The markets fluctuate. The price rises when there are more buyers than sellers. And it goes down when the opposite happens. Buyers are essentially optimistic. And sellers are essentially pessimistic. The secret is to buy low and sell high. For that reason, the seller thinks they have reached the top. Of course, the decision to buy or sell does not always obey the rational order. In most cases, emotion dominates the investor’s life. Let’s talk about the price of Bitcoin, the possible reasons for its behavior, and the difficult art of making predictions.
The firm PlanB, which has a very loyal and devoted following, predicted that “in the worst case scenario” the price of Bitcoin would be $ 98K for the month of November. Ouch! At this time, Bitcoin is struggling to stay above $ 50,000. Obviously PlanB got it wrong big time here. This server said, a couple of months ago, that Bitcoin was very likely to break its all-time high of $ 64K before January due to the year-end trading and financial boom. Technically, that maximum was broken. But the party did not last long, because then we fell back below the maximum. What happened?
In the first place, the probable is not a fact. We can follow a trend and do some projections. But these projections cannot include unexpected events. That is, the probability does not cover the exceptions very well. My personal projection did not contemplate the omicron variant, the increasing persistence of the anti-vaccine movement and the announcements (and rumors) of a change in monetary policy (USA). These changes change everything. A few months ago, the data suggested that the odds were on the bullish side. Now, the atmosphere is much more mixed.
The price falls due to investors’ pessimism. Many things came together and there was a kind of temporary panic that generated small crashes in various markets. Inflation got out of control. Because everything seems to indicate that the distribution and production chains are not recovering at the desired rate. In other words, the matter is not as temporary as anticipated. Why? The crisis in China is a key factor. At first, The Federal Reserve warned us that we would have inflation. But he also told us that it would be kept under control and would be temporary. Of course, that was when China was emitting signals of strength. Unfortunately, the situation there is not the same. Therefore, things got complicated.
Current inflation shows us the deflationary effects of globalization. Heard, the nationalists. If you want to close borders, you must be willing to pay the price. Now, it is practically a fact that the Federal Reserve (USA) must withdraw liquidity from the system earlier than expected. This will lower inflation. But, at the same time, it will stunt growth. That explains the investors’ panic and the pessimistic sentiment in the environment. In other words, historically, liquidity cuts mark the beginning of the bear cycle in the markets. Many think it is time to sell and take a profit in anticipation of the cut.
The macro narrative does not fit very well in the crypto space. Why? A matter of dogma. This macro narrative places Bitcoin (practically) as a technology in the growth sector. And crypto libertarians insist that Bitcoin is a “safe haven” similar to gold. According to these ideas, the public, in times of crisis, will turn away from fiat money (part of the problem) to take refuge in “the safest and scarcest asset in existence.” This sounds very nice, but an inspiration is not reality. Bitcoin is not the asset of the pessimistic anti-establishment. Like it or not, in times of panic, investors take refuge in fiat money, Treasury bonds, and defensive assets. In times of optimism, investors take greater risks and buy assets in the most volatile and speculative sectors. What blinds many bitcoiners from accepting this reality is dogma.
Conservative crypto libertarians certainly have a large social media presence and have somewhat gained control of the narrative. However, they are not the majority. This explains why the crypto community does not come out of a surprise in relation to price. Your analysts say one thing. And things turn out differently. Greed levels were through the roof a few weeks ago. Ironically, extreme greed is counterproductive. All the predictions were overly optimistic and to speak of a fall was practically blasphemous. The fanaticism in the altcoin sector was already alarming. What we had were small cults of blind and radical followers. Here’s a sign of overbought.
Has the end of the bull cycle come? Technically, yes. That, of course, does not mean that there is no hope. Apparently the omicron variant is not as strong as feared. The anti-vaccine movement may lose strength as people become more aware. Or when they start paying people to get vaccinated. So far comes the end of ideologies and conspiracy theories. In relation to monetary policy, not everything has been said. The next meeting will give us more light in this regard. But, surely, everything will happen progressively. That is, we will have time to adapt to the new reality. In other words, it is very likely that the market is overreacting at the moment.
Finally, it is possible that the economic recovery (corporate income) will continue its course, despite a cut in liquidity by the Reserve. This may be possible thanks to a significant increase in public spending (Biden’s plan) and an increase in private spending due to the eventual overcoming of the pandemic. That can certainly serve as a counterweight. In that case, we can maintain the bull cycle for longer. This is not what normally happens, but there are precedents. You can still grow with low liquidity. It does not grow at the same rate as with a loose monetary policy. But growth is still possible.
Not all bitcoiners are ultra-conservative libertarian militants. This is a hard truth for many to assimilate. But, like it or not, the majority in this market are speculators. They invest to earn money. As simple as that. These investors are emotional and pragmatic beings who do not follow the ideology of the most radical. They know very well that Bitcoin is a very volatile asset. I mean, Bitcoin involves risk. Which means they can’t afford to risk their children’s rent or future money on it in all circumstances. So, in times of uncertainty, they sell and take refuge in fiat for stability.
Bitcoin is an emerging market. It is something new, experimental, with little liquidity and with many regulatory loopholes. Your opportunity is also your risk. It is extremely volatile. In fact, from a financial point of view, it looks more like Tesla than gold. Anyway, it benefits more from prosperity and optimism than from crisis and pessimism. It is not what the official narrative says. But it is what the facts say.