5/14/22
*Not financial advice*
Has crypto bottomed?
With a 3-5 year time horizon, BTC under 30k and ETH under 2k are both great buys. If you have zero crypto exposure, it’s a great spot to begin dollar cost averaging. We are down +50% from the highs, retail sentiment is fearful, and the fundamentals of both networks continue up and to the right.
Personally, I have *not* bought yet. I am happy with my current exposure, and raised cash in early November. I sold ~60% of my ETH at $4500 based on the confluence of two factors:
- It became clear the fed was going to get serious about fighting inflation and thus tighten monetary conditions
- The Ethereum foundation sent a large chunk of ETH to Kraken to offload…(they too sold the top of ETH’s early 2018 bubble…the beauty of public blockchains is I was able to follow this trade in real-time).
*If* the bottom is already in (BTC and ETH are at 30k and 2k at the time of writing), I am happy to buy back at higher prices with confirmation from legacy markets, with which crypto has been trading in lockstep with. I am no expert in macro, so I defer to Zoltan Pozsar of Creddit Suisse, who is one of the most renowned analysts on all things fed related. He believes Powell and co will remain hawkish for the better part of the year, and any short term rally in growth stocks will be met with even more emboldened fed hellbent on squashing inflation. While the market might have sufficiently priced in future rate hikes, quantitative tightening has not even begun to remove liquidity from the market. With the fed’s number one tool for fighting inflation being demand destruction through wreaking havoc on asset prices, it is in my opinion *not* time to go fully risk on. Don’t fight the fed.
My bet is that we will find a macro bottom sometime in Q4, post midterm elections with CPI prints beginning to surprise to the downside. This will roughly align with major crypto catalysts to boot: ETH’s merge and (possible) heavy BTC accumulation frontrunning its 2024 halvening.
I will begin buying in size at the first sign of a fed reversal, and/or bitcoin and ether trade at my favorite technical area of interest: their 200 day simple moving averages, resting at ~22k for BTC, and 1.4k for ETH, which also coincide with a major retest of former 2017 highs. Will these areas hold if the fed is still tightening? I’m not sure. You cannot rule out a major liquidity event that wicks us below 21k, even as low as 10-12k BTC for a few moments.
Exciting times ahead for a still-burgeoning asset class with a total addressable market of tens of trillions of dollars. Be patient, have a strategy, and for dip-buying purposes stick with assets with the most lindy: BTC and ETH*. You can always venture further out on the risk curve once a new bull emerges.
*(In addition to BTC and ETH, I will be adding aggressively to my Solana position from $50 all the way down to a possible target of $20. It is the top ETH competitor with a strong developer ecosystem and vastly higher (and cheaper) transaction throughput, though it sacrifices a degree of decentralization for its highly performant qualities. Its price action resembles ETH from a cycle ago: SOL appreciated 1000X during the latest bull and is getting absolutely crushed during the current bear. ETH pulled a 1000X from its 2016 launch to its 2018 top, followed by an 85% correction. In this latest bull cycle, from trough ($80) to peak ($4800), ETH pulled roughly a 60X. My moonshot bet is that SOL will follow ETH’s footsteps, and–on the heels of a new wave of NFT adoption–will appreciate 60-100X off its bottom. Upside targets–following this analog, with a 60-100X off of a theoretical bottom of $20–are between $1,000 and $2000 per token in 2025-2026 (why 2025-2026? Crypto bull cycles historically kick into gear about a year after BTC’s halvening).