Uncertainty creates widespread market volatility – Crypto
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Word of the day: Volatility
Are you prepared for increased volatility? It’s common for markets to only get more volatile as we go deeper and deeper into bear markets. As uncertainty, illiquidity and impatience increase, more and more market participants begin to hope for market extremes: either that the market has bottomed out and a new bull cycle is one Fed reversal away, or that the limit is pointing downward, escrow liquidation day will soon occur because of the collapse of Credit Suisse. Everyone hangs on the edge of every major market move to give them some sort of signal. Price bands begin to widen and some (preferably) weekly or monthly moves are condensed into a single action day.
Even arguably one of the best investors of all time, Stanley Druckenmiller, finds today to be one of the hardest environments to figure out:
“I’ve been doing this for 45 years, and between the pandemic, the war and the crazy political responses in the US and around the world, it’s the hardest environment I’ve ever come across to try to trust a six-to-twelve-month forecast. .”
For most, it’s best to sit out the action and have a large risk-free position ready to deploy once the markets have stabilized or calmed down.
We remain of the opinion that new lows are likely to be made and have not reached a final conclusion on the cycle for stocks, ventures and bitcoin.
We remind our readers of the bear market rallies experienced so far, as well as the scale of the 2000 and 2008 analogs. There are other cycles that can be studied and compared, but these are just a few recent examples.
We have already seen a significant 17.41% rally from the low on the SPX when bitcoin ran to $25,000. However, this did not change the next pullback lower, and we believe that the medium-term downward trajectory remains. Even in the late stages of the 2002 and 2009 crashes, the S&P 500 rallied more than 20% before going lower. As the market gears up for bloody conditions and doomsday news of higher leverage, remember that there is no such thing as a free lunch.
Another interesting fact is that bear markets are typically short, lasting an average of 10 months. This 10-month benchmark takes us roughly where we are now. Yet there is a useful idea and thesis that the current destruction we have seen so far has been about adjusting to a unique and historical period of interest rates, bonds and credit. We have barely arrived at what it is classic and cyclical earnings bear market.
As bonds, currencies, and global stocks have traded at ever-increasing levels of volatility, bitcoin’s recent historical and implied volatility has been eerily subdued by historical standards.
While the recent lack of volatility in bitcoin may be a sign that much of the leverage and speculative mania of the bull market has all but washed away, our eyes remain on the outsized legacy markets for signs of fragility and volatility. short/medium term headwind.
While the world around the bitcoin exchange rate becomes increasingly uncertain, the Bitcoin network remains completely intact at the protocol level and continues to do its job as a neutral monetary instrument/settlement layer, despite the exchange rate fluctuations.
Tick tock, next block.
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