I’m breaking my brain trying to anticipate what’s coming based on the Fed announcement: the Middle East war that threatens to turn into a regional conflict, sending the price of oil to $200, and the tech-company crisis that is already unstoppable. I’ve called it “THE CRISIS OF .COM 2.0” or the “KIMI effect,” which prevents me from seeing a drop in Intel’s stock price to $50 instead of $90 as the “bargain” price. It’s important not to let my fears get the best of me. After all, I’m only a human being, and fears overwhelm me and manipulate my biases. Even so, I’ve wanted to share with you my many fears grounded in the recent market history. History can avoid tripping over the same stone twice, although humans are experts at always making the same mistakes. On the other hand, this article is the product of a biological brain and not an AI that uses an algorithmic principle to churn out human rehashes—as a way to avoid feeling guilty if the worst happens: if markets crash and then I tell myself that I knew I could help them not lose money and that I didn’t warn them. I could be wrong, though. Maybe tomorrow Trump signs peace with the Iranians and the Houthis, the Fed cuts interest rates by 25%, and Bitcoin goes to $100,000—and all markets paint themselves green with hope. If I had certainty that this is what will happen, I’d be a millionaire in August and buy a property in Greece. So I can’t anticipate a bullish scenario amid so much turbulence, but I can—based on recent history—paint the worst scenario in blood red, avoiding irreparable losses for small investors. In the end, each person decides what they will do with their money. Never blame me for your actions or inactions—use emotional intelligence and remember that passions are for the bed.

Picking up what brought me here, something tells me that markets haven’t hit bottom yet and that everything we’re seeing is only a silent and lethal trap built in the Wall Street laboratories. I’d call it a mirage that, in the recent past, has destroyed more investment portfolios than the economic crises themselves. I assume many of you are familiar with the so-called bull trap—called that in English—or the cruel so-called rebound of the dead cat. Since we decided to use recent history to know, or at least get an idea of where markets will go in August, it’s worth taking a look at the usual script, which is exactly what we’re seeing. The market suffers a harsh setback, prices fall, and then they seem to stabilize for a few days, leaving assets—whether cryptocurrencies or tokenized stocks—at seemingly irresistible prices. We, retail investors, compulsive buyers tempted by the idea of buying at a discount, throw ourselves into the water even though the current hasn’t changed direction and is still heading toward an exceptionally high drop—so high it’s like Angel Falls or Niagara Falls. So, once we’re in the water, and after a few sessions, the stock market, cryptocurrencies, and all markets plunge with double the violence with which they were already doing it, wiping out accounts and money completely, or draining liquidity—literally speaking.

And that’s how we go from a healthy correction to a structural capitulation. History has taught us that the real price floor isn’t measured in days, but in weeks—and in painful percentages of drops and losses.

If we look far back and see the phenomenon of financial markets facing inflation, wars, debt, and unemployment, we’ll see data showing that all of this is the ideal breeding ground for panic to take control. How will we know panic has taken control? When a price pullback breaks the twenty percent barrier, we can say panic has taken control. Many will say the market is already bearish, but that doesn’t mean it can’t fall much more—especially in technology companies, which will find it extremely difficult to justify the enormous cost of their artificial intelligence against the practically free Chinese AIs. So don’t fall into the trap that cryptocurrencies have an unbreakable floor. Look at Tezos, which held 24 cents of a dollar as a “titanium” floor that seemed impenetrable, and then the 58,000 dollars of Bitcoin took it to 20 cents. So you must learn that the historical floor doesn’t stop when panic and capitulation take control. No matter how stable it seems, or how many months have passed, you’ll see perpendicular drops in assets that today look very solid. Imagine Avalanche falling to $3.5. In scenarios like the 2000 or 2008 crises, the bottom for most assets was found after losing 50 percent of their value for stocks and their price for cryptocurrencies.

Sometimes, except for rare anomalies, the wearing-down process lasts for months. We’re already seeing it with Bitcoin, which has been plunging since $120,000, and even though it might seem like it found its ultimate floor, if the storm starts in August, we could see a drop to $52,000. Some even see it at $45,000. That’s a capitulation scenario that I doubt we’ll see, because Bitcoin has many holders/believers. If it fell into the $50,000 zone, where there’s a lot of liquidity, it would recover to $60,000, where it would likely move sideways for a long time. Everything will depend on how willing those who hold many Bitcoins are to defend that price—or if, in a systemic crisis, the dollar becomes a safe haven and the ETFs fly off in a scramble from Bitcoin. Everything depends on the events unfolding right now. The real recovery that we all crave today—if a brutal drop materializes—we would hardly see it in the first year after the drop. History has taught us that it rarely comes before 12 months.

