taxes, lifestyle needs, timeframe, and so on. Use this newsletter to help you with those decisions.

Don’t forget stress! Your mental health and physical well-being have value, too, even if it's not reflected in your portfolio tracker and rolled into your ROI. Is the financial gain worth the physical pain?

No worries

You will always have opportunities with crypto, but not necessarily for the reasons you think.

A lot of people assume the pump we had in February came from Wall Street ETF inflows. 

Wall Street’s ETF activities are substantial and important, but they’re too small to boost Bitcoin’s market cap by a half-trillion dollars even if you use a generous multiplier. 

These ETFs matter—just not as much as people say. The evidence is clear and not worth getting into here. In fact, we may discover they reflect changes in price and sentiment rather than drive those changes.

Perhaps 2024’s rise came from a confluence of events?

By the time Wall Street got its ETFs approved, Bitcoin already traded at all-time high prices in several government currencies. FOMO was in the air, even if English-language content creators didn't smell it.

While Bitcoin’s price went up 70% after the ETF approvals, that came after a 200% rise in the 14 months prior—long enough for people to mentally adjust to the idea of a bull market and the expectations that come with it. They felt safer at higher prices.

Also, China simulated its economy towards the end of last year. Surely, that helped.

What lurks beneath  

Did anybody consider an alternative explanation for the pump since January?

Maybe a leveraged market maker blew up on a bet gone wrong about the direction the market would take after the Wall Street ETF approvals. It needed to buy a huge amount of Bitcoin to avoid a default that could have REKT the market.

What if a portion of that purchase was subsidized by a free loan from Tether, who printed fake USDT to cover the cost? 

Enough to generate new momentum and bail out a partner, but not enough to raise eyebrows. Sufficient to make a difference, but not so much that Tether couldn't cover the cost from its treasury or financial reserves.

A little boost to get the market moving again.

Was that part of a sudden $600 million USDT print on January 23, 2024, the day Bitcoin started its rise from $39,000 to $73,000?

We know market makers and Tether have each done this before. It worked and nobody found out until much later. Why not try it again?

It wouldn't be the first time crypto pumped for reasons people didn't realize at the time.

2019’s zoom came from a scam (Plus Token). The early-2021 zoom came from shenanigans related to GBTC arbitrage (market makers). The late-2021 zoom came from fraud (3AC/Lenders/LUNA). We only found out much later.

Who knows what we will uncover about our latest zoom?

Realest coin in the room

No matter what we find out—if anything—it doesn’t change the underlying investment case. 

Bitcoin’s in a 15-year uptrend with massive tailwinds, overwhelming social consensus, buy-in from large financial interests, and a sprawling network of users and people committed to its success. 

Within crypto, it's the king. 

Outside of crypto, it's the fastest-growing financial asset ever.

If not for ETFs or shenanigans, Bitcoin’s price would’ve gone up in 2024, just for a different reason. 

What about altcoins?

None of them are worth the price you pay today, not even Ethereum. A few will get so big, their prices will astound you.

Buy some.

Which ones?

Start with my altcoin reports and the names I mentioned in my special report on three big narratives.

Only some will succeed. Their returns will make up for the ones that don't.

Mark, if you don't know what's going to happen, why should anybody listen to you or pay for your newsletter?

This is a crazy market. Everybody's searching for answers. Everybody's selling you the truth. Nobody actually knows.

Here's the thing: in legacy financial markets, analysts work from extrapolations, models, and best guesses. They never know what's actually going on. 

With crypto, we can see what people are doing on the blockchain. We can track their behaviors and identify trends, patterns, and conditions that help us navigate the market and set realistic expectations.

In other words, we can use data to get a good idea of what's going on and identify a range of outcomes.

We still suffer the vagaries of the market and the swings of fortune. At least we have the perspective we need to navigate the changes in prices, sentiment, and our own positions.

ETFs change everything?

Some people say the ETFs killed the data models, on-chain metrics, and cycle theories. It’s a new paradigm—fundamental human psychology no longer matters.

That's true in a certain sense.

For example, ETFs combine many Bitcoins into a few large addresses. As a result, they skew the entity data and some accumulation metrics. Also, we need to account for those inflows and outflows when looking at other types of data, such as exchange flows and HODLing patterns.

That makes on-chain analysis harder. 

