FTX insolvent – what next for crypto?

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I published an analysis outlining three weeks ago that I was afraid Bitcoin A drop of $15,000 was bad news.

And hell, did we get that event.

Now I didn’t predict it at all. My piece made no reference to anything to do with FTX. Not only that, I’ve waxed lyrically about Bankman-Fried’s skills in the past. I misread his character in a big way, and I was terribly wrong.

FTX’s Solvency Test published On Monday morning, I still believed FTX bankruptcy was highly unlikely.

I have also been repeating the same old adage many times: playing with bitcoin in the short term is like spinning the roulette wheel.

But as we hung around $20,000, and with ominous variables such as the energy crisis, high inflation, a bad geopolitical climate and political turmoil in the US, UK and many countries across Europe, the risk of a winter sinking was high.

And then an external variable – FTX imploding. And in the words of the wonderful Black Eyed Peas, “it’s going down now and not a while later”.

Is it time to buy the dip?

I don’t like this question for two reasons.

The first is, being a random guy on the internet, how do I know? As I said a few sentences ago, short-term betting on bitcoin is like spinning the roulette wheel. My opinion is whether I imagine red or black, it will be as valid as I think about bitcoin’s short-term action.

The second reason is that this question is almost a muscle-memory response to a drop in crypto prices. Born of culture in space, I guess. At the heart of this are people who point to past cycles and refer to how bitcoin has always returned. But they don’t understand anything.

Bitcoin was launched in January 2009 in one of the longest and most explosive bull runs in history. As of this year, that is no longer the case. Free money is locked in – then the Federal Reserve raised interest rates at historically fast rates, at levels of inflation not seen since the ’70s.

This is the first time that bitcoin has experienced a broad-economy bear market. And for this reason, all bets are off. And now it is trading at a lower level than it was five years ago in December 2017.

        
    

There’s nothing like laughing at buying dips and going to the bank. A look at the chart above will reveal how much this year has fallen. This thing is difficult. Trading is tough. Crypto is a volatile game. For every screenshot of 100X profit you see on Twitter, there are 100 more people who have lost it all.

Don’t lose sight of the broader economy

FTX imploding is wild. And this is incredibly bearish for the crypto economy at large. Some of this transition is expected, as we don’t yet know who came into contact with who – but FTX, as such a big player in the industry, will certainly drag some bodies down with it.

But don’t take your eyes off the big trend. Crypto is following the stock market. Blue chip assets like bitcoin and ethereum are dog’s tail, with the dog being the stock market. And that stock market is going back and forth on inflation readings and the Federal Reserve’s outlook for interest rates.

I wrote last month how this correlation The level between stocks and bitcoin is as high as it has ever been. This clearly picked up in April 2022, right around the time we transitioned to this high-interest rate environment.

In the short term, this FTX episode needs to play out. A wave of contagion will run, news will break, surprises will emerge. And then after that, it’s back to looking at the stock market. In case it wasn’t already clear – the crypto markets are ruthless. Don’t forget it and stay safe.

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