Article contributed by Tin Money. Follow them on Medium here.
As Nassim Nicolas Taleb points out in his book The Black Swan, people that make predictions are terrible at it. Doesn’t matter if it’s your Uncle Steve or Jim Cramer, they’re all equally awful.
I’m guilty of the prediction game myself. For years I was an economic chicken little. I was convinced all through the nineties and early aughts the US economy was going to implode at any minute.
And I mean doomsday wackadoodle prepper-type convinced. I was cash-heavy and deeply into gold and silver. I wouldn’t touch the stock market with a 10-meter pole.
All I got for my trouble was missing out on 20 years of incredible stock market gains just so I could say “I told you so” in 2008. I knew I was right!
Or was I?
The thing I didn’t realize then was people have always been calling for doomsday armageddon-type scenarios. Peter Schiff has made a bloody career out of it (that’s not a dig, I like Peter Schiff).
What I know now is it’s a fool’s errand. Of course, something bad is going to happen. Bad things happen. It’s an inescapable part of life.
Sitting around fretting about it is a complete waste of time. I still have to remind myself of that often. But what I also learned is I have a very strong negative bias toward the economy and markets.
That bias definitely informs my crypto investing. I hate going long on anything. It feels awful to push the buy button. I’m very risk averse.
And yet I’ve been learning about trading crypto and have been actively doing so. That would have been complete madness to me even a year ago.
Why? Because trading, especially in the crypto markets, is insanely high-risk. So how is it I can be very risk averse and trade and invest in crypto?
I keep an open mind (mostly).
Doomsday prepper goes full-on crypto degen
The funny thing is, right now, the macro environment is the worst I’ve ever seen. That includes the 1970s, 1980s, 1990s, and 2000s — including the Dot-Com crash and 2008.
Like it’s bad.
And I’m biased to see things that way. I know this. Now you do too. What I’m outlining here isn’t what I think is going to happen. It’s what I think couldhappen.
One of the great strengths of being a recovering doomsday chicken little is I am excellent at seeing beyond narratives. As a financial researcher, I did long deep-dives into the history of finance and financial markets.
And from my perspective, knowing what’s happened before is key to understanding what might happen in the future. Or, as Winston Churchill said:
“Those that fail to learn from history are doomed to repeat it.”
So what does history tell us? A bunch! Let’s go through some charts and see what we learn:
Daily Chart #1
Pretty clear uptrend on the daily here. Looks like we might have peaked, but kind of hard to say. With the nice bounce off the diagonal trend line towards the top, this could easily be a continuation of a strong bull run.
Question is: How many people do you think would FOMO in on that bounce? Here’s how it played out:
Daily Chart #2
Oof, right? That’s a 47% drawdown there. Price even briefly touched the trend line again for a little retest before dropping off the edge of a cliff.
Got a huge v-shaped bounce out of the drop though. Clearly a lot of liquidity there waiting to buy-in.
But as we can see, the bounce was pretty short-lived before dropping again. Then prices started another steady climb of 48%.
The next big dip before the chart runs out might count as a higher-low. Could this be a another great buying opportunity? Let’s see:
Daily Chart #3
Zooming out a little shows a perfect bounce off the new (lower) trend-line. We have a nice sequence of higher-lows and higher-highs, though we are still down from that first big climb.
We did just come off a huge run up. Is this just an overheated market that cooled off a bit before the next big run? I can tell you at this point the market fundamentals had not changed at all.
I can also tell you a lot of investors were “buying the dips” here. And why not? The market had just dropped almost 50%, so these were rock bottom prices. Let’s see how that turned out:
Daily Chart #4
Yup, you probably guessed it, another kick in the old bean bag. We’re on a pretty clear downtrend now. Getting some solid rallies on the way down.
The first bounce off the big dump was 48%. The little double bounce was 15%, and the last bounce into the diagonal was 23%.
But no matter what, the bulls just can’t seem to clear the downward trend line, which is clearly acting as resistance.
Wonder how far this will go? Let’s continue:
Daily Chart #5
Bummer, it was dump city. But wait, there’s hope!
Look at that crazy bounce at the end of the chart. That’s a 91% v-shaped bounce. We’re back baby! The market has finally bottomed!