Fortunately, we can make up for it with other metrics and approaches to analyzing the market and movements of Bitcoin. 

We’ll need them! Wall Street—and its general involvement in crypto—opens up a superhighway for legacy finance to enter the crypto markets. I wrote Bitcoin or Bust: Wall Street's Entry Into Cryptocurrency about this inevitability and its implications.

Wall Street’s ETFs brought in $12 billion over the past three months. Without these ETFs, that capital would have never entered the market.

In the coming years, those ETFs will continue to bring a constant stream of new money. Wall Street still has incentives to push crypto narratives. Some advisors will still put 1-3% of their clients’ money into Bitcoin. 

If only they could keep people from selling. 

Average net daily ETF inflows have dropped from more than $250 million to less than $180 million. Look at the fall-off since the March peak:

If you want that $150,000 Bitcoin any time soon, we need new bids to come soon. 

Don’t come unhedged

Fear not!  

I'm hearing reports that China plans a new round of stimulus. Most of the world’s economies continue to grow. Tether can pump the markets at its whim.

Governments still print money. People still want to gamble. A change in Fed policy or Bank of Japan policy could delay the macro liquidity drain that I discussed in last month’s issue

Things happen.

Are you wondering whether to buy a short position in case those bids don’t come in? Is it a good time to short the market?

As a trading strategy, it depends on the circumstances. I pointed out a very simple, straightforward short trade on the three-day chart in the April 18, 2024 update.

Outside of these rare, simple trades, I have no opinion on shorting the market as a way to make money. I recognize many people can do well with that approach, but I'm always reluctant to bet against an asset that's in the middle of a 15-year uptrend with massive tailwinds.

As a small hedge on a much larger portfolio, you should consider doing that at any time in all market conditions. 

If prices go up, you lose some of your government’s money but you keep your crypto.

If prices go down, you close your short position and use the proceeds to buy more crypto at lower prices.

(Note, I don’t do this because I prefer to hedge with cash and lines of credit.)

You do you

Only you know what’s best for you. 

Internalize this content, the risks and opportunities, and the range of realistic outcomes. Consider your own goals and mindset. Your tolerance for risk and volatility. Your financial circumstances and ambitions.

Can you stomach a 50% drop in your portfolio for the chance of a potential 50% gain? Do you feel better buying when everybody tells you to sell? What does “success” with crypto look like to you? 

When the market is overextended, recognize that. It happens from time to time. Let it settle down.

When the market is oversold, recognize that. It happens from time to time. Make sure you have fresh capital ready to buy.

That way you don’t have to set arbitrary limits on your gains by selling at specific prices. You don't have to time the market.

Remember that when the speculative enthusiasm dies down and the market drops. 

At that time, you'll hear people talk about left-translated cycles, early peaks, a ten-year bear market, a “running flat correction,” and all sorts of ideas that make you feel scared. You won't buy.

Worse, you'll sell.

Everything people say about ETFs, “fiat,” central banks, smart contracts, DeFi, and crypto will be as true then as it is now. Only the circumstances will change.

Before you psyche yourself in or out of a decision, remember my U2R model.

U2R, short for “up into the right,” is a price chart with a black line on it. That line goes up and to the right. There's no math, statistics, or data involved. It's literally just a line.

The model works because Bitcoin’s price goes up over time. So does the line. Easy stuff.

Use the good times to prepare for the bad times

Cryptocurrency is a marathon masquerading as a sprint. Everybody sells you on the sprint, but the best investors train for the long race.

Take advantage of opportunities when they come along. Bitcoin’s price goes up over time, but not straight up and not all the time.

Savor the downturns. Keep fresh cash handy at all times so you can take advantage of those opportunities. That way, you don't need to stress about models, narratives, or whatever else got you excited about crypto.

When the market’s up, have fun. Trade a little. Dabble with the technology. Keep the big money in storage until a better opportunity comes along.

If circumstances force you to sell, or worse, exit the market, do so. 

Use the good times to prepare for the bad times. If you stick around long enough, you'll get both—often, when you least expect them.

If you're on the premium subscription, you know what to look for. If not, upgrade now.

You won't need to fuss over dates, prices, or any of the other unknowns that make this market so exciting and dynamic. You'll appreciate the circumstances and plan accordingly.

Relax and enjoy the ride!

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