In last month’s post, Larry’s Laughing, I shared concerns nobody else seems to care about.

In this month’s issue, I talk about the disconnect between what people tell you and what the facts say.

With Bitcoin’s pre-having boom, some experts say the data models are broken, the cycle theories are no longer valid, and we’re living in a new paradigm. Bitcoin’s price is supposed to reach all-time highs after halving, not before it.

According to the U2R model, Bitcoin’s price is right where it should be.

As long-time subscribers know, we don’t worry about these things. We take the market as it comes. All models and theories are as valid now as they ever were. 

After you finish reading this issue, go back and take a look at my earlier post, Predictions, Models, and Narratives, you’ll see what I mean.

For all we know, Bitcoin may have just proven the much-maligned “expanding cycles” theory was correct all along. Take a look:

It fits, right?

As with many things in investing, the models work or don't work depending on where you draw the lines.

Look at central banks with their dot plots, revisions, seasonal adjustments, and inflation metrics. These things start as arbitrary formulas and change over the years. Somehow, “macro” analysis remains valid.

Why should it be any different for crypto? 

We good, bro 

Speaking of the macro, I’m told the US recession is called off. Inflation is dead. Interest rates are going to come down and risk assets will explode.

The stock market is up 50% and cryptocurrency is up 200% over the past 17 months. Is that not enough of an explosion?

In the US, we still have over $1 trillion in commercial real estate loans that need to be refinanced at higher rates. We also have at least $1 trillion in CLOs that nobody knows if they're rated properly. We see delinquencies piling up in multifamily property loans, a small portion of the lending market that’s historically a good proxy for small landlords and the rental market more generally.

No worries! Employment is strong. Jobs are so plentiful that some people have two or three of them!

The UK and Japan had two consecutive quarters of negative real GDP, just like the US economy in the first half of 2022. Those used to be called recessions but not anymore, and anyway, they’re finished, so we can move on.

The “macro” looks great.

You still care about macro, you wacko?

I realize nobody cares about “the macro” now that prices are going up, but I still pay attention to what’s going on outside of crypto. 

A lot of analysts claim that liquidity drives crypto prices. In other words, when central banks push money into the financial system, crypto catches a bid.

If that's true, we always need to look at the macro. 

Let's do that, starting with the “reverse repo” facility, a tool the US central bank uses to boost liquidity in the banking system. It’s one of several programs the Fed uses to manage the flow of money, but it’s an important one.

Banks used the facility to stash excess cash from COVID stimulus. They’ve drained the facility (boosting liquidity) since December 2022—coincidentally the start of the crypto bull market.

At this pace, they will empty that facility before summer. 

If that happens, we will soon see the end of one big source of liquidity. 

Also, the US dollar looks like it’s collecting itself for a rebound after breaking its own parabolic frenzy in December 2022—also coincidentally the start of the crypto bull market. 

Why does this matter?

Experts claim Bitcoin has an inverse relationship with the US dollar. When USD goes up, BTC goes down. And vice versa.

In other updates, I’ve shown that’s not always true, but if it’s generally correct, make sure you're following the money.

J Pow got us covered, dawg

Mark, that doesn't matter. Once the Fed lowers interest rates, things will explode!

Seems a little presumptuous.

US inflation has stayed level for months.

At the same time, wages have gone up at a higher pace than the rate of inflation. The stock market is soaring and crypto’s catching a bid.

These are all things the Fed does NOT want to see. People are making too much money. 

The Fed has plenty of reasons to hold rates higher for longer and few reasons to cut. 

Yes, I realize Jay Powell said “three cuts this year.” He also said those cuts depend on the data, which is another way of saying “we don't know what we’re going to do.”

Maybe the US fiscal situation will force the Fed’s hand, or perhaps the trends will change. We may finally get that recession everybody used to say will come “next quarter.” Or, Chairman Powell may throw the doves a bone with a meaningless .25% cut, just to get people off of his back.

Whatever happens, you should probably recalibrate your expectations for rate cuts this year.

That's not necessarily a bad thing. 

The US economy did well in the 1990s with higher unemployment, inflation, and interest rates than today. The 1980s saw huge budget deficits, a wave of bankruptcies, a slew of bank failures, and even higher unemployment, inflation, and interest rates than the 1990s—but it’s considered one of the best decades in US economic history.

Both decades saw the prices of financial assets go up a lot.

“The macro” is dynamic, confusing, and always changing. 

In any event, the Fed is a faith-based organization. Everything it does has a long and variable lag. It can change its mind at any moment. As such, you can’t get too precise about your timing or planning.

Embrace uncertainty

Data models, cycle theories, “macro.” They’re all important, not definitive.

