The Second and Final Crypto Crash by Ann
Compiled by: jk, Odaily Planet Daily
Bear markets usually involve a massive price drop, with values remaining at the bottom for years before they end. The last time we saw this happen (in 2018), and then there was the black swan event of 2020, the macro market crash caused by the coronavirus. In November 2022, when FTX had problems and Bitcoin hit $16,000, we experienced a 50% price drop similar to the one in 2018. We are about to face a second similar crash.
2018 = 2022，2020 = ?
There are unsettling similarities between the 2018 and 2022 market crashes, which were triggered more by the crypto industry itself than by macroeconomic reasons. This was a distinctly crypto event that was not caused by a market-wide collapse. Yes, the crash was preceded by a Fed rate hike, but the final blow was delivered by our own Sam Bankman himself.
The crashes in 2018 and 2019 were the first “bumps” after all-time highs, the first lows.
The bull run from 2012 to 2019 collapsed. In the fourth quarter of 2022, FTX collapsed.
After both crashes, there was a rebound that made people mistakenly think that "the market is back", but in fact, there is usually some kind of retest process before the bear market is truly over.
In the last bear market, this “retest” was the COVID-19-induced market crash. I believe we are heading into something similar now, awaiting the 2020 equivalent event.
For the second crash, I noticed some characteristics:
Before the crash, there was a rebound and a “it’s back” sentiment. Not only were prices rising, but developments like institutional adoption (like the Blackstone Bitcoin ETF) were also in this mood. The seeds of the next bull run have already begun to be planted. It was the “DeFi Summer” of 2019-2020. And now, anything resembling DeFi Summer is “Infra Summer”. I believe restaking will play a huge role in this. More importantly, unlike the first crash, the second crash was affected by large macro events that were completely out of the control of the crypto industry. The US stock market rally will stop
On that last point, the beginnings of those macro influences are already here. The Nasdaq has shown its fragility over the past year, recently posting its worst performance since February. Curiously, cryptocurrencies have not followed the rally, perhaps suggesting that traders are more skeptical of Nasdaq’s “dead cat bounce.”
It’s like the digital asset doesn’t believe in this rally. It’s conceivable that if the Nasdaq drops, then the already skeptical cryptocurrency prices won’t react well either.
Recessions often occur when interest rates are cut
Moreover, higher interest rates should have an effect. In the past, recessions did not occur when the Fed raised rates, but when they started to cut them.
As you can see in the chart below, the grey overlay marks recessions, and you can see that they always occur during periods of rate cuts. This was true both in 2008 and during the dot-com crash in 2000.
Source: https://www.macrotrends.net/2638/sp500-fed-funds-rate-compared Q2 results
We are also about to see the release of second-quarter 2023 financial reports, which are expected to be disappointing as the post-epidemic boom has begun to lose its effect.
Companies are expected to report earnings this week. We can expect volatility in the market, and the bitcoin price has been flat in recent weeks to prepare for it. (In technical analysis, this indicates that the Bollinger Bands are contracting — the calm before the storm.) This means volatility is approaching, although this indicator alone cannot determine the direction of price.
Beyond the short-term reaction, this week’s earnings could be the first domino in a larger macro story. We will soon find out.
The debt crisis is emerging. Now, due to rising interest rates, the US interest payments have soared to $1 trillion. How the government will pay this huge expenditure without cutting spending elsewhere is unclear, but it is worth watching.
U.S. government spending increased 15% in June. How to prepare?
For all the potential doomsday events, the more pressing question is how we, as individual market participants, should respond to potential volatility.
I have a few suggestions, the most important of which are:
1. Don’t lose money by trading low-quality coins
What is different about this bear market is that we are still inundated with shitcoins, inferior projects that are popular for a short time. From the Azuki trend similar to 2022, to the recent craze for "memecoin", the market has been trying to scam you out of your last penny.
As I write this, yet another very unhappy project called “Worldcoin” launches their token. If I were to name some of the money stealing projects that have gained popularity on social media recently, I’d put Rollbit, Hamstercoin (what are you thinking, social media people!), and Arkham Intelligence on the list of scams for June-July 2023.
There seems to be no end to the attempts to get you to give up your money. Never fall into their trap.
2. Income-generating assets
I know you're thinking that even a 5% yield on Ethereum won't offset the losses when digital assets plummet by 50%. But looking at the yield alone is not enough. For me, the biggest benefit of "harvesting" my digital assets (I use the term harvesting broadly to cover a variety of DeFi strategies that can give me returns) is that once the assets are safely stored in the DeFi vault, I become too lazy to intervene. For example, unlocking certain tokens may require a 7-day wait. It can help prevent panic selling when prices fall sharply.
It’s more to prevent hand shaking than to say it’s because of the yield.
3. Observe loan levels
Recently, as the price of Bitcoin rose to $20,000 and the price of Ethereum rose to $2,000, some people began to borrow more boldly (using assets that have temporarily appreciated in value as collateral).
I'm not a big fan of this approach. The market volatility of the past year is really not suitable for managing loans. The price fluctuations are too big and it makes you sweat. Unless you like the excitement, I think loans will only bring too much trouble and too much risk for too little benefit.
4. Relax... and watch the world burn
When I tweeted that I love bear markets, it wasn’t an exaggeration. The recent ETHCC event in Paris and all its side events showed that the crypto community is more vibrant than ever after the tourists leave. Development doesn’t stop, and there are more projects to help you not be distracted.
In addition, the chaos in the traditional financial sector seems worth watching. We will see how the old way of traditional finance ends its weaknesses, and if it collapses, crypto will rise as a new generation of financial system. I suggest that we all grab some popcorn and wait and see.
It sounds grim, but think of this as "relax and don't worry too much." Things may get worse before they get better. Human societies have their own mysterious ways of evolving, and this may just be one of those processes.
The most important thing is to keep the money and stay alive.