In today’s special edition of Money Morning, get a sneak peek at what Ryan Dinse is telling his Foundation subscribers over at Crypto Capital. In mid-November, crypto started attracting less-than-favourable headlines with the undoing of Sam Bankman-Fried and his crypto exchange, FTX. Read on to see why Ryan communicated to his subscribers at the time and how he sees the future of crypto playing out going forward…
As per usual, the mainstream media is woefully inept at dealing with the complexities and nuance around crypto.
That, or they’re just pushing their usual agendas.
Probably both…
Anyway, today I want to prepare you for some potential price volatility in the short term.
The truth is there could be one last capitulation to come as the contagion effect of the FTX bankruptcy plays out.
No one knows for sure where the bodies lie buried, and until that becomes clear, there’s a risk of further forced liquidations.
I’m not saying it will happen, but I wanted to warn you of the possibility.
However…
As I’ve been pointing out all week, none of this has any bearing on Bitcoin’s [BTC] long-term value proposition or the movement towards decentralised tech.
If anything, it’s only highlighted the need for it.
I’ll get to all this shortly.
First, a confession…
Dumb money, after all
As it turns out, I was right and wrong at the same time on the institutions coming into crypto.
The problem?
They were coming into the wrong parts of it!
Consider these bankrupt (or almost bankrupt) companies:
- Celsius
- BlockFi
- Voyager
- FTX
- Genesis
What do they all have in common?
Whether exchanges, lenders, or custodians, their business model revolved around people trusting them with their crypto.
It’s a crude and misguided recreation of the existing system and not true to the ethos of decentralisation in any way.
I’ll give the crypto critics one thing; they did smell a rat here.
But they also continue to miss the nuance of it all as they celebrate ‘crypto’s demise’.
The reason I’m still here after nine years is because of the best of this movement. And I want to help draw attention to the right projects.
That doesn’t mean I’ll always be right, of course.
But I have a better-than-average chance of missing the obvious duds.
As you know, I’ve never recommended using ANY of the above centralised companies. And I’ve ALWAYS advocated for storing your crypto in wallets only you control.
I’ve also always maintained a strong advocacy for bitcoin above all else because I understand how important it is to the entire movement.
But it appears traditional finance never understood any of this.
They just wanted to make money.
The institutional capital that came in on this last ‘crypto wave’ thought they were buying the infrastructure of the future.
But they couldn’t have been more wrong.
And their decisions were simply staggering.
For example, the Ontario Teachers’ Pension Fund sunk US$95 million into FTX and US$150 million into Celsius.
But ZERO into bitcoin!?
That’s a huge signal the fund didn’t have a clue.
I mean, a 1–2% fund allocation to bitcoin from an institutional perspective makes a lot of sense over the long term.
It’s a non-correlated asset with a unique value proposition and a proven track record.
But an allocation into a centralised, unregulated crypto startup that was gambling with other people’s money?
Not so much…
Then there was this absolutely cringe memo from famous tech VC firm Sequoia on its first meeting with FTX founder Sam Bankman-Fried:
WTF?!
If I was an investor with these numbskulls, I’d be pulling my money out quick smart.
Don’t get me wrong, losing money is always a big risk when you’re investing in high-growth opportunities.
But losing money by trusting a scammer based on ‘feelings’ and not doing proper due diligence?
That’s just negligence.
And they’re now finding out the cold, hard truth.
They weren’t investing in real crypto but pretend crypto. Centralised companies that made money from doing risky things with other people’s money.
It’s a story as old as the financial markets.
What a joke…
I mean, the whole idea of crypto was to prevent this kind of thing from happening. But it only works if people self-custody their crypto and mostly use the decentralised tools available.
But this so-called ‘smart’ money didn’t even realise this basic principle.
Turns out they were dumb money.
And yes, I got it wrong here too.
I thought they’d bring a certain level of sophistication to the space, which would help separate the true opportunities from the herd.
My mistake was to presume these institutions would at least have the same basic understanding of the crypto ecosystem as we have.
They didn’t.
But this is a mistake the mainstream critics are making in reverse in the crash.
They’re presuming the failing of these big-name institutions represents a failing of crypto tech.