We don't need them to be.

The vast majority of financial content is designed to give you a sense of certainty about this market. “Strong convictions loosely held.” Data models. Cycle theories. Squiggles on charts. 

(Same as the legacy markets’ dot plots, leading indicators, P/E ratios, and time-shifted correlations.)

You're looking for certainty in an uncertain world. In this market, uncertainty is your edge. 

When you obsess over price, you stress about the only thing you can't control or predict. Instead, look at humans and their behaviors.

With crypto, these behaviors get recorded on a transparent, immutable ledger. They reveal the subconscious of the market.

As a result, we can see beneath the surface of the market.

People dismiss this skill because “no alpha” or “can't tell me what will happen.” 

Dismiss it at your peril. This data offers key insights that help you manage risks and opportunities. It will give you a sense of perspective on the market, let you navigate the twists and turns, and put that uncertainty to your advantage.

You try to get a leg up on the market, but the market always stays one step ahead of you.

The good news?

With so much upside, you don't need to compete with the market.

Often, you end up doing better with a simple strategy: find assets that rise over time and put money into them blindly, on a fixed schedule, without regard to the market conditions.

I'm talking about dollar cost averaging.

Only some traders, anonymous Twitter accounts, and leaders of private Telegram group chats can beat this approach consistently. And for those in the latter two categories, you have to take their word for it.

What if you had an approach that beat dollar cost averaging without cycle theories, data models, price predictions, trading, or timing the market? 

My plan does just that.

Good things come to those who wait

With my plan, you’re up 23% at worst, up 1,050% at best, and probably closer to up 150% with cash to spare. You sold a little bit of Bitcoin at $68,000, give or take a few thousand dollars.

You’ll buy more when Bitcoin’s price reaches the buying zone, with a bonus: when that time comes, you’ll buy at a lower price than anybody who has dollar cost averaged since Bitcoin’s price left the buying zone in the first place.

For each dollar you put into the market across the entire history of my plan, you get up to 30% more Bitcoin than dollar cost averaging. 

What's the cost?

You have to wait for opportunities to come, and when they come, you have to force yourself to do things that may seem a little uncomfortable.

If you can wait for those opportunities, you can beat the safest, most effective way to invest in crypto—without spending any more money or effort.

Here's what you did with my plan (all boxes before March 2020 are backdated because I didn’t have the plan):

Sadly, you never bought at the exact perfect time or in the exact perfect amount.

Sometimes, you bought for months while Bitcoin’s price fell. Other times, you missed small dips that presented good buying opportunities. You suffered massive swings in your portfolio.

Only anonymous Twitter accounts get their timing perfect. They’re elite—so elite that they don’t reveal themselves or show any proof of their success.

Don't benchmark against the elites. Benchmark against the average.

Half of paid content creators can't do this. The same is true for half of investors and financial advisors.

When the market goes up, you always feel like you should've bought more at lower prices. 

When the market goes down, you always feel like you should've sold more at higher prices. 

The fact that you can do even 1% better than the safest, most effective investment strategy? That’s accomplishment enough, and not guaranteed to continue.

That’s trash, bruv

Small consolation to anybody who signed up in 2024. Trust me, your time will come.

It may not feel like that when the time does come. Sometimes, you just have to trust the strategy and take the results at face value.

You will still hear people tell you it was dumb to buy crypto in 2022 when everything crashed. According to them, you were supposed to sit in cash. Smart people bought crypto in 2023.

Oddly enough, the dumb approach got better results.

On average, Bitcoin’s price was $28,100 in 2022. Bitcoin's average price was $28,800 in 2023. All else being equal, assuming you bought on any random day in 2022 or 2023, you got a better deal in 2022.

What about your cash? Surely it was better to hold cash during 2022, when everything was falling apart, right?

No. 

The average yield on cash and cash equivalents was 3% in 2022. In 2023, that cash fetched a 5% yield—almost 70% more than in 2022.

You got a better deal on your cash in 2023.

Michael Burry got famous for betting against the US housing market in the mid-2000s. He made a fortune for himself and his clients.

He opened his position in 2005, when you could still buy a house for a normal price with a reasonable down payment and terms that made sense for your income, goals, and lifestyle.

After the housing market collapsed, average prices fell to 7% lower than 2005 levels.

If you bought a house in 2005, when Burry started calling for the bubble to burst, you would have done ok.

When the market tanked, you took a hit on paper but got through it. You refinanced to a basement rate and freed up cash flow. In the meantime, you got three years to build equity in your primary residence and a slew of tax benefits you couldn’t get as a renter. 

