The Wolf Den #920 - There Is No Normal
Accept it.
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In This Issue:
There Is No Normal
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Coinbase’s Argument For The ETH ETF
The Bitcoin Accumulation Race
Dencun Is This Wednesday
“Maybe I Should Buy Some Bitcoin”
Bitcoin Frenzy: Exploring Massive Demand and Miner Sell-offs | Fred Thiel, Marathon Digital
There Is No Normal
When was the last time you heard someone say that everything happening in the market made sense?
Prices are at a fair value.
The Fed is behaving as it should.
Crypto sentiment is finally cool, calm, and collected.
You never hear it.
To make matters worse, those patiently waiting for things to return to 'normal' are typically hoping for stocks and bonds to crash, crypto to implode, and the government's debt to magically disappear.
To anyone that believes in a ‘normal’ market.. I have a bridge to sell to you... oceanfront… on Uranus
Of course, stocks and bonds can yield average returns, crypto sentiment can balance between fear and greed, and every now and then we get an Alan Greenspan or Paul Volcker who generally get it right. However, normal is the exception rather than the rule.
Just to paint a quick picture, I asked ChatGPT to provide a breakdown of S&P 500 annual returns into different ranges for the period 1970-2021.
These were the results.
Greater than 20%: 14 years
Between 10% and 20%: 19 years
Between 0% and 10%: 16 years
Negative: 12 years
Looking at these stats, what you will see is it’s actually twice as likely for returns to fall between 10% and +20% than it is for there to be an average year of returns between 0% and 10%. This trend persists even when you extrapolate further back. The same phenomenon occurs with bond rates, stock market valuations, inflation, and various other metrics that we assume have a ‘normal’ baseline.
Crypto is perhaps the best example of what can be considered as 'no normal.' When BlackRock filed for an ETF, it seemed as if a switch flipped, and sentiment shifted from boredom to excitement, then vindication, and now euphoria. These intense emotions were experienced and shared solely by investors within our community, as I still believe the outside world is unaware of the existence of an ETF.
As for the rest of the world, their perception of crypto is that it exists in a perpetual state of ‘no normal’ for completely different reasons. Allow me to give an example.
I mentioned to a friend a few days ago that there are now spot Bitcoin ETFs trading and that BlackRock’s CEO is fully on board with Bitcoin and crypto. Their initial reaction was a blank stare… followed by a moment of processing… and then shock.
I watched the light turn on. This reality is far from their perception of ‘normal.’
These conversations and interactions, though anecdotal, serve as microcosms of the larger narrative I aim to convey. For those who once doubted but are now believers, ‘normal’ is a concept constantly evolving. For long-time believers, Bitcoin's price, significantly below fair value, suggests that the achievement of ‘normal’ is still a decade(s) away.
I have some ideas why ‘normal’ doesn’t exist in markets.
Markets, are machines of disruption and emotion, reflecting our perception of future outcomes more than present realities. Our dollars are thus a vote about the direction of the future, often clouded by a heavy dose of recency bias. In this dynamic, we tend to deeply hold onto our experiences, overlooking the fact that nearly 8 billion other experiences are deeply interconnected and reliant on each other. And if that wasn’t muddy enough, regulatory changes occur swiftly, and innovation moves even faster.
That all means that while we take the time to learn from yesterday, today brings new developments, and tomorrow will likely be a total surprise.
Now take everything I just said and multiply it by 25x, and that’s crypto’s relationship to ‘normal.’
Bitcoin and blockchain, at their core, embody disruption, chaos, and innovation, encapsulating a nascent financial revolution. The absence of normalcy in this space is what makes it truly remarkable. So, the next time you encounter someone yearning for normalcy, share this newsletter with them and encourage them to learn about Bitcoin.
Call me crazy, but the only ‘normal’ I can see is Bitcoin violently absorbing a large chunk of the world’s wealth.
On that note, here's to an exciting week ahead, hoping we continue to surpass all-time highs and forge ahead without ever coming back.
Bitcoin Thoughts And Analysis
Bitcoin is in price discovery. It just broke $72,000.
Read that again, because it seemed like a distant dream a few months ago.
Bitcoin has broken it's all time high and is pushing higher, attempting to finally flip the previous all time high of $69,000 to support.
