Here’s the thing. It doesn’t really matter what caused the crypto sell-off if narratives are always being created after events happen, instead of price action following market narratives that were already created.
While the global equity market selloff may have been swift and violent, you certainly couldn’t call it “unexpected”. There have been risks piling up for years caused by low-interest rates, government intervention, and massive personal, corporate, and government debt accumulation. Throughout this time, there has been no shortage of market hypotheses stating that when rates finally begin to rise, and the central bank stimulus begins to be withdrawn, the “everything bubble” will unwind. Of course, only time will tell if this recent hiccup in global equities is the start of a much larger drawdown, or an opportunity to “ buy the dip ”. But the narrative has been established — rising rates and stimulus withdrawals are huge headwinds to global stocks.
Which brings us back to crypto. The only persistent narrative in recent months has been the downfall of ICOs but the subsequent pickup in blockchain equity raises, and the constant influx of Fortune 500 companies into crypto. There were no calls for a “correction” in crypto prices outside of normal short-term technical analysis, and the persistent “ crypto is going to zero ” Twitter banter (which has been going on since Bitcoin was below $100). Last week’s move really did catch the market by surprise. And in our opinion, that’s fine. Not every move needs to be associated with a reason, which is why we continue to shout about proper risk management over everything else. The entire crypto space consists of new technology that probably should not offer real-time pricing and liquid exchanges. There are long periods of inactivity on many newly built protocols and platforms that underpin the tokens that trade, and each blockchain startup and decentralized project comes with plenty of development and network hiccups. If every private company in Silicon Valley gave daily, transparent updates into their company’s financial health or future business plans, their equity would move up and down in 10% increments as well. And you wouldn’t require a reason — it would just be par for the course when investing in young companies and emerging technologies.
And That’s Our Two Satoshis!
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