The panic in the market is far beyond my imagination. In the past few days, anyone holding long positions, regardless of leverage, is probably feeling quite uncomfortable. Here, I'll do a little statistics to see everyone's confidence in the market, and then I'll analyze the macro environment as usual.
I won’t elaborate on the various political and military events that have caused a stir internationally. To summarize, geopolitical risks still exist and are trending towards further deepening, which is not very friendly to risk assets like cryptocurrencies.
In terms of market supply and demand, since the cryptocurrency market has always been closely related to the US stock market, let’s start with the US stock market. Currently, what stands out is the significant drop in software stocks triggered by the narrative impact of AI on software.
Due to the emergence of various tools in the AI field that can effectively solve human work and study problems, many investors believe that the role of software applications can now be replaced by AI. The future profit prospects look quite bleak, and valuations have subsequently dropped, putting pressure on the stock prices of well-known software companies like Micron, Broadcom, and SanDisk.
Ironically, logically, AI stocks should relatively rise, but the reality is that the current market presents a scene of indiscriminate selling, so it’s quite challenging to explain this wave of decline with narratives.
So if I really have to explain this round of decline, the only things I can think of are profit liquidation and hedging.
The risk-averse sentiment triggered by geopolitical risks has further intensified with the significant declines across various markets. Gold, originally considered a safe-haven asset, is facing a correction after reaching historical highs, and precious metals like silver, copper, and platinum, after experiencing a short squeeze, have also dropped significantly in the past few days, which has affected everyone’s confidence in the short-term price trend of gold.
So what else is worth buying? The US dollar. The movement of the US dollar index in the past few days is quite different, while cryptocurrencies priced in US dollar stablecoins are facing multiple bearish factors such as a strong US dollar, deepening risk-averse sentiment, profit-taking, and predictions of a bear market cycle, making it very difficult to say where the bottom is.
If several institutions with large positions face liquidation and investor confidence in MicroStrategy further declines, it is very likely to recreate the black swan event of 10.11. Strategies for response will be written in the next part.
