In last month’s post, Define “Winning” in Crypto, I talked about mindset and framing your viewpoint. It’s as important as any trading or investment plan, especially now.
In this month’s post, I look at where the money’s coming from, where it’s going, and why political parties won’t get you what you want (and may make everything worse).
In March, two subscribers messaged me to cancel. They made so much on crypto that they didn’t need the newsletter anymore.
Basically, “thanks for help, now hit the bricks, buddy!”
I don't blame them for canceling.
Sometimes, I want to do the same thing. Drop out, enjoy more of my free time, and push away all the stress of producing content for a crypto audience. Shut down the newsletter, keep my strategies and plan to myself, and go back to being a private citizen.
I understand how OGs feel after a few cycles. You get tired of the BS that comes during the bull markets. The scams. The Memecoins. The bogus airdrop links and fake crypto apps that steal your funds. Everybody trying to flip a quick buck at your expense.
I try to remind myself that in crypto, as with many things in finance, Whose Line is it Anyway rules apply.
Everything’s made up and the points don’t matter.
We’re all going to die
Life's too short to worry, right?
Maybe we should all buy a bunch of Bitcoin and live off our stacks until the next bear market, then buy a bunch more and repeat the process over and over again until we're dead.
But there are dreams that cannot be.
Today, if I had only myself to support, I could retire to Fiji and never work another day.
Once you throw in my wife, kids, and parents, I’ll probably never be able to retire. Hence, this.
What position are you in?
Maybe you have $10,000 in the market, trying to turn it into $100,000 or $1 million portfolio. Or, maybe you already have a $1 million portfolio, and you’re simply trying to squeeze some more juice out of a high-growth, high-risk asset class.
Perhaps you’re chasing financial freedom or financial liberty? Make sure you know the difference.
What will you do if Bitcoin’s price drops to $40,000 and throws altcoins back to their 2023 levels?
This puts Bitcoin’s price within normal benchmarks, matches the average bull market correction, and wouldn't even break the uptrend we started in November 2022.
Many would be devastated.
What will you do if Bitcoin’s price shoots up to $150,000 in 18 months?
This is a fairly tame outcome compared to historical norms and a nice fit with every data model and cycle theory.
Many would be disappointed.
How do you balance those realistic, opposite outcomes?
In legacy markets, you have to guess.
With crypto, you have data, metrics, and if you're subscribed to this newsletter, you have my plan.
Three lines on a chart tell you when to buy, two metrics tell you when to sell, and my alerts will tell you what to do in between.
Plan
If you followed my plan, you're down 2% at worst, up 1,050% at best, and most likely up 150% with cash to spare. You sold some Bitcoin in March and some altcoins at the beginning of April.
This is what you’d have done with Bitcoin since 2023, after buying for most of 2022:
The plan doesn't apply to altcoins, but I discuss the altcoin market in my regular updates for Crypto is Easy newsletter subscribers.
Plans are stupid
The Internet says none of that matters.
China is recovering. The EU and Japan started easing. The Fed stopped tightening. The “macro” is conducive.
The halving, S2F, and Twitter predict a parabolic run to $90k this summer, starting with a new all-time high next week. Look out!
Why have a plan at all? The outcome is so obvious, you should always put as much money into the market as possible.
If only your peers agreed.
Accumulation is down or sideways among wallets of all sizes except the tiniest. For weeks, the order books have skewed toward sellers. Trading volume is largely flat.
Engagement is down. Miners are losing money. We don’t see much buying from individual investors, traders, and speculators, either in the US or elsewhere—at least, not enough to show up in any of the sources I look at.
Yet, relative unrealized profit—the gains holders could get if they sold—has fallen faster than price.
We don’t normally see that. Usually, unrealized profit moves in line with price. When Bitcoin’s price goes up, so does the unrealized profit. When Bitcoin’s price goes down, so does the unrealized profit.
The only explanation?
As market participants continue to take profits, new buyers are bringing enough inflows to keep the price steady. And they're buying at higher prices than those who are selling, so you would expect they need to see a much higher price before selling their newly bought coins.
Miners hold the keys
Why doesn't this behavior show up as higher prices or an uptick in engagement?