Depending on how you structured your finances, you may have even had a great chance to acquire more real estate at a discount in 2008, 2009, and 2010. The US government gave you a once-in-a-lifetime deal on low rates, depressed market conditions, and big subsidies to buy a new house or get a second one.

Bonus: within a few years, the value of your house went higher than when you bought it.

Burry was certain. He bet against you. He won. 

You still came out ahead.

Truth is elusive 

You can try to make sense of these contradictions. Or, you can accept them. Embrace uncertainty. Recognize that truths are hard to find. 

What about the data models, cycle theories, bull market phases and support bands, facts, figures, and metrics?

They’re all useful ways to think about the market. 

In crypto, with so much upside, you don't need to be a stickler for lines on a chart or some projection of future events. You can make up for bad timing. Complacency kills.

I like to think of the market as a series of stories, each with three acts.

Some people think I’m talking about the three phases of the bull market: an upswing that leads to an accelerated rise into a blow-off top, or some variation of that.

It’s a shame that the classical storytelling format also has three parts, because this framework has nothing to do with bull markets, bear markets, or market phases. Any similarity is purely coincidence.

Like the three acts of a story take you on an emotional journey, so do the three acts of each major crypto cycle. These movements reflect the way we perceive the market and our impressions of ourselves and our ambitions. 

Act 1 sets the scene, introduces the main characters, and establishes their goals. The author needs to give the audience characters they care about and stakes that matter.

May/June 2022—market crash, lending platforms collapse, regulators threaten destruction. A small group of stalwarts must find a way forward. Some fight to recover their lost reputations or rebuild their portfolios. Others, to validate their commitment to this industry or their pursuit of money. Can they succeed?

Act 2 presents the main characters with challenges, struggles, setbacks, and recoveries. The author needs to show the audience that the main characters have what it takes to get what they want.

March 2023—crypto prices start to recover. A financial near-crisis reminds people that the legacy financial system is more dangerous than they thought. US courts shut down regulators. Governments bring fraudsters to justice. CZ steps down. The path is cleared for Wall Street. Prices go up long enough for people to think they’ll keep going up. Awareness grows.

Act 3 brings thrills, twists, turns, and volatility, leading to the climax and denouement. The author needs to keep the audience on its toes without revealing the ending, so the audience will stay engaged and relish the surprises along the way.

Late 2023/Early 2024—US regulators approve Wall Street’s Bitcoin ETFs. Markets rise. New all-time highs. Are the data models still valid? Is it different because of the halving? Will we get an altseason? When will the peak come?

We’re in Act 3. The chase scene. The final battle. 

Act 3 is the most turbulent, with moments of thrill and ecstasy, terror and despair. The audience believes the hero or heroine will succeed, but they don’t know how. 

See beyond the day-to-day

Mark, that can’t be. The bull market just started!

Bitcoin price has gone parabolic for 17 months. 

Are you using some definition of bull market that I’m not aware of? Can you name any other asset whose price went up for 17 months before a bull market?

Mark, we haven’t even had the halving yet!

Ok.

That means we can look forward to less new supply of Bitcoins once the market settles. That’s when it will matter the most!

The halving removes the equivalent of $11 billion in new emissions each year.

That’s as much as the ETFs took out of the market since January, with a bonus: ETFs can dump that supply on the market at any time. The halving removes that selling pressure forever.

Your favorite analysts will forget about that when the market drops for half a year, as it does in every bull market. But I won’t!

Survey the moment

Those same analysts may tell you long-term HODLers aren’t selling. Ask them what data they’re looking at.

First, let’s throw out Bitcoins that haven’t moved in more than 5 years. Most of those are never going to move. They’re either lost or sitting in cold storage.

Next, let’s throw out Bitcoins that haven’t moved in less than one year. You can’t consider those “long-term HODLers.”

The number of Bitcoins held for 1-5 years dropped from 41% of the supply to 36% from December to today.

Given the scope and timing, most of that change does NOT come from Greyscale selling its HODLed Bitcoin.

While 5 percentage points doesn’t sound like much, it represents 900,000 bitcoins. That’s $60 billion buying pressure, gone.

If you sold those Bitcoins, you probably won’t buy more at higher prices. You held through crashes of +70% and upswings of +2,000%. You’re sitting on massive gains, possibly with plenty of BTC left in your possession. You might come back at the bottom of the market or after a big crash. You’re definitely not going to FOMO into a parabolic frenzy.

Some say it’s only a small portion of the market, nothing out of the ordinary. “Nobody else wants to sell now, it’s all market manipulation to shake you out.”

Are you sure? 