Sustained BTC ETF inflows are fueling this move - for the first time was know EXACTLY why price is rising, and there's no clear end in sight to the buying. The bull run continues, and all future targets are now theoretically, as there is no resistance ahead.
Altcoin Charts
For those who are new here, I share SETUPS and not SIGNALS. These are ideas that I am watching - if a certain thing happens, then the trade triggers. I am not telling you what to buy or when. I am showing you how I am watching certain charts and what has to happen for me to take a trade.
There are a number of altcoins that are looking good - particularly “memes” and AI adjacent projects. That said, I want to see Bitcoin settle down for another mini altseason to really show its teeth.
Legacy Markets
In the lead-up to a crucial week for US markets, equity futures dipped slightly as all eyes turned towards the upcoming US Consumer Price Index (CPI) report. This report is key for investors betting on the Federal Reserve to start easing its policy stance, especially after recent dovish comments raised hopes for a mid-year rate cut. However, a potential spike in consumer prices could shake the confidence underpinning recent stock and bond rallies, making the upcoming CPI data especially significant in the context of the Fed's next meeting on March 20.
In the currency world, the narrative is changing; Bitcoin has smashed past $71,000, buoyed by a six-day winning streak and an almost 70% rally this year, fueled by heavy investments into US exchange-traded funds. Meanwhile, the dollar is facing its longest slump in nearly four years, signaling a broader shift in currency dynamics. This comes as the Japanese yen strengthens amid speculation over the Bank of Japan tightening its monetary policy.
The anticipation around the CPI report is palpable, with many expecting a modest increase in core prices. Such an outcome could bolster the argument for the Fed to start cutting rates, a sentiment echoed in recent comments from both Jerome Powell and Christine Lagarde, indicating that rate reductions could be on the horizon in the US and Europe respectively.
Despite signs of an improving US economy and decelerating inflation, skepticism remains. Challenges such as market overenthusiasm, questionable earnings forecasts, and the possibility of delayed Fed action pose potential headwinds. Morgan Stanley’s Michael Wilson, a prominent bearish voice, suggests that the absence of a growth uptick could dampen market prospects, especially in sectors sensitive to economic shifts.
Looking abroad, Europe's stock markets have taken a hit, with a downturn in basic resources reflecting decreased demand from China. As for commodities, the oil market is holding its breath for upcoming OPEC and IEA reports that could hint at future demand trajectories, while gold prices linger near record highs amid speculation over the Fed's next moves.
In essence, the financial markets are on tenterhooks, with forthcoming US inflation data poised to play a pivotal role in shaping the Federal Reserve's forthcoming policy decisions. Amidst this backdrop of uncertainty, Bitcoin's surge and the dollar's decline highlight a broader reevaluation of currency values, set against a global canvas of cautious optimism and underlying concerns.
Key Events This Week:
CPI reports for Argentina, Brazil, Germany, India, US, Tuesday
UK jobless claims, unemployment, Tuesday
Japan PPI, Tuesday
India industrial production, Tuesday
Mexico international reserves, industrial production, Tuesday
Philippines trade, Tuesday
Turkey industrial production, current account, Tuesday
EU finance ministers meet in Brussels, Tuesday
ECB Governing Council Member Robert Holzmann speaks, Tuesday
Eurozone, UK industrial production, Wednesday
India trade, Wednesday
South Korea jobless rate, Wednesday
ECB Governing Council member Yannis Stournaras speaks, Wednesday
Swedish Riksbank First Deputy Governor and Deputy Governor speak, Wednesday
Saudi Arabia, Spain CPI, Thursday
US PPI, retail sales, initial jobless claims, business inventories, Thursday
Australia Treasurer Jim Chalmers delivers pre-budget address, Thursday
Canada housing starts, Friday
China property prices, Friday
France, Italy, Poland CPI, Friday
Indonesia trade, Friday
Japan tertiary index, Friday
New Zealand PMI, Friday
Philippines overseas remittances, Friday
Sri Lanka GDP
US industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday
Japan’s largest union federation announces results of annual wage negotiations, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 6:13 a.m. New York time
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average fell 0.3%
The Stoxx Europe 600 fell 0.4%
The MSCI World index fell 0.2%
Currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro was little changed at $1.0937
The British pound fell 0.1% to $1.2843
The Japanese yen rose 0.3% to 146.58 per dollar
Cryptocurrencies
Bitcoin rose 3.4% to $71,788.9
Ether rose 3.2% to $4,032.81
Bonds
The yield on 10-year Treasuries was little changed at 4.07%
Germany’s 10-year yield was little changed at 2.26%
Britain’s 10-year yield declined two basis points to 3.95%
Commodities
West Texas Intermediate crude rose 0.3% to $78.28 a barrel
Spot gold was little changed
Coinbase’s Argument For The ETH ETF
How can it not be awkward for Coinbase’s legal team to sit down with SEC officials in the middle of a high-profile lawsuit and discuss the prospects of an Ethereum ETF? Regardless, the meeting took place, and while details are scarce, Coinbase did present five key points to the SEC. Currently, we do not know if Grayscale would take legal action against the SEC in the event of a denial, and we have not yet heard any comments from the regulator. These factors warrant caution as the May deadline approaches, especially since Bitcoin had these circumstances leading up to its approval. I maintain a strong belief that an ETH spot ETF will eventually be approved, but I am not too confident it will happen in May. Personally, I’m at 33% but liable to change if new facts present themselves.