Or has it? It’s tricked us before…
Daily Chart #6
Hey! The bottom WAS in! Just for the record, that was an 89% correction from the all-time high to the bottom.
I would also point out that from the peak after the bottom to the next low was another 38% drop.
Now stop and think about ALL of that as an investor.
You’ve just watched the market drop 89% over the last THREE YEARS. You’ve seen six separate price rallies that ranged from 15–48% each on the way down.
And if you bought any of them, you would have got burned on each and every one. Each time you buy a dip, see a rally, and then the market just keeps falling.
Then, after THREE YEARS of that, the price rallies 91% in 45 days. Would you buy? What makes this time any different than the last six times price rallied.
And just as you start thinking maybe things are safe, price starts dropping again. Would you ride it out? Would you panic sell?
Let’s be honest, after going through something that crazy over the last THREE YEARS, do you think you’d even have any dry powder left?
And if you did, would you have any faith in investing in the actual bottom where you would have caught that 91% bounce?
Not to mention, it took 285 days from the bottom to finally clear the diagonal trend line back up. The investors that had money and the conviction (or madness) to invest when it looked like the world was ending made a fortune.
Unfortunately, the vast majority of people literally lost their shirts.
The Great Crash
If you haven’t figured it out by now, those charts are from the 1929 US stock market crash. The thing we need to remember about the crash and the Great Depression is they weren’t the 1929 crash and the Great Depression then.
That’s what we call it now. Then it was all unknown. No one knew how far the market would drop. No one knew if it would ever recover. No one knew we were in for a prolonged era of massive deflation.
They knew as much about the future then as you and I know about the future today, which is zero. Here’s some more food for thought:
The thing you should pay very close attention to on that image is how long it took to reach the previous all-time high. In case it’s hard to see, it took 9286 days to regain the previous ATH from 1929.
That’s 25 years.
But today, people will say with a straight face that Bitcoin is DEFINITELY going to all-time highs next year? It’s ridiculous.
Getting real with the person in the mirror
Could crypto collapse? Yes. Could Bitcoin hit $3.8k (or even lower)? Yes.
100% yes.
That is absolutely, without a doubt, a possibility. It doesn’t matter what any crypto expert, economist, journalist, or anyone else that says “it could never happen.”
It absolutely can. And it could also go to all-time highs in a year.
Doesn’t mean it will in either case. But if you can’t even contemplate the downside, there is zero chance you can prepare for it. I tweeted this image the other day:
It might be a little hard to see, but those are legit orders I have on the books right now. The only reason the BNB order price is so high is because that is the lowest spot price I can place.
Do I think they’ll ever get filled? I have no idea, and I don’t care. The point is I am PLANNING on having plenty of dry-powder all the way to a sub-$4k Bitcoin.
Are you?
On July 8, 1932, some investors somewhere still had cash on hand and bought the Dow at $41.60. When everyone else was rekt and scared and had nothing left, that investor bought in at a life-changing price.
If you strongly believe Bitcoin will never go below a certain price, or if you strongly believe markets always go up, or any other dogmatic bullshit, you’re psychologically and emotionally vulnerable to getting rekt by those beliefs.
This doesn’t mean you should walk around in constant fear like a perma-bear. Likewise, it doesn’t mean you should walk around with constant optimism like a perma-bull.
It means accepting possibilities that you don’t like thinking about. It means listening to perspectives you disagree with. It means not being a total baboon.
Some ideas for the future you
Don’t assume the market has bottomed. Don’t assume the market will recover. It may have bottomed, and it may well bounce.
It also might sink a lot further and take 20 years to come back. You should have a plan for BOTH and a bunch of scenarios in-between. When you’re not sure which way to go, remember the little history lesson above.
Take some time and learn how to manage risk. Don’t go all-in on anything. Do boring things like saving money and cutting back on expenses.
Maintain a diverse portfolio that has unsexy things like treasuries, gold, and value or dividend stocks. Ideally, own a debt-free home. And always have dry-powder on hand to invest with.
But most importantly, you should keep an open mind. You can’t capitalise on things you refuse to think about.
Like the old saying goes:
“Free your mind and your ass will follow”
These are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
