Transcript: 5 Urgent Crypto Questions

Top: Juan Villaverde, Joel Kruger, Alex Benfield. Bottom: Marija Matić, Max Wright, Marko Grujić. To watch now, click here, or read the transcript below ...

 

I think you and I can easily agree about which crypto questions might qualify as the most urgent right now …

1. Is the worst of the crypto market decline behind us?

2. How will Bitcoin withstand the test of this new risk-off environment?

3. What about a crypto rally? Is it overdue? How big might it be? How can investors use it to their great advantage?

4. When and at what level will Bitcoin hit bottom?

5. What about stablecoins, NFTs and altcoins?

But when it comes to the answers, I suspect there will be some fierce disagreement, even among the best experts.

That’s why we held an informal Weiss Crypto Forum last week. If you haven’t seen it yet, I urge you to watch it now.

Now, in the time since we recorded, crypto has begun the relief rally we’ve been waiting for. It could take Bitcoin up 30%, 40%, even 50% from its closing low on June 18. Based on what we saw happen in 2014, it could even be as much as a 75% rally.

The best way to play it? Use it as an opportunity to build a wad of cash, whether that means selling at a profit or a loss. Then, redeploy most of that cash when Bitcoin really DOES hit rock bottom for this cycle.

The signal I pegged in our forum was a Bitcoin rally beyond $24,000 on a closing basis. It crossed that threshold intraday on July 20, but again, I’m looking for a close above this level to confirm a strong rally.

But for all the details and much more, watch our forum.

Or read the transcript below …

Juan

Transcript: Five Urgent Crypto

Questions and Answers

(Edited for clarity)

by Juan Villaverde, Joel Kruger, Alex Benfield, Marija Matić, Max Wright and Marko Grujić.

Introducing the Team

Martin Weiss: Today I'm very glad to see we have all six of our analysts and experts online together, which is a rare occasion. To start, I would like to introduce everyone to Max Wright, who is the newest person on the block here.

In the crypto world, Max is the veteran among all of us, having started investing heavily in Bitcoin in 2012. How'd that start? How'd that happen, Max? How did you wind up in Bitcoin in 2012?

Max Wright: You can only have one of three stories if you joined at crypto in 2012:

One, you're a drug dealer.

Two, you're a tech geek and you just wanted to play just because you're a mad scientist. Or …

Three, you're a fanatical libertarian.

I kind of fall into category number three.

I was at a libertarian conference and Trace Mayer, from the Mayer Multiple, introduced me to Bitcoin.

Coincidentally enough, he was going to law school with my girlfriend at the time.

And so they recognized each other, started talking, and he told me about this “magic internet money.”

I listened. Just so I could tell him why the silly idea wouldn't work.

But he had all the answers for me.

Martin: And he tried to convince you about this new, funny money that initially you said was a bunch of garbage.

Max: Yeah, but he had all the answers for me. He convinced me to give it a little bit more time. After a few more months, I was sold.

Martin: Fantastic. And Max, you've already met everyone, but perhaps not all our subscribers have met everyone. So, let me start in alphabetical order.

Starting with Alex Benfield. Alex is partnering with Juan, and you're also editing the Monday edition of the Weiss Crypto Portfolio, which is the ...

Alex Benfield: Trader Monitor.

Martin: We look forward to your input today. Next is Joel Kruger.

Joel is the editor of the NFT Wealth Builder, which we've been publishing since last year. When I first met Joel, I asked him, "Should I invest big time in NFTs right now?"

That was right near the peak of the NFT market, around November.

He said, "No! If you're a collector and you're looking to nibble and learn the marketplace, there’s no better time than now. But if you're looking to invest serious money, no, this is not the time."

And sure enough, that is what you've been recommending in your publication: Nibble, learn and get ready for the big buying opportunities down the road, which are still not here yet, correct?

Joel Kruger: When we spoke last the other year, the market was looking to pull back.

But far as what I'm looking for, it’s the same things, whether it’s now or in the future: wonderful opportunities in this market that are going to be there now and going forward. In the long run, it doesn't really make a difference. All the opportunities are there.

Martin: Moving on to Marija Matić. again, similar kinds of congratulations are due. We all know what has happened to Terra (LUNA).

Marija, you recommended LUNA very early, but more importantly, you recommended that all investors subscribing to your Undiscovered Crypto service also sell all their LUNA very early.

You took an opportunity to grab great profits there. On a similar note, though, you're still holding some of the smaller cryptos. So, we'd like to hear more about that and what your strategy is for those as well.

Finally, Marko Grujić. So glad you're here. These difficult markets fall right into your lap because your specialty is yield farming. And in theory at least, yield farming should not be impacted severely by the decline in the market.

Unfortunately, that hasn’t been true for one or two of the stablecoins and some of the centralized exchanges, but there are still some important sectors of the decentralized finance world that have held up very nicely. They are still very stable despite the ups and downs in the prices of other cryptos.

Marko Grujić: Absolutely. Stablecoin dominance is growing day by day. So, there’s huge demand for it and huge bets in the space for the biggest centralized stablecoins, decentralized stablecoins, and algorithmic stablecoins.

People want to make that bet because, if we have digital money eventually down the road, the sector could grow into the trillions of dollars, I believe.

Critical Turning Points Ahead

Martin: Juan, you need no introduction, that’s why I left you for last. Since you were the first crypto analyst at Weiss Ratings, you’re the senior analyst in our group. And we look to you for leadership, especially with respect to timing of the market, your specialty.

