There are a number of companies that seem to be falling dominos after the FTX debacle that, like … [+]
That part in the cartoon when Wile E Coyote runs off a cliff and air cycles for a moment suspended, is where crypto sits today.
There are a number of companies that seem to be falling dominos after the FTX debacle that, like Wile E Coyote at the bottom of the canyon, have yet to hit the ground.
Because of FTX, 3AC before it, Celsius
CEL
It is the power of blockchain plus encryption that unlocks this potential because combining these technologies enables decentralization, a giant lever of human activity only recently muted by modern centralizing forces.
Centralization has its positives and negatives and decentralization likewise, but decentralization has been cornered by the overwhelming centralization of economics so that its benefits have been drowned.
Blockchain/crypto re-enables decentralization and unlocks its benefits.
You might wonder what the benefits of decentralization are and one of them is clear: it levels the gatekeepers of commerce and economics that have always unfairly fueled elites and oligarchs. We do not need to get polemic about that situation, it just boils down to the fact that gatekeepers equate to inefficiencies. If you can disintermediate a process the costs and price goes down. If gatekeepers holding centralized power need to be paid, systems run slower and at greater cost.
At one level bitcoin, for example, does away with the need for banks as a method of depositing money and even while people moan about the energy usage of blockchain, the 250,000 bank branches in the world carry a huge cost even before you imagine the CO2 of all the other overheads that go into a bank. The ramifications of letting crypto flatten banking like Google
GOOG
However, you cannot put the technology genii and the blockchain revolution back in the bottle. So the question is only how does the technology unfold.
Bitcoin
BTC
Here is the chart and the important thing is, the noise is gone:
The bitcoin chart: The noise has gone as volatility calms down
Bitcoin is now trading like a proper asset. Since 2021 up to the point of the recent drop the volatility has indicated that the real price of bitcoin was less than certain to the market. This is not a long term bullish state because if an asset is to sustain a value the participants as a whole need to be on the same page and comfortable with that price, not driven by fear and greed to swing the price around.
While I do not think we are at the bottom, yet it does show that crypto is getting closer to equilibrium.
If there is not another FTX-sized default–and that is a 50/50–it looks like my long term $13,000 is still a good level to consider as the bottom. A major bust in the near term could see the price hit extreme lows for short periods but establish equilibrium around $10,000.
The thing to realize is that bitcoin is gone when it comes to any future busts. If they go bust it will because they sold their bitcoin for more ‘exciting’ opportunities, so the chance there will be big dumps of bitcoin are not inevitable. Likewise liquidations will lock up tokens as the slowly grinding mill of law and lawyers lock up assets for months, even years.
What to do today?
If you are looking for the low then the tactic is to wait for the next shoe to drop from the FTX debacle. This will at least involve Genesis, DCG and Greyscale. There might be other disruptions but these named situations are the issues that needs closure. Until then crypto is a UXB and until its defused there is plenty of downside.
Best have a peaceful and merry Christmas and happy new year, before setting off to pick the bottom of crypto because even if nothing happens by the end of January of 2023, the question will remain, “what went right?”
