Finally got in front of a Bloomberg at my Mum's house in Spain. Quick crypto update and a macro one to follow... 1/
Leverage is your enemy in a volatile asset. I never use leverage in crypto. Waves of margin calls are hitting those silly enough to use it and that is forcing the markets lower and causing more margin calls...
This is not just a crypto thing. All collateral is being liquidated.
This is not just a crypto thing. All collateral is being liquidated.
But as I have always pointed out my framework is to expect 60%+ drawdowns relatively frequently over my 5- to 10-year time horizon. The key thing to note is that in a secular long-term exponential trend, each of these troughs is much higher than the last...
Not only does that framework therefore prohibit the use of leverage but also means that any money I have invested stays in the market. I do NOT trade around it as I have found it suboptimal over the years (see my recent LinkedIn post on this)
linkedin.com
linkedin.com
In fact, the best way to optimize returns is to add significantly when the market tests the key trend. I use the 5-year Exponential Moving Average for this. It hasn't spent longer than a month or so below it ever...
That doesn't mean it can't but as Stan Druckenmiller says, the job of a macro investor is to predict conditions 18 months into the future. In 18 months I think inflation and recession will be in the rear view mirror...
Sure, commodity prices could stay elevated but the rate of change will be lower. The rate of change of yields has been the largest in history. In 18 months that will not be the case either. It is not the level of rates or level of commodities that matter.
Thus in 18 months, the conditions will be more favorable and macro assets tend to discount 12 to 18 months out.
But can things get worse? Absolutely. But for my investment framework, we are in the buy zone...right near the 2 standard deviation log regression channel.
But can things get worse? Absolutely. But for my investment framework, we are in the buy zone...right near the 2 standard deviation log regression channel.
With the weekly RSI at 31 and the lowest ever at 28, that too suggests the low is within striking distance. Don't ever expect to nail the low however...
DeMark weekly charts suggest low is next week or in next 5 weeks.
DeMark weekly charts suggest low is next week or in next 5 weeks.
Can all of these fail? Sure. Can crypto trade sideways for a year or two? Sure, but we are in the probability game, not the certainty game. I am comfortable with the odds and it plays exactly into my framework, just as it did in March 2020.
I am getting ready to add to my crypto positions significantly. Probably starting next week and into July.
I'll leave you with this from my LinkedIn article (which first appeared in GMI and RV Pro).
Buy when there is blood in the streets...
Buy when there is blood in the streets...
Good luck out there. Its rough.
Having worn an 82% drawdown in 2014 and then 10x upside after, I know how it feels only too well.
But it should feel like opportunity if you have a long time horizon, don't need the capital and can stomach larger losses without flinching (much).
Having worn an 82% drawdown in 2014 and then 10x upside after, I know how it feels only too well.
But it should feel like opportunity if you have a long time horizon, don't need the capital and can stomach larger losses without flinching (much).
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