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Is this "The Big One"?

The markets were smoldering all weekend before finally erupting on fire this morning in a wave of liquidations. All eyes on whether this gets contained or second wave turns this into a full blown crisis.
Is this "The Big One"?

News and Bitcoin price action over the weekend suggested today would be a wild day for US markets —and the opening did not disappoint

Multiple brokerages went down at the market open (you can't sell if you can't log in amirite?)

And Biden's senior economic advisor called it quits, filling the markets with confidence. Impeccable timing, expected no less.

Rewind

Let's go back a few days before we go deeper into today. Friday had already been a "pretty bad" day, ushering in a ton of speculation and foreshadowing over the weekend.

Friday had also seen the Japanese stock market crash hard

News broke that Warren Buffet's Berkshire Hathaway had sold nearly half of their massive APPLE position, bringing their already huge cash pile to a staggering $277 Billion

BTC (and crypto broadly) took a sharp dive, initially there were rumors of the US government selling, then later it was a big trading firm exiting their crypto operations (one can rarely tell what the truth of the matter is with these things)

Tensions over Iran's threats to retaliate on Israel added to the uncertainty.

Volatility —which was already rising on Friday— finally blew up this morning.

How it started:

How it's going:

So what's behind this Godzilla-caliber spike?

The consensus seems to be, the Bank of Japan raising rates by 0.25% Seems a little out of proportion, yes?

We need to look at the Japan Carry Trade:

The Carry Trade

Below is a good description of the carry trade —essentially traders had been borrowing "free money" (Yen at 0% interest) and earning interest on it in other currencies. The recent rate hike by BOJ made the value of the Yen spike and brought the "free money" era to an explosive end as traders suddenly faced large bills they needed to cover, in a huge liquidity event.

One of the characteristics of liquidity events is people have to sell what they can, not what they want, triggering sell-offs across all asset classes.

Below, another good, more verbose description of the carry trade.

The real question is whether this will be a temporary liquidity shock that can be contained or the pin that pricks the "everything bubble" and causes a serious long-term crash.

There is consensus that the Fed will be forced to start cutting rates soon, and may need to add liquidity (money printer go brrr…). This has been long anticipated, but like an impending avalanche, it's impossible to know which snowflake will trigger it.

It's worth mentioning that despite the sharp drawdown, the markets are still up for the year and BTC is still outperforming even the "Magnificent 7".

We will have to keep an eye on the Fed's reaction and not get distracted by the underlying landscape, namely the US National Debt crossing $35 Trillion

Which is not just an obscene number in its own right, it also represents an untenable burden as illustrated by the amount interests represent of US GDP

I wonder if this will put to rest the gaslighting around the fabled "soft landing"

Bitcoin

Despite still being up over 27% this year, this post-halving cycle has been the toughest one for BTC

And let's not even get started on miners, who were being pummeled even before this crash.

BTC ETFs seeing some serious volume today (over $2.33B in 1st hour)

And not all of it was selling, it will be interesting to see who else has been loading up their bags.

These type of liquidity events are a great reminder of why you don't get into debt to buy Bitcoin

Unless you're a trained professional. Yes, these numbers are from before this latest "crash" but you can bet they're still outperforming.

Buried among the noise, last week Morgan Stanley has opened the gates for their customers to buy BTC ETFs

The reality of BTC will take time to be absorbed by the markets, but it is happening.

CryptoPolitics

Remember Trump? news cycles really move fast these days, huh? Well, The Donald wasted no time releasing "crypto-merch" showing he's far from a Bitcoin convert.

And while he may be making cringe-inducing statements like the one below, the undeniable fact is the political discourse around Bitcoin is slowly shifting, however haltingly.

And for all that he doesn't understand about BTC, he seems to have important things anchored in

Beyond Trump, there are now more aggressive proposals and broader discussion about the potential benefits of BTC adoption at the nation-state level.

Progress is also happening outside the USA

One of my favorite descriptions of Bitcoin is "money for enemies", if you don't get that one yet you should really take some time to understand it, it could be one of the strong drivers this cycle.

Just like the economic reality of BTC will take time to be absorbed, so will its beneficial externalities, but they are real and not going away.

Price News

Bitcoin Surfing

Bitcoin dove into the Water ($62.3k) with gusto today. The Board ($61.5k) is close to the surface, we'll see how soon price can come up to reach it, we may have to hold our breaths for a bit.

Dip Fishing

Last week I said "I see $56k as a hard floor" lolz. BTC comes at you fast. The floor turned out to be less hard than I thought, we'll see if it holds up as a support or flips into a resistance. BTC wicked down all the way to $50k and is currently trying to regain $55k. All bets are off when Godzilla shows up.

Calm Chart

August opened with a bigly red candle, I expect the next few months are going to be wild but my long-term conviction is stronger than ever.

Published by:

₿ Coach

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