Michael Novogratz thoughts on a recovering crypto market capitalization bucking back over 1 Trillion USD makes a timely read.
The secular bear cycle in cryptocurrencies could be out of gas
As we write this piece, crypto market capitalization is 1.1T USD, which is about 700% more than what it was on March 19, 2020, when it had a market capitalization of 152B about three years ago.
But that is still far below its all-time high of 3T USD in November 2021.
A loss of 2T USD market capitalization over 14 months is nothing to be cavalier about.
“The secular bear cycle in cryptocurrencies could be out of gas”
WEALTH TRAINING COMPANY
But when an asset survives a brutal bear market, then makes a recovery, there is something about it.
So Michael Novogratz thoughts on a recovering crypto market are worth pondering over.
“Two unconventional ideas on why crypto is ripping to add to the obvious ones… 1. BOJ injected huge liquidity this past week QE a lot!!! 2. China backing away from regulatory enforcement (tech and crypto). China retail RE-engaging a story to watch in 2023,” tweeted Michael Novogratz, 14 January.
Indeed, cryptocurrencies, particularly BTC, have become an unofficial index of central bank liquidity and real interest rates.
As central bank currency becomes scarce through monetary tightening, interest rates on deposit accounts rise, and bond yields rise. Market liquidity dries as capital rotates out of risk assets and flows into deposit accounts and low-risk bonds with relatively high yields.
Demand for risk assets hits a trough, and their corresponding price bottoms out when central bank liquidity also hits a trough.
“China backing away from regulatory enforcement (tech and crypto)”
The recovery in cryptocurrencies and risk assets is about where prices sit with central bank liquidity and the investor psychology cycle
Warren Buffett’s maxim is to be greedy when everyone is fearful; What this means in market mechanics is to accumulate risk assets when central bank liquidity moves out of a trough with investment psychology pulling out of a depression.
“We are in a legitimation crisis as more realize they are getting short-changed by a system they are told has their back covered” – Wealth Training Company
Michael Novogratz thoughts on a recovering crypto market focus on the BoJ pivoting from tightening to easing monetary policy
Quantitative Easing entails BoJ buying assets, thereby boosting market liquidity and asset prices higher.
So in the preliminary stages of a late bear cycle, early liquidity is driven by a bear squeeze, where short sellers and bears finally capitulate and close short positions.
Short sellers become forced buyers, thereby providing liquidity in a tight market. As it becomes more apparent that central banks are pivoting, because their priority shifts from worrying about inflation to fending off an economic downturn, the loosening of central bank liquidity sends risk asset prices higher, which then triggers FOMO as investor sentiment shifts from depression to optimism. Speculators jump on the bandwagon, then every man and his dog is on it. The latter part defines an aging bull cycle.
We could be in an emerging secular bull cycle, the preliminary bear squeeze stage with the buyers being short sellers closing their position.
But there is also a libertarian story to Michael Novogratz thoughts on a recovering crypto market capitalization.
We are in a legitimation crisis as more realize they are getting short-changed by a system they are told has their back covered.
How many pensioners will spend their final years in poverty contributing to a system that promises them dignity in their old age?
The unaccounted and unaudited billions of currency created by central banks and paid by everyone through inflation, a debased currency, and declining living standards as savings and wages wither.
The bank bail-in in Greece and Cyprus where savers had their bank accounts bailed in. So, there is a legitimation crisis in the custodian of assets.
“Crypto is here to stay. I will keep advocating for policies that advance crypto innovation and adoption in the United States because crypto is more than a financial investment: it’s about restoring liberty and choice to individuals” – Tom Emmer, Congressman
The FTX scam is precisely why cryptocurrencies were created, which is to prevent the loss of assets due to custodian fraud
The blockchain enables the holder of the asset to avoid third-party custodian risk. Holding the assets in cold hard storage means nothing comes between you and your assets.
Only you own the private keys to the asset.
You can walk across war zones, border controls, and hands in the air with nothing to declare.
So a young generation of investors is living through war, corruption, economic and currency collapse, exchange scams, bank bail-ins, and regimes seizing assets.
In the age of uncertainty, and legitimation crisis, cryptocurrency is a bastion for everyone who needs a life raft, without discrimination
“Crypto is here to stay. I will keep advocating for policies that advance crypto innovation and adoption in the United States because crypto is more than a financial investment: it’s about restoring liberty and choice to individuals” Tom Emmer Congressman.
Investors are accumulating while prices are low is another bow to Michael Novogratz thoughts on a recovering crypto
“Bear markets are for building. We’re long-term believers in BTC and expect the lowest-cost miners to win over time. Helios is a transformative acquisition that will expand our mining capabilities and services as we continue to build for the decentralized future,” he tweeted on December 28.
“Since we started mining bitcoin in Q1 2021, we outsourced our miners to hosting providers. But we always had the idea that we would vertically integrate our mining capabilities,” he wrote
“Our thesis is simple: You get low-cost electricity, a very efficient team, and you buy your ASIC machines cheap. That’s a recipe for success in mining, even when the hash rate rises,” he added.