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Looking Back to Look Forward: The State of Cryptocurrency and Its Future

By Marco Wutzer June 22, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

 

We are in an early phase of cryptocurrency investing, where the most important thing to keep in mind is: the longevity of an asset.

I won’t harp too much on market movements, because I want to foster the mindset that the cryptos worth buying into are those that represent a long term investment in technology. 

However, I’m aware I have a lot of new subscribers who are also new to crypto, and are probably wondering why this current volatility has struck the crypto market so hard. 

With that in mind, I thought it important to update you on where we are in the market cycle based on where crypto has been, and where I see it heading in the next several months. 

If you’re new to crypto, and maybe conflicted about your future with crypto investments, have no fear. There is light on the horizon. 

If this is the first major bottom cycle you’ve experienced with your crypto, welcome to the blockchain ecosystem. You have been initiated. 

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I’ll admit, in my 12+ years trading cryptocurrency, this market cycle has been the most difficult to manage. I’ve been through five major market cycles, but this one is different from every one that came before.

For the first time, there were indications I hadn’t seen before in crypto. For example, we’ve never had an all time high that was 3x above the previous all time high. 

And we’ve never experienced a double top without any semblance of a “mania phase.”

These are unchartered waters, and they’re difficult to navigate. But I’m here to be your compass. 

Let’s see what we can determine from the current crypto market as compared to the past. And let’s look at some indicators that support where the market is and where it’s going. 

Built to Handle this Bear Market

The cryptocurrency ecosystem has evolved and grown dramatically since the last crypto bear market. 

In 2017, there were teams raising hundreds of millions of dollars toward projects in Initial Coin Offerings (ICO). People dumped millions into projects that were little more than brainstorms concocted by teams who had no incentive to deliver once money was raised. 

This created the 2018 ICO bubble that caused the entire crypto space to crumble for a few years. 

The 2022 crypto ecosystem marks a vastly different world from what we had in 2018. 

Now there are real, developing projects, and an entire decentralized finance (DeFi) space. There’s a massive gaming sector, and unlimited potential for growth in existing and new spaces. 

So the main driver of this bear market is not an unstable foundation. In fact, the reason is so obvious most media outlets can’t see it.

It’s mostly affected by macro-factors.

The stock market is down, inflation keeps rising, the war between Russia and Ukraine has disrupted major global supply chains… 

And all of this is affecting the crypto market. 

If we keep a level head and pay attention to what is happening in the world, we can determine affecting the crypto market. It’s the same factors causing the current bearish mindset. 

But understanding all that (while gratifying) won’t save our portfolios or help them grow. Knowledge is only as valuable as the actions you take based upon it. And you can only act on what you can control. 

One thing you can always control is how you manage risk. 

Importance of Risk Management 

This is very much an “easier said than done” strategy, but in times like this it’s extremely important. 

If I could have done anything differently prior to this bear market, I would have started by taking 10% to 20% off the top whenever crypto was at a high. 

Again, I understand this is way easier said than done. It’s always difficult to pull anything out of an asset when you think it’s going higher. But when an asset hits a peak, we need to think with our heads, not our hearts or our salivary glands. 

It’s the smartest way to cover yourself. If you pull out enough to cover your initial outlay, then you’re playing with ‘house money.’  

Remember, that amount you see in your crypto wallet isn’t yours until it’s in your bank account. The gains are real, the potential is real, but as long as it’s sitting in your account or digital wallet, it’s exposed to market risk. 

Lock in partial gains and cover yourself. 

Another important risk management strategy might be the opposite of what your gut is telling you. 

We’re down further than anyone expected, that much is true. But the worst thing you can do is completely abandon your positions. 

The current state of crypto only applies to the period until the next mania phase takes shape. When there is no mania phase with its associated parabolic gains, there is no steep sell off and no long correction. 

We’re in a bear market. And as I predicted in May, the market is retesting the low, even challenging it in this waterfall event.

However, there are a few indicators that can give us insight into where we’re going. 

The 200 Day Moving Average & Major Bankruptcies 

Even if we’ve managed our portfolios and covered our losses, it’s still important to have some idea of where the market is going. In order to do that, we need to understand where the market is right now, and what that tells us. 

As you can see in the chart below, Bitcoin (BTC) is just now kissing its 200 day moving average, which has always been a reliable indication of longer term support.

As we reach this point, amateur investors aren’t alone in their losses. 

Giant, well regarded and well funded ventures like Three Arrows Capital and Celsius Network are in the midst of a liquidity crisis. 

Terra (LUNA), the ‘algorithmic’ stablecoin dropped 97% in 24 hours, resulting in a $40 billion bankruptcy. 

Major bankruptcies like these are typical at market bottoms, and they are a good indication that we’ve bottomed out, or have almost bottomed out. 

I expect that we will see a bounce for maybe one or two months, max. But this bear market still has a few months to run before we reach the ‘risk-on’ mindset.

Here’s another indicator worth paying attention to.  

The Nancy Pelosi “Risk-On” Indicator

By the end of the year, I anticipate the market’s sentiment to be more hopeful. I expect we will see investors having a risk-on mindset. 

Although crypto is considered a risk asset, it’s important to understand why it’s actually the opposite. In fact, it’s the only “sovereign” asset there is, but that’s not how it’s treated by the market right now. 

This brings me to my favorite indicator I rely on in terms of what the Fed is going to do and where we’re heading in the future. 

As speaker of the House, Nancy Pelosi receives an annual salary of $223,500. However, she has accumulated a net worth that exceeds $135 million. 

You may be asking how that is possible. 

Pelosi is one of the most successful investors in the world, but not because of her market prowess. As a member of congress, it is legal to participate in insider trading. The only caveat is that she must disclose her investments. 

According to her Periodic Transaction report from the first week of June, she disclosed $1.5 million in call options in Apple and Microsoft that expire in June and March of next year. 

These are two risk-on, tech stocks. 

In order for Pelosi to make any gains on this investment, there needs to be a significant move in risk-on assets by March of next year. 

Buying call options can be risky because you’re betting on the direction AND timing of a stock’s gains. In order for this to be a bulletproof, strategic play, you need information. 

I’m willing to bet Nancy Pelosi knows the Fed is likely planning to stop raising rates. It could even reverse course and resume quantitative easing (QE) again. 

We can speculate on exactly what the Fed will do. But most importantly, this tells us that sometime in the second half of this year, the Fed will change course, and the current bearish sentiment could flip. 

Most Importantly: Think Long Term

Analyzing the information at our disposal, the indicators, what we can learn from the past, what is happening in the world; there is one fundamental strategy you must constantly deploy when investing in crypto: Longevity. 

By longevity, I mean investing in assets with real utility, because those will be the assets that stand the test of time. 

With the stock market down across the board and crypto down to historic lows, it’s important to take a step back and look at the bigger picture. 

When you and everyone else is losing money, the market becomes intimidating. But when you see it from a wider perspective, there is an undeniable truth that provides a silver lining: Cryptocurrency has been the best-performing asset class over the last decade. 

I believe that trend will continue over the next decade. 

Even through the five cycles the crypto market has gone through, and even in the face of the incredible growth it’s experienced over the last ten years, the worldwide adoption of crypto by individuals is still just 3.6%. 

In terms of widespread adoption and utility, I see a 96% upside and an incredible opportunity for profit. 

Don’t let the media get into your head. If it does, remind yourself that this is still a young tech with boundless potential, and we are the trailblazers. 

To sovereignty and serenity,

Marco Wutzer

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