Coinbase’s Key Points
The Shares are properly categorized as commodity-based trust shares
The Commission’s rationale in deciding to approve spot Bitcoin ETPs applies with equal or greater force for ETH
Ethereum has mechanisms that significantly limit ETH’s susceptibility to fraud and manipulation
Spot markets for ETH are highly indicative of a market resilient to fraud and manipulation
As with Bitcoin, the Exchange’s comprehensive surveillance-sharing agreement with the CME will assist in surveilling for fraud and manipulation
The Bitcoin Accumulation Race
As much as I enjoy rooting for Michael Saylor to accumulate all of the world’s Bitcoin and will continue to regard him as the greatest investor of our time, it has always been evident that BlackRock would surpass MicroStrategy, and the torch would never be handed back. As of the end of last Friday, BlackRock held 196,089 BTC compared to MSTR’s 193,000. While it was never truly a race, and nobody believed that MSTR would keep up with BlackRock, it’s still incredibly impressive that it took the world’s largest financial institution 40 days to reach the portfolio size of a company that isn't in the S&P 500. In other MicroStrategy news, MSTR is nearing inclusion in the S&P 500 and has increased its convertible debt offering by $100 million to $700 million, earmarked for purchasing Bitcoin. While BlackRock may have surpassed MSTR, when comparing apples to apples (private companies), MicroStrategy will likely remain king.
Dencun Is This Wednesday
Ethereum’s highly anticipated Dencun upgrade is coming on Wednesday, designed to significantly reduce transaction costs on layer 2 solutions. If you're expecting major changes in the price of Ethereum or the size of its user base on Wednesday, it's important to temper those expectations. Historically, upgrades like this, similar to the halving, don't typically result in immediate price movements or user base swings.
Furthermore, this upgrade will further incentivize the use of layer 2 solutions, diverting transactions away from the ETH main chain where more fees naturally take place. Dencun represents a long-term positive for Ethereum in numerous ways. However, investors should approach this event like any other day, and if the price does react positively, they can enjoy being pleasantly surprised.
“Maybe I Should Buy Some Bitcoin”
Bill Ackman's idea seems to be presented as a hypothetical possibility, but it has received some pushback from Bitcoiners, who have a slightly different perspective yet arrive at the same conclusion. Michael Saylor emphasized that Bitcoin can actually reduce the cost of energy for end consumers. This is because miners often offer their excess energy back to the grid or utilize energy sources that would otherwise go unused, such as flares, renewables, and stranded energy.
Bitcoin Frenzy: Exploring Massive Demand and Miner Sell-offs | Fred Thiel, Marathon Digital
Join Fred Thiel, CEO of Marathon Digital Holdings, as we unravel the Bitcoin frenzy in this podcast. From how Bitcoin gets halved to the impact of ETFs on mining, we cover it all. Discover the future of mining, AI's power demands, and even mining Bitcoin in Teslas, in this fascinating exploration of digital currency
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
Something is not right. 1970-2021 = 51 Years.
These were the results:
Greater than 20%: 14 years
Between 10% and 20%: 19 years
Between 0% and 10%: 16 years
Negative: 12 years
= 61years