GM everyone.

Yesterday, Bitcoin fell to $53,000; ETH below $3,000. The majority of altcoins are now in the negative, year-to-date.

On-screen, it looks like everything is cratering. Today, crypto experienced:

  • the biggest liquidation cascade since the collapse of FTX

  • the largest correction since the beginning of the bull market 18 months ago

Bitcoin’s longest-winning streak - 427 days without a -25% drawdown - just ended.

So what's going on?

Behind the scenes:

  • The German government is selling $3 Billion of bitcoin

  • Mt. Gox— a defunct crypto exchange repaying its creditors $9 Billion BTC 10 years after its collapse— has started distributions. A few hours ago, they moved $2.7 billion and are expected to move more.

i.e., the market is facing selling pressure and is expecting more.

So what can we do? 💡

A couple of things…

1/ Remember that corrections like these - as scary as they may be - are perfectly normal.

Crypto bottomed in November 2022. Since then, it’s had multiple of these 20-25% corrections:

  • -23% in February 2023

  • -21% in April/May 2023

  • -22% in July/September 2023

  • -21% in January 2024

  • -23.6% in April/May 2024

  • -27% thus far in July 2024

… you get the point. 

These corrections are expected. We’ve been lucky so far, too.

Although the current correction is the steepest in this bull market, we’ve historically had at least five -40% corrections on our way to new all-time highs.

2/ Next, we re-assess where we are in the cycle 🤔

I’ve said this before— we’re no longer early in the cycle. But we’re not late, either.

In the bigger scheme of the cycle, the current dip probably puts us somewhere here:

Source: TechDev

After some of the easy gains, but before the real craze begins.

In the next few months, we’ll get:

  • An ETH ETF

  • A US presidential election (with a pro-crypto Trump likely to win)

  • Quantitative easing and rate cuts coming

… all of which could fuel the next leg up in the rally.

So all that’s left to do is…

3/ Assess any next steps 🔮

Here they are:

a) If you have a long-term horizon — do nothing.

Steve Ballmer’s net worth ($157.2B) just passed Bill Gates ($156.7B) for the first time ever.

He did this not by trying to time every rise and fall in Microsoft’s stock - or diversifying, like Bill Gates - but by holding on for dear life through the ups and downs.

That same opportunity exists in crypto.

If you’re holding for the long term, ignore short-term price movements. They’re inconsequential.

However, if you:

  • have taken more risks than you’re comfortable with

  • lack conviction

  • hold too many shitty coins

… then you’ll feel the sting today 🩸

But here’s the good news: the market is disclosing the next winners. These currently show relative strength, i.e., they fall less than the rest and recover fast.

Solana is already back in the green today. Many memes, like Popcat, are also up.

This is a priceless signal. Use it wisely to get rid of your losers and re-allocate into winners.

b) if you have a short-term horizon or are day-trading on leverage — you can either:

  • sell everything and hope to time the bottom or

  • hold through the drawdown we’ve already incurred if you haven’t sold yet.

This is extremely hard to do well, and it’s why most people don't make any money in crypto and why I don’t recommend trading short-term in general.

c) If you don’t own enough crypto yet, now is a great time to add more.

All the market’s favorite assets are on sale.

The best time to buy is when there is blood on the streets, even if it's your own.

This is hard.

Remember, from an evolutionary perspective, we needed emotions long before we needed logic. And we are hard-wired to be emotional creatures.

Emotional management is the single most misunderstood and under-applied skill in investing. Yet it’s how we battle our biggest investment enemies: fear and greed.

This is difficult because our ‘cave brain’ places a huge premium on social cohesion. When others panic or get euphoric, we’re wired to feel the same.

The best thing you can do today, however, is to remain calm and clear-headed.

In the long run, volatility is the price you pay for great returns.

 

1/ Mt. Gox begins repayments in BTC and Bitcoin Cash

2/ The German government is selling, too

3/ Leverage is being completely wiped out

 

 

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.