My current uncertainty isn’t new. I write about this without losing optimism because that’s who I am—an optimist by conviction. But I’m not anchored to magical realism, because my analysis is based on the economic sciences, on geopolitics, and on history. So that all these words have some value for you, the people who read me, I will fulfill the objective: to make a grim forecast based on history. To do that, I will cite three key moments in history when the market, as it does today, promised offers before carrying out the massacre. The oldest will clearly remember the Dot-Com bubble of the year 2000. It was the lesson of capital with no return. All those millions upon millions of dollars invested today to sustain artificial intelligence were invested in that unforgettable year 2000. After dropping 15%, the big tech companies seemed like a bargain. Investors, as they do today, bought massively giants like Cisco and Intel. It made sense to invest: they were spending rivers of money on infrastructure with no clear returns in the short term—an image in the mirror that scares us today when we see the enormous current spending on artificial intelligence. The Nasdaq, in a punishing decline, hit bottom after losing 78 percent of its value. Many cried and even jumped from the top of a skyscraper. For older people—our grandparents—the 1974 oil crisis and stagflation crisis left us a painful lesson that seems to be repeating itself now. After many bounces in prices, investors from that era assumed the recession had been absorbed, but reality quickly caught up with them, and after the conflict in the Middle East and an inflation shock like the one we see today, high inflation forced the Federal Reserve to tighten the monetary screws.

The S&P 500 dripped its way into a total loss of 48%. Finally, how can we forget the COVID-19 Crash of March 2020. It’s still fresh in our memory, like an oil painting just completed. In March 2020, the market fell twelve percent and then rebounded timidly the following week, creating the false sense that the worst was over, but the lack of liquidity quickly turned the drop into a tower. It was a brief crisis, like the one I anticipate, but devastating. It hit bottom in only 3 weeks. The markets collapsed after a first drop of 34%. [1]

But how will we know we’ve hit bottom amid drip-feed declines and relief rebounds? We—who are the coffee grounds left in the cup—must look and keep an eye on every move by the big institutions. The rich, the millionaires, never try to guess the lowest prices. They wait for capitulation from the outside. A definitive floor isn’t guessed; it’s confirmed by three mechanical, indispensable signals. They sound complicated, but if they came here not to lose money, grab the books and study. The first signal is a VIX above 45–50 points. This is the metric of irrational panic. The floor doesn’t appear when there’s cautious optimism; it appears when the retail investor—us—throws in the towel and sells at a loss purely out of psychological exhaustion, driven by fear and a loss of purpose. So the rich—Donald McPato—study what in market economics is called capitulation volume. The day the asset—whether a cryptocurrency or a stock—touches bottom, that day records the highest sell volume of the entire cycle, leaving a clear candle of a massive rebound called a hammer that the rich expect their advisors to confirm: “Don Mario, the candle we were waiting for is on the screen,” to which Don Mario replies: “Don Mario—hurry up and buy everything you can.” It’s at that exact moment when Don Mario places the buy order as the rich and powerful sweep in, clearing the rubble—the trash nobody else wants. Lastly, the signal from the Federal Reserve, which is historically the biggest indicator. They call it the big pivot. Until this point, we won’t see the definitive floor because capitulation needs the FED’s blessing, and the final drop doesn’t solidify until the exact day when the FED capitulates—announcing aggressive rate cuts or emergency liquidity injections to save the system, which, as you can see, is already agonizing.

So I write this not to alarm anyone. Don’t say afterward that Giorgio is the prophet of disaster. Nobody besides me hopes the economy recovers and that markets soar. How I wish what I have in Bitcoin would multiply with a Bitcoin at $140,000—and at some point, it will. But right now, I’ve taken the time to warn you about the greatest danger for us, small investors: when the volatility we’re witnessing pushes us into compulsively buying an asset we thought had already hit bottom, and because of impatience and FOMO, we get trapped. In moments like this, the temptation to grab the falling knife usually proves fatal for our capital—for our money. So personally, everyone has their own strategy. I won’t enter until capitulation is evident and macroeconomic indicators confirm a change in direction. Remember: in Wall Street, today’s discounted prices often turn into tomorrow’s irreparable losses.

A big hug from afar,

Giorgio Sferraza

Bachelor’s degree in Business Administration