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With Bitcoin, Embrace Uncertainty
At least you'll know what to expect
Sometimes I take calls from people who want to consult or get my advice on cryptocurrency and the crypto markets.
Do you know what question I dread the most?
Mark, what do you think will happen?
I’m happy to answer and appreciate the confidence you have in my opinion, but does it really matter?
This market offers such a wide range of outcomes at any one time, how could I narrow it down to only one potential result? Especially when the global economy seems on the brink of falling apart.
Even in normal times, crypto’s “normal” range of prices is almost certainly wider than any sane person would expect. Sometimes, it feels odd saying “price is going sideways” when it’s actually going up and down 20% each week—but then you look at the chart and the price clearly goes sideways.
Crazy market, this.
Grasping at straws?
We all want clarity. Predictability. Certainty.
Sometimes, history or data shows us a fairly clear direction. Trends, patterns, and behaviors align in plain and obvious ways.
Other times, those trends, patterns, and behaviors suggest something very different than the prevailing sentiment seems to agree on.
Usually, we have no such guides. We just need to let the market do its thing and plan for several outcomes, knowing only one outcome can possibly result.
Perhaps that’s why traders have taken to fractals on gold from the 1970s to 1990s, Amazon charts from 1998-2000 (for the bears) and 2010 (for the bulls), astrologers, NASDAQ, and extrapolated price patterns from arbitrary points in history.
When you can’t find anything else, you take what you can get.
I even found a three-month correlation between bitcoin’s price and the temperature in my neighborhood. And that came before sanctions on Russia threw global markets into chaos.
Too much can change
At the moment, lots of people worry about the conflict in Ukraine and its fallout.
While that’s a pressing and urgent concern, what about the world’s other geopolitical hotspots?
What about the South China Sea or the Persian Gulf, two of the most important shipping areas in the world? Both regions are fraught with tensions among nations and ethnic groups. They could erupt at any time.
So could a volcano in Iceland (it happened last spring).
China’s debt-to-GDP ratio is perilously high and its financial sector remains stressed. The US dollar continues to rise, putting more stress on emerging markets that hold dollar-denominated debt.
Also, think about local economic problems that could cause outsized damage to major economies.
For example, what happens when the union contract for port workers on the US west coast expires in July? The last time that happened, ports shut down for four days and caused months of shipping backlogs. Can you imagine the same scenario today, with cargo shipments already backed up for months?
Or if China’s real estate sector implodes? Its second-largest developer has no money and the growth in property values has fallen for months.
Inflation’s on a tear pretty much everywhere. For how long?
People worry the US central bank will raise rates and sell assets, but its balance sheet keeps getting bigger and I’m skeptical that even a half-point rate hike can tame +7% inflation, even if the stock market plunges.
(And that assumes it raises rates at all.)
What about laws and regulations? Each month, more countries pass laws to let people buy, hold, and use crypto. Russia says it plans to create its own framework and the US has started to work on its own plans. The European Union decided to ban bitcoin mining, then changed its mind. Some African and Latin American countries have started to debate new initiatives.
Just as time, laws, and minds change, technology changes, too.
In 2017, crypto had a few consensus algorithms and no usable apps. Since then, we’ve seen an explosion in token designs, consensus algorithms, and viable platforms.
Can you—or anybody—understand all of these issues and anticipate how things might play out?
All of these complexities can seem overwhelming. Certainly not the “price go up” simplicity you felt when you first entered this market.
When the world seems like an uncertain or confusing place, you can choose to accept it. Without this uncertainty, you would not have this investment opportunity. Safe investments rarely have a high upside.
Consider yourself lucky. Most people will not discover crypto until the investment opportunity has passed.
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