Realized Profit and Loss Ratio is the highest it’s been in a decade. We have many more people selling at massive gains compared to the number of people selling at a loss. It’s at a level we haven’t seen in more than ten years.

Those people already took money out of the market. How many more will do this when the market starts to fall further?

A lot.

Relative Unrealized Profit, a crude measure of potential selling pressure trapped as “gains” people haven’t sold, sits at historically high levels.

Not quite at the absolute levels we saw at previous major peaks but aligned with the historical trendline connecting those peaks (a more shaky and subjective standard, admittedly). In absolute terms, it’s on par with levels we saw before large, deep corrections.

You can talk about HODLers but at a certain point, human psychology intervenes. When confronted with the possibility of loss, people will sell to protect their capital.

They’re already doing it—and they have a lot of capital left to protect (i.e., by selling crypto).

Buy or sell?

Mark, that means we have to sell now, the market’s going to crash!

You can't make that conclusion based on any data from this post. You can call for Bitcoin to crash at any time. You will always be right. 

What’s the difference between a crypto bull market and a crypto bear market?

In a bull market, prices sometimes go up!

If you're thinking about selling Bitcoin, step back and reflect on what you want to get out of this market. What’s your timeframe? Job security and cash flow? Tax or lifestyle situation? Do you have specific goals or needs? 

When you sell, you're taking a big risk. Make sure it's worth worth it.

For altcoins, it’s not as simple, but the same principles apply.

Because they’re so volatile and each has its own attributes, you have to look at each altcoin on a case-by-case basis in light of a larger portfolio strategy.

One more hiccup: taxes. Everybody is in a different situation. A decision that makes sense for one person may not make sense for you, even if it's the same amount, with the same basis, at the same price, at the same time.

On that note, consider taxes from a strategic perspective, too. 

For example, in the US, you can deduct losses from your taxes. It’s like getting a partial refund on your losing bets. This can make a big difference in how you structure your portfolio (buying, selling, allocation, etc). 

For example:

• You put $10 into five altcoins and sell each after they double. You’re left with $50 crypto, $50 cash, and a tax bill.

• You put $10 into five altcoins. Four of them go to 0 and the fifth goes up 10x with two 80% crashes along the way. You’re left with $100 crypto and a tax deduction of $40.

If you take the first option—the conventional option—you get the same gains and pay more taxes than the person who loses 80% of his or her bets and suffers 80% downswings along the way. 

On top of that, you’ll never know whether you sold winners or losers. 

If you take the second option, you can feel confident that you picked a winner, keep a tax deduction in your back pocket whenever you need it, and let the winner run forever as a source of enduring wealth.

Of course, the math is never that simple in the real world. All five altcoins won’t exactly double and four altcoins won’t go to 0 if the fifth goes 10x. 

Hopefully, you get the idea. Think hard before you sell.

I'm happy to consult! Schedule time with me on Tealfeed or Superpeer.

Level with yourself

By now, it's clear that this market has gone too high, too fast, and can't sustain its upward trajectory. The Internet algorithms haven't caught onto that yet, but they will.

Fortunately for us, “too high” and “too fast” are relative terms. When this market zooms, it can go far higher than anybody could ever think for far longer than anybody could ever expect.

Still, we can't lose sight of reality. The facts are clear and the circumstances leave little room for interpretation. 

The only mystery is how this story ends. That’s the excitement!

Or, for some, the terror.

Think of it like going to the doctor. He checks your blood pressure, draws some blood, taps on your joints, and does whatever else he does in a standard exam. He tells you that your blood pressure is high, your cholesterol is off the charts, and your BMI is way above normal for somebody with your muscle tone.

Does that mean you're going to have a heart attack and die?

No. It just means that something needs to change or else you’ll suffer a debilitating disease. 

As a friend, I'd support you as best I could. 

If I'm betting on your health or longevity, I might think about your situation a little differently.

That’s an analogy for the situation now.

At the beginning of the year, the market got a little ahead of itself. No worries. Happens all the time. Normal bull market behavior.

Now, the market is way ahead of itself. We know what to look for before we start to worry and what needs to happen before we feel better about the situation.

If you're following my plan, you win either way. You have a strong allocation to the market with cash to spare. 

If that's not you, or you missed a chance to get a strong allocation to the market in 2022 and 2023, reflect on your needs and expectations. Those things matter more than any data model, cycle theory, or price prediction. They shape your emotions and perception of cryptocurrency as a technology, investment, and source of wealth.

If it helps, watch this video from one year ago. It’s old but still relevant. After you watch it, there’s a good chance you’ll think about the market in a new way.

Your mindset makes all the difference in what you perceive as success and failure.

Relax and enjoy the ride!