Fake tethers may have something to do with it. And we know OGs, long-term HODLers, and whales continue to sell a non-trivial amount.
Also, the flow of Bitcoins in and out of Wall Street ETFs may skew the numbers because they combine many people’s actions into a few wallets (this will make on-chain data less reliable as time goes by and these ETFs grow).
We also need to look at the miners. Bitcoin’s halving puts a lot of stress on them. On average, miners lose money on each Bitcoin that they mine, though the most efficient miners still turn steady profits.
Overall, miners are selling more slowly than their historical average, partly because they have fewer bitcoins after shipping off so many earlier this year and partly because they have more financial reserves and funding sources than in previous years.
The Miners Position Index is a crude way to see this, but it comes through in various metrics.
This is not sustainable. At some point, something has to give. One of three things must happen:
-
We continue to see a persistent trickle of selling that diminishes until it’s no longer relevant.
-
Miners get to a point where, collectively, they capitulate and dump on the market.
-
Bitcoin’s price goes high enough to make miners profitable on average.
Historically, we have seen the first two options. We've never seen the third (Bitcoin’s price goes up after the miners “capitulate”).
Either way, once things settle down, we will have one less source of selling pressure. I'll keep you posted on what the miners are doing and what that means for us.
Not until the smart money sells
What's keeping the market afloat?
HODLers, for sure.
We’ve seen a huge uptick in the cohorts representing people who bought in the hysteria of early 2021. They came for instant riches, got burned, and turned into long-term investors.
They're up bigly now, after suffering multiple drops of 70% or more.
If they haven’t sold yet, you would imagine they would need to see a much higher price before they do. They're becoming a progressively larger portion of the market.
At the same time, new buyers are sticking around, as I’ve discussed at length in market updates.
We may not be seeing a lot of new money from new sources, but we still see enthusiasm among people already in the market. For example, the number of Bitcoin transactions keeps going up.
It's hard to say how much of that comes from ETF-related activity, but we can assume if those transactions hadn't gone through the ETFs, they would've gone through some other entity.
(The average value of those transactions has dropped, suggesting these aren't whale behaviors. It’s normal people engaging with the Bitcoin blockchain.)
Make way for the big boys
Somewhere in the background, it wouldn't surprise me if sovereign wealth funds and other large entities have started accumulating directly through brokers. I’m sure you’ve heard the same rumors that I’ve heard.
You will never see this activity on-chain because it blends in with everything else. Trading charts don't capture it at all.
In a few months, US disclosures will tell us which businesses and funds are now using ETFs to get exposure.
As for governments and offshore entities, we can only guess. Even El Salvador, the most transparent of the bunch, doesn't tell you when they buy or what wallets they hold their Bitcoins in.
It reminds me of what happened in 2019 and 2020, when endowments, pensions, and other large entities bought small positions in Bitcoin and other cryptos.
Small for them, huge for us, and enough to soak up supply from profit-takers and distressed miners.
We already know half of US hedge funds have exposure and some large financial advisors put the Wall Street ETFs into their standard portfolio allocations.
In May, I floated the idea that we’re in the “first sell-off” in the bubble cycle, when early buyers sell and institutions build positions before a powerful move higher.
What does that mean for our expectations?
As noted in the May 30 update, a typical “ABC” correction makes sense. Perhaps even a bull flag. Something like this:
This assumes we had our first move down in April, a rebound in May, and now we’re in another downtrend for the foreseeable future. Stranger things have happened. We’ll have to see how it goes.
Send in the clowns
Some seem to think analysis doesn't matter anymore. Trump said nice things about Bitcoin and crypto’s about to take US politics by storm. This has created quite a buzz.
Does it seem odd that an anti-state technology needs the state’s approval to survive?
I guess you can’t take anything for granted. So I understand why some people are so excited about the shifting political dynamic in the US.
It’s massively bullish, but not because the political and regulatory infrastructure will change or because crypto advocates will get a bigger platform.
It’s bullish because public officials have legitimized these assets to a skeptical public after a decade of crypto-bashing from legacy financial entities and the traditional political establishment.
