The world is not ending


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Everyone breathe. The world is not ending.

We are fielding calls at an accelerating rate as Bitcoin’s price continues to fall. The largest cryptocurrency was down 15% yesterday and currently sitting around $4,500. This is more than a 75% decline from the all-time high in December 2017.

While price volatility can be emotionally painful, we continue to reiterate to our clients that Bitcoin is acting as we anticipated. On August 24 of this year, with Bitcoin around $6,500, I wrote “we are likely to see Bitcoin near $3,000 before we see Bitcoin at $10,000 again. If this is true, that means we still have ~50% price decrease to go. Things may get really, really ugly if this happens.” (Read entire 8/24 letter here)

There are a few important things to remember as price action plays out:

  1. Market timing is hard — Price movements in highly volatile markets can be difficult to pinpoint and often unexplainable. You may get lucky every once in awhile but there is low probability that you can repeatedly time the market through cycles. Venture investing is about possibility and trading is about probability.

  2. Day trading is a profession — If you weren’t a day trader before you got into crypto, don’t try to be one now. The ability to time markets, control emotions, underwrite risk, and size positions are not something that amateurs have a competitive advantage on. Be cognizant of the longer term trends and save yourself the mental anguish of staring at charts every five minutes.

  3. No action is an action — Those with the lowest time preferences are usually the ones that drive the highest returns. Investing is about managing risk and controlling your emotions. Don’t chase highly volatile assets, but instead remain disciplined and follow your long-term thesis/plan.

You should anticipate the mainstream media will become louder with messages about how “Bitcoin is dead” or the market won’t recover. Don’t listen to the noise. They need to drive clicks and eyeballs. The fundamentals of Bitcoin haven’t changed. It is a fixed supply asset with increasing demand that will be subjected to the benefits of supply and demand economics.

Just five days ago I wrote, the following:

It is important to remember that Bitcoin is not a traditional asset. There is no monetary policy decision that will be the catalyst for a recovery. The government can’t deem it too big to fail. There is no one who can step in and halt trading. Bitcoin lives and dies on its own.

While that may be scary to traditional market investors, this is the attraction to true crypto believers. They understand the asset will have volatile swings on a frequent basis. They know that there are few synthetic protections in place for investors. Bitcoin is the ultimate test: How much conviction do you truly have?

The good news is that you can take a deep breath and relax. The price drop and market cap retraction in the last 24 hours is not as bad as you probably thought initially. Bitcoin and crypto will survive. In fact, these are the dog days of a bear market that ensure that the future will be even more exciting than the past.

To paraphrase Charlie Munger, the goal here is not to be intelligent, but rather to avoid being stupid.

We are seeing the beginnings of blood in the streets, but there is more to come. When it happens, we will be presented with one of the most attractive risk/reward opportunities in a long time. Those that control their emotions and have the courage to act, while others are capitulating, will be rewarded handsomely.

Keep breathing. Everything will be okay.

-Pomp


The “Off The Chain” podcast has been downloaded 220,000+ times in 120 countries. You can listen to the latest episode with Juthica Chou, Founder of LedgerX now: Click here for Off The Chain podcast


THE RUNDOWN:

TransferWise won't buy into blockchain until more banks use Ripple: While blockchain has been hailed by companies including IBM and Mastercard as a way to more quickly move money around the world, not everyone is sold. TransferWise, for example, a London-based startup that transfers money between more than 70 countries, has yet to see an advantage to using the technology. Read more.

SEC crypto settlements spur expectations of wider ICO crackdown: The cryptocurrency market is reeling after the SEC fined two companies that didn’t register initial coin offerings as securities and allowed investors to reclaim their money. “There’s a global crackdown coming,” said David Silver, a securities fraud and investment loss attorney from Coral Springs, Florida. “Government wasn’t going to be intimidated by a bunch of libertarians and anarchists -- in the next year or two, we’ll see more than just enforcement actions.” Read more.

Furious traders slam crypto exchange for fiddling with contracts: An unorthodox move by one of the world’s biggest cryptocurrency platforms to change the terms on $135 million of derivative contracts has infuriated traders and saddled some of them with losses, underscoring the risks of using unregulated virtual currency exchanges. The episode at Hong Kong-based OKEx, which claims to handle more than $1 billion of crypto trades daily, involved futures on Bitcoin Cash, the virtual currency that split into two last week. Read more.

Cryptocurrencies could allow central banks to stay in money game: Issuing digital currencies would allow central banks to stay relevant in a time of disappearing cash, according to Cornell University professor Eswar Prasad. “It’s going to mean that central banks remain in the game,” Prasad, a former IMF China division chief, said “If you look at certain economies like Sweden where the use of cash is very fast disappearing, central banks may have very little role to play both in terms of wholesale as well as retail payment systems -- so this would keep central banks in the business of creating money.” Read more.

Autodesk CEO: Blockchain can stem corruption in construction industry: American software corporation Autodesk CEO Andrew Anagnost said that blockchain could fight corruption in the construction industry. Autodesk has been working on its own non-blockchain digital “escrow” system designed to improve trust in the construction industry. Read more.


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Nothing in this email is intended to serve as financial advice. Do your own research.