Good Morning Everyone,
Bitcoin is now down 50% from the highs in November, and the class of 2021 are underwater and panicking. As shown by the fear & greed index, printing 11, an “extreme fear” read.
To demonstrate our (humans) irrationality, F&G index was at a 95 (Extreme Greed) while price was rallying at the beginning of 2021 and price was around the $37,000 region. Pretty funny how volatile human psychology is. Same price, but bi-polar market sentiment.
It is in these time when the tourists really show their hands, and reveal their psychological concavity (fragility).
While I would prefer price to be going up, if i had a choice, and the price of Bitcoin relative to melting USD ice cubes to be increasing, that is simply not how markets work and I have been calibrated (painfully) by the market over years to understand and accept this.
As humans, we crave certainty. Many people will try to tell you, “fill in the blank” is the reason the market is pumping or dumping, but the truth is, you would have to a completely delusional to think you know the reason millions of people scattered around the world are performing a specific action. This is just a classic case of humans seeking certainty.
All we can truly know, is that markets move up and down based on an imbalance between buyers and sellers.
We are so psychologically primitive. People naively think they can just buy something and it’s just going to go up in value, and it’s going to be easy. Not so fast..
The way I’ve explained it to friends is that markets are like an olympic level event. A global olympics, that anyone can enter without having to pass any tests or having met any prior requirements. Anyone is welcome to participate and compete.
If you think you can participate having done zero training, against the best in the world, in an event you know nothing about and have no experience in whatsoever, and you blindly think you can win, you’re completely out of your mind.
Bitcoin is no different (for now).
I think about times like this as if they were a test.
This is how a market tests your conviction. Your thesis. Your position sizing. Your entry. Your time preference. Leverage used etc etc.
Below are a few thoughts on how to best handle market draw downs, things to think about and potential actions to take:
Review your thesis, and whether or not anything has changed.
Re-visit fundamentals. What has changed?
Understand your time horizon. Lowering your time preference is a super power.
If your time horizon is years, why are you looking at an hourly chart?
Do you have a line in the sand clearly defined, where you accept you were wrong and take a loss? Think through the actions needed to take, if this were to happen.
Question previous assumptions.
Journalling your thoughts and feelings to better understand your psychology is a game changer.
Treat these times as a time to focus on deepening your knowledge. Re-read a book that had a significant impact on you.
In the case of Bitcoin, i believe these times are for accumulating. These are the times where the emotional and immature market participants demonstrate they have not done the work, and bitcoin changes hands between those who keep their btc on exchange, to those that lock it away in cold storage.
<10% of the total supply remains to be issued. Hash rate is currently printing all time highs. Companies like intel and Block are investing in mining. El Salvador and MicroStrategy are aggressively buying and accumulating. Fidelity wouldn’t be surprised to see a central bank acquire bitcoin in 2022. We have recently seen countries like Lebanon and Turkey experience crippling levels of inflation.
Most critically, i do not believe the fed can tighten in a meaningful way, sustained over time. The system is such that they will HAVE TO continue to print. The current monetary experiment is built upon an impossible expectation of infinite growth, in a world of finite resources.
These are just a few of the things that come to mind when i think about the market at present. I cannot imagine being concerned about short term price, with less than 10% of bitcoin issuance remaining when a single bitcoin is valued at $36,248 USD - for what is an inanimate object; an entry on a shared digital ledger, maintained by a decentralized computing network that no one owns or controls.
But it’s not just any digital ledger, and over time, more and more people will come to understand this technology, and the market will price it accordingly.
I think Odell put it best:
Stay focussed on the long term. Bitcoin is the mission.
I hope you have a great start to your week, and I will chat to you tomorrow.
AK
Final Thought:
“My bitcoin can stay in cold storage, longer than the market can stay irrational.”
Share this post