When Trump says good things about crypto, some supporters set aside their skepticism and look into it. The same goes for his opponents and their supporters.
Everybody can find something to like, whether that's opening up financial opportunities for people who don't have success with the legacy financial system, giving you new ways to get rich, or protecting your wealth from your government’s monetary and fiscal policies.
With this shift, the political class will let people share these and more idealistic messages without scorn, even if they may not support actual regulatory or legislative progress.
Irrelevant now, but it will mean a lot when prices start going up again. We’ll have fewer voices of opposition to whatever bullish nonsense comes out during the next round of speculative enthusiasm.
It worked for US railroads in the 1850s, US stocks in the 1920s, and US Internet companies in the 1990s.
The sound and the fury
Aunt Sally and Uncle Morton may dismiss Tony on the TV ranting about hyperinflation and “fee-yat.”
They’ll pay attention when two out of three presidential candidates shill Bitcoin. For whatever reason, people still listen to presidential candidates and trust their politicians (but not “the other party’s” politicians, no, no, they’re evil criminals who want to destroy this country and put you in jail).
That doesn't necessarily mean anything for cryptocurrency's evolution or trajectory. The industry is bigger than ever after four years of the current US administration.
For now, the shift is purely political posturing, but it helps change the vibes around crypto.
As the guys at Permissionless said in an invitation to their conference:
“...37% of Permissionless speakers dropped out last year due to the hostile regulatory environment. They were scared to speak on US soil…[b]ut this year couldn’t be more different. The regulatory policy tides have turned and the future of crypto in the US has never looked brighter.”
—Permissionless
You might think that doesn't make sense.
We now have the same presidential candidates, Senators, Congresspeople, and regulators as we did a year ago. How could the tide have turned?
They said you need to vote Biden out, fire his people, and put some of them in jail. Bruce Fenton told me I was naive to think anything good could come from advocacy, education, legal savvy, and partnerships with people who share a common cause and goal. He said only partisan warfare can solve anything.
It’s crazy to think that the US political dynamics are nuanced and complex, but politics is crazy. The truth is never as clear as your favorite influencers make it seem.
We don’t have as many enemies as you think.
Politicians will not save us
Mark, you used to work in Congress. You’ve written about the importance of politics for years! Why are you suddenly against politics?
I’m not against politics. We should be engaged, both as thought leaders and activists.
I’m not against politicians, either. Many public servants are good people with noble goals.
And I’m not against members of political parties per se. Some are total jerks, but most are well-meaning citizens who share a similar vision for the country. They should get together to advance causes and policies they believe in.
What am I against?
I’m against political parties. They enflame the worst passions in otherwise decent people. They promote groupthink, stoke hatred, and pit “us” against “them.” They elevate wretched, mean, spiteful people to positions of power and control.
Political parties exist to make people fearful, angry, and sad enough to give them their votes, money, and power. They force good people to serve interests and outcomes that they despise.
Just look at how partisanship has turned an otherwise reasonable person like Ryan Selkis into a hate-spewing demagogue. If it can happen to him, it can happen to anybody.
Pick a different path
Mark, you’re saying don’t fight?
No. Quite the opposite.
Don’t give your power to politicians simply because you’re scared or angry about what’s happening. Don’t care so much about a single issue that you let a political party control everything else.
Have faith in your ability to get what you want. Aim for durable, lasting, positive outcomes.
Advocate. Vote. Argue. Work constructively with others.
These actions usually get better results than political warfare, with less cost and effort.
Crypto is a peaceful revolution. Politics is anything but peaceful. Put your money into protocols, not political campaigns.
Tale as old as time
Some believe crypto will be better off if one party or the other gets into power.
That reminds me of the ancient Israelite leaders who wanted to stop paying tribute to the Babylonians, but feared the Babylonians would attack them for doing so. They made an alliance with the Egyptians, a former enemy who promised to do nice things for them in exchange for their support.
One of the prophets asked them, “Why do you seek help from the Egyptians rather than God?”
The Israelite leaders were too angry about Babylon’s demands and, as a small group of elites among a diverse population, too worried about their own power.
They lost faith in themselves. Egypt seemed like a perfect partner.
