The Crypto Cleansing

by JDH on November 19, 2022

Year to date:

  • Bitcoin is down 66%
  • Ethereum is down 69%
  • Cardano (ADA) since January 19 is down 89%
  • DOT is down 80%

You get the picture.  2023 has been a brutal year for crytpo.  For comparative purposes:

  • Gold is down 4%
  • The TSX is down 7%
  • The S&P 500 is down 18%
  • The DOW is down 9% (but as of October 13 it was down 22%); it has since recovered, somewhat
  • GME, our favourite meme stock, is down 26%
  • Microsoft is down 30%
  • Amazon is down 46%
  • Tesla is down 56%

Again, you get the picture.  Crypto was crushed this year, but so was the stock market.  In a deleveraging, nothing is safe.

And yes, we are in a deleveraging.  The money printing hasn’t stopped, but it has dramatically slowed down.

  • M2 money supply in the USA is down 1.56% since January.
  • M1 money supply in the USA is down 2.1% since January.

In Canada, the M1 money supply is down 3.95% since February (2.63% since January), but interestingly M2 and M3 continue to increase.

In the first two pandemic years of 2020 and 2021 governments around the world printed money, and handed it out to their citizens.  Some of those citizens used the cash for food and shelter, but many of them used it to speculate in “assets” like crytpo, the stock market, and real estate.  Not surprisingly, those assets went up.

But now, with the money printing slowed, there is far less new money flowing into these assets, so again, not surprisingly, with no new buying pressure, down they go.

Bitcoin

I won’t bore you with an analysis of every asset place, but let’s zoom in on Bitcoin:

Since the last bull market peak in 2018, Bitcoin has had the following corrections, as noted on the above chart:

  • 84%
  • 72%
  • 56%
  • 77% so far in 2022

If we have the same 84% drop we had to conclude the 2018 bear market, Bitcoin will bottom out at around $11,000.

The next obvious resistance level is around $12,200, which corresponds to the highs in September 2019 and September 2020:

More facts:

When November is a down month for Bitcoin, as it was in 2011, 2018, 2019 and 2021, December was a down month (except for 2011, when Bitcoin was in its infancy and went up in December 2011).

So far in 2022, Bitcoin is down over 18%, so December will likely be a down month.  The average December drop after a November drop is 10.5%, so further weakness in Bitcoin is possible.

So what’s the plan?

I believe that long term, most cryptos will go to zero.  I believe Bitcoin is different (it’s proof of work, not proof of stake, and it has significant institutional adoption, so I don’t see it going to zero).  Once the washout is done, I can see Bitcoin back to its old highs, and much higher.

So if three years from now Bitcoin is trading at $100,000, does it matter if you paid $16,000 or $12,000 for it?  No, it doesn’t.

But, if you can buy Bitcoin for $12,000 at some point in the next size months, why buy it now for $16,000?

So, I’m on the sidelines, accumulating cash, and waiting.

That’s my plan.  We’ll see how it works out.

See you next week.