Volatility is back, baby!


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Volatility is back, baby.

Bitcoin’s price dropped more than 11% and the overall crypto market cap lost almost $30 billion in the last 24 hours. The drawdown happened suddenly, which has left many of our clients and friends asking “What the hell just happened?!”

There is no need to freak out. Here is what you need to know:

  • Volatility is relative — Bitcoin, and the broader crypto market, have been surprisingly non-volatile in the last month or two. In fact, Bitcoin was less volatile than the S&P 500, DOW, and NASDAQ for an entire 30-day period. Many investors were lulled to sleep by the lack of price movements, so yesterday’s unexpected drop feels more violent than it really is. Double-digit percentage price movements, in either direction, have been commonplace in crypto for years.

  • Don’t believe the conspiracy theories — Crypto enthusiasts and market analysts love a good conspiracy theory. They are already claiming yesterday’s drop is because of an upcoming Bitcoin Cash hard fork, whales manipulating prices, or the response to the IMF’s recent comments around encouraging state-backed digital currencies. While these explanations are entertaining, they are completely devoid of evidence or merit. The truth is that no one knows what drove the price movement and we are better positioned to evaluate the situation moving forward if we admit that to ourselves.

  • Stay focused on long term trends — It is incredibly hard to predict short-term price movements, but much easier to measure and predict longer term trends. Many of the most well-respected minds in the industry have been calling for a market bottom around $80 billion total market cap and Bitcoin price in the $3k - $4k range. Who knows how accurate these predictions will be, but it is important to understand the “we are in a bear market and it is more likely prices continue downward before they recover” sentiment.

  • Refrain from acting emotionally — Markets are built on volatility. Traditionally, capital moves from the emotional to the emotionless, so you have to resist the desire to react. Sometimes the best action is no action. The best way to achieve this discipline is to do your own research, develop a thesis, create a plan on how you will act (dollar cost average in or out, etc), write the plan down during a non-chaotic time, and never override the plan. You can hear more about this if you listen to my interview with quantitative investor Jim O’Shaughnessy.

  • Psychologically we need more pain — Markets don’t historically bottom until some portion of the participants capitulate. The most bullish folks have to begin to question their conviction. There has to be a belief that the asset could go to zero. That Bitcoin won’t survive. At that point, and only at that point, will we reach a true bottom. Unfortunately, I don’t think we are anywhere near that today. There is a lot of pain left to come. Get ready for the blood in the streets.

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.

-Pomp


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THE RUNDOWN:

Coinbase-backed startup launches $799 home crypto miner: Coinmine can currently mine four other cryptocurrencies—Ethereum, Ethereum Classic, Monero and Zcash—and has its own operating system, which will let owners add other currencies in the future. Coinmine is the brainchild of Farb Nivi and industrial designer Justin Lambert. The company has raised $2 million from prominent names in the cryptocurrency realm, including Coinbase Ventures, Arrington Ventures, and Coinbase chief technology officer Balaji Srinivasan. Read more.

Bitcoin miner Canaan’s IPO likely delayed after Hong Kong filing expires: Canaan Creative’s application for an initial public offering may be in doubt as the Chinese bitcoin mining maker’s filing with the Hong Kong Stock Exchange has now lapsed. Canaan’s IPO application has now exceeded its lifespan of six months since it was first submitted. The company had apparently been seeking to raise up to $2 billion, but a report from Reuters said Canaan has now scaled down the plan and is targeting about $400 million. Read more.

Crypto exchange KuCoin raises $20 million from IDG, Matrix, Neo Global: Singapore-based crypto exchange KuCoin has raised $20 million in Series A funding backed by IDG Capital, Matrix Partners and Neo Global Capital. KuCoin said the three firms had not only invested, but formed partnerships with the exchange in order to bring cryptocurrency to the “masses.” With the funding in place, KuCoin said it now plans to revamp its service, launching “Platform 2.0” probably in Q1 2019. Read more.

New York regulators grant crypto license to NYDIG: The New York State Department of Financial Services has just issued a new BitLicense to the New York Digital Investment Group, allowing it to offer crypto-related services in the Empire State. DFS has granted its virtual currency license to the company, allowing NYDIG to offer liquidity and asset management services to New York residents. NYDIG is now able to offer custody and trade execution services, including services for bitcoin, bitcoin cash, ether, XRP and litecoin. Read more.

Four fake cryptocurrency wallets found on Google Play store: Malware researcher Lukas Stefanko has found four fake cryptocurrency wallets on the Google Play Store that were trying to steal users’ personal data. The apps were posing as cryptocurrency wallets for NEO, Tether and an extension for accessing Ethereum, MetaMask. They were purportedly designed to phish users’ mobile banking credentials and credit card information. Read more.


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