In the end, the Babylonians destroyed both the Israelite ruling class and the Egyptians.
(Ironically, the Israelites who went to Babylon were allowed to practice their religion freely, albeit under Babylonian rule rather than their own. About 45 years later, the Persians conquered Babylon and gave the Israelites their land back.)
That story is not about God, Israel, Egypt, Persia, Babylon, tributes, prophets, or any modern event or situation.
I bring it up because it’s an engaging, provocative way to illustrate a point: political parties will not save or kill us.
If anything, they will steer crypto toward a small group of elites who will take a cut of the action.
We have thousands of similar stories about people who sacrificed their principles in exchange for power and still didn’t get what they wanted (or ended up worse off).
Do we really need another?
Believe in yourself, not politicians
We may find out that none of this makes any difference.
If cryptocurrency does what it's supposed to, political parties will not matter. We will have global communities that transcend any national border, each with its own currency, governance process, and a dedicated network of users.
We will have two types of money: One for the state and one for ourselves. One source of money that’s protected by our government, and another that’s protected from our government.
With cryptocurrency, a teenager in Indonesia has as much power as the most prestigious Manhattan financier. All you need is a laptop and Internet connection, and you can create a new monetary system that is global, permanent, and accessible on demand.
As a result, crypto can evolve regardless of what political party wins power or what laws they pass. Money will flow to wherever the opportunities lie.
Today, that means other countries. Take a look at the shift away from US entities to non-US entities.
In time, maybe that money will come back to the US.
Is it so bad if it doesn’t? Should other countries not have a chance to build and grow wealth and new technologies? Do they not deserve to have talent, money, and innovation?
All politics is local
I empathize with anybody trying to build a crypto business in the US. I'm astonished anybody even tries to do it anymore. You have to deal with nonsensical laws, capricious regulators, and archaic ideas about how money “should” work.
Respect to all who push those boulders up those hills.
If that's you, perhaps it's insensitive of me to suggest you go to another country.
It's not the worst thing to consider. You may find it better to bring your time, energy, and talent someplace where people appreciate it, rather than trying to win over a political establishment that only wants your votes and money.
Better yet, you will not have to suffer the name-calling, fear-mongering, and hate-baiting from so-called “champions” and the candidates they support.
You will have a chance to live someplace where you can participate in this industry happily and productively, for the benefit of everybody, not just the US and its political class.
Look elsewhere
All of the best new projects operate outside of the US.
For example, GraphLinq Chain (GLQ), an interesting project that launched in 2021 and kept plugging away during the bear market. You can’t buy it on any US exchange.
The same goes for other projects I mention in my market updates and reports.
Even just participating in protocols can suck. DRIFT, a Solana perp exchange, offers a 30% yield on USDC that you deposit into its insurance fund. You get 6x more yield than you get from Coinbase for only 4x more risk, all thanks to speculators buying DRIFT tokens and paying platform fees.
(Don’t buy DRIFT tokens.)
That sounds like a good deal, but the platform blocks US IP addresses! You have to use a VPN and risk losing access to your funds should regulations or VPN technology change.
Learn how to use DEXs now if you don't already. They’re the best way to access tokens that don’t trade on US exchanges.
The challenge?
There are so many, and they all work differently!
To get started, check my list of preferred DEXs and instructions on using them in my special report, Three Ways to Prepare for Bitcoin’s Halving.
Learn now while fees are low and you don’t need to rush.
Once Bitcoin’s price drops low enough OR other assets go high enough, Aunt Sally, Uncle Morton, and the Pickleball Crew will need to buy more Bitcoin to get back to their 1-3% target allocation. Eventually, miners will capitulate. Sellers will run out of tokens.
People like us will buy out stragglers and speculators.
Then, the whole process will start again, just like in the stock market, bond market, housing market, and every other financial asset. The moment you think it’s dead, it comes back to life.
This time, with a new batch of institutions and rejuvenated earlier investors.
If you follow my plan, you have a strong allocation to the market with plenty of cash to spare.
If not, you have a hard decision. Hopefully, this newsletter makes it easier.
Relax and enjoy the ride!