They couldn’t be more wrong…
Can’t be evil
As I said earlier this week, bitcoin hasn’t missed a beat.
Every 10 minutes or so, a new block of transactions continues to be processed in a secure, global, decentralised network.
And similarly, other proper decentralised crypto platforms have held up well.
Uniswap, Yearn, Aave, Maker, Lido, Curve, Frax…all these DeFi platforms are working fine.
They’ve not lost user funds because they can’t.
There’s literally no better protection an individual could ever hope for. Not regulations, not reputation, not auditing…
To paraphrase the old Google motto, proper decentralised tech can’t be evil.
And, on that front, recent events have been the best advertisement for DeFi you could ever hope for.
Credit where credit is due. Even JPMorgan pointed this out, saying:
It’s good to see them push back on this.
And if they’re right, perhaps smarter institutional money will come at some point to buy the fear.
But the fact is right now most of the mainstream is desperately trying to spin it the opposite way.
As I said before, they have an agenda.
For example, The New York Times put out a puff piece on the fall of FTX and its founder Sam Bankman-Fried this week.
Causing the famous whistleblower Edward Snowden to tweet:
As I also pointed out earlier this week, SBF’s links into the US establishment run deep. He was ‘their man’ in crypto.
And look how that turned out…
Anyway, what’s happened has happened.
And in the short term, you’re going to have to steel yourself for more negativity…
More short-term pain to come
A bitcoin analyst I follow named Dylan LeClair has called a lot of this current contagion perfectly.
He predicted the fall of Celsius and FTX long before they happened.
And unfortunately, he thinks more pain is in store.
He noted yesterday:
‘There is still a whole lot of crypto-collateralized debt obligations out there. Not only does this perpetuate the contagion domino effect, but this also will further the liquidity crunch being felt across the space as institutional players reach for additional financing.
‘This market bottoms when a supermajority of mark to market leverage is purged. A bottom will come.
‘Bitcoin will not die, and the exchange rate will once again receiver. Radical free market capitalism.’
He could be right, or he could be wrong, but it’s something to mentally prepare for. And if you’re still in accumulation mode, perhaps plan for it too.
He thinks this is good for bitcoin over the medium to long term because it’s only when the paper market is fully purged that the proper price recovery can begin.
And that’s when the true hodlers win out.
As he tweeted:
Look, I don’t want this to sound too negative.
Further falls might not come to pass, and if it wasn’t for this liquidation risk, I’d be fairly sure the psychological bottom was in.
But I just want you to be aware it could happen.
And also understand it doesn’t change a thing long term.
It’s just a liquidation event. Forced sellers with no choice but to sell is always a buying opportunity in any asset class.
The price that happens at will be whatever the price buyers are willing to come in at, which could be higher or lower than today.
But after it does, the recovery can begin in earnest.
On that note, another long-time bitcoin-investing company came out with a more optimistic prediction yesterday.
It was based on the halving schedule, which relates to bitcoin’s economic scarcity value.
As reported:
‘Crypto asset manager Pantera Capital believes Bitcoin (BTC) will hit close to $150,000 sometime in the first half of 2025 while also hinting that this cycle’s bottom could be right around the corner.
‘“Bitcoin has historically bottomed 477 days prior to the halving, climbed leading into it, and then exploded to the upside afterward. The post-halving rallies have averaged 480 days — from the halving to the peak of that next bull cycle,” the three crypto investment managers wrote in the letter.
‘“If history were to repats itself, the price of bitcoin would trough November 30th 2022. We would then see a rally into early 2024 and then a strong tally after the actual halving,” they added.’
I think a combination of these two predictions is probably the odds-on path we take.
Maybe one last gasp down if forced sellers arrive en masse, followed by a levelling off and steady rise as holders fill their bags.
Personally, even though I’m overallocated already, I’ll be buying as much bitcoin as I can if it falls to less than US$12,000.
Not all at once, but continual dollar-cost averaging with any spare cash flow I can muster (please don’t tell the wife!).
You don’t need to do that, of course.
But be aware, there are a lot of people like me who will.
And even this week — of all weeks — mainstream adoption of crypto tech continues to accelerate…
Speak soon.
Good investing,
Ryan Dinse,
Editor, Money Morning
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