I know because when we first met, you were very negative on Bitcoin, and that was the beginning of the 2018 collapse. Then in the middle of December 2018, you tweeted to the whole world, "It’s time to buy Bitcoin."

That was your first buy recommendation throughout that whole bear market period.

Fast forward to more recently, when did you issue your broad recommendations to take profits and liquidate all of your trading portfolio and a good portion of your long-term positions, both in Weiss Crypto Portfolio and Weiss Crypto Investor?

Juan Villaverde: The Federal Reserve pivoted in their policy in early November, and we were expecting that the inflation rhetoric was going to change. So, in late November, early December, we started liquidating the portfolio.

Martin: Good for you. Excellent timing. Thank you very much, everyone. Enjoy the hour. I look forward to hearing the recording. Bye.

Max: All right. Juan, as senior analyst, let's start with you.

Lots of successful calls in the past, and I love that big, broad smile on your face every time I chat with you. It makes me feel real good.

For the viewers at home, we have a weekly call where we get on and chat with each other. It’s back and forth. It’s fun and we're throwing ideas around. Today, we decided to try and capture that energy for you guys.

Juan, let’s start with where you're thinking markets are going in the next six to 12 months. We'll set that as a base for the call. And then we can all chime in as we see fit from there.

Juan: As of this recording, early July, the market is searching for a bottom. And this is simply a function of the fact that it has been going down for too long.

I'm a cycles guy, so this is what I look for. I count time and I just counted 100 plus days on both Bitcoin and Ethereum going down without a meaningful pullback.

There’s a tentative low established as of this recording on June 18.

So far, markets haven’t closed below that low; they haven't even traded below that low, not even on an intra-day basis. So I'm looking for that potentially to be the bottom.

I could be wrong there. But even if I am, it doesn't change the fact that we should be looking for a rally as summer progresses.

Again, this is just a function of time; there’s nothing necessarily behind it. The rally should coincide with a rally probably in the stock market. Bond prices should also stop going down for now, as interest rates take a pause.

There’s probably going to be some rhetoric about the Fed stopping the carnage, accompanied by some type of commentary that, “okay, maybe the worst is behind us. Maybe that’s all there is to this tightening cycle.”

Don’t fall for it. I'm looking for something to break again in the second half of the year.

Specifically, I think it’s going to be in Q3. Again, I'm a cycles guy, so this is what I'm looking for, maybe October.

Basically, I’m waiting for the other shoe to drop.

Something bad happens, but any type of catalyst is what I'm looking for. And then that’s going to bring us another leg down in crypto markets, but also in risk assets in general.

I think it’s probably going to be something related to the fact that, “yeah, we are in a recession!”

The Fed has once again thrown us into a recession in order to fight inflation, which is what they do nearly every single time.

And that’s when I'm looking for the final low to be made in crypto That’s when I think the famous Fed pivot is going to happen.

I say it’s going to happen within the next six months. At the latest, it’ll be January of next year.

Max: This is a very, very busy six months you're predicting. You're predicting a rally, a significant crash and a Fed pivot, all within the remaining months of this year.

Juan: Correct. The significant crash, by the way, would not be in crypto. I think the worst is behind us in crypto in terms of the sell-off and liquidations.

Yes, there’s going to be another down leg in crypto, but that’s going to be the final low. Maybe it’ll be fierce, but if so, it’ll be short-lived.

I think the worst of this crypto winter is already in the rearview mirror. But I don't think we're at the low yet. Again, because I'm a cycles guy and the four-year crypto cycle bottom out in Q2. It just never has.

Max: I think I'm a little more bearish than you, and we’ll talk a little bit more about that.

Something I keep a very close eye on is the U.S. Dollar Index (DXY) and the dollar strength index. Right now, we're at 108.2, and it just rocketed up. It’s at a point of resistance. And typically, as you guys all know, if the dollar is going up, markets are going down.

That’s true in crypto as well. Yes, DXY might come down a little bit, which might be a little bit of a rally here in markets.

And again, I agree with you; I think it’s going to be short-lived. I think the downside is going to be a little bit bigger than what you seem to be thinking. But let's talk about the rally first.

I've had the pleasure of having conversations with you about this before, so I know that you're looking for a 30%, 40% or 50% rally.

Juan: Yes, to confirm, I'm looking for certain levels to be crossed on Bitcoin, specifically. The level that needs to be crossed to confirm that this is a significant low would be Bitcoin crossing $24,000.

That hasn't happened yet. Also keep in mind that everything I mentioned is on a closing basis. On a closing basis, as of this recording, and from that June 18 low, Bitcoin has only rallied about 12%. That’s not enough. It would need to be 30% on a closing basis.

Max: Would that be a monthly close, weekly close or daily close?

Juan: On a daily closing basis. So, this would be again, about $24,000 to $25,000. That would be the LOW end of the range.

$50,000 Bitcoin Ahead?

I'm expecting more in the realm of $50,000. And actually, after one of our conversations, I went back and looked, and saw Bitcoin rallied in a similar cycle in 2014.

By 75%!

Max: Wow!

Juan: So, if it rallies again by as much as 75%, I still consider it just a relief rally with new lows coming later.

And if Bitcoin goes up 75%, I think you're going to see Ethereum double.

Max: Sorry. Which year was that big rally again?

Juan: 2014, during the Mt. Gox collapse. That was a brutal one.

Max: It went up to $1,200, and I think by the end of the year, it was down to …

Juan: About $250.

Alex: There are a lot of parallels between now and 2014, considering the black swan type events.

Juan: Yeah, the liquidations, the fears that crypto may be “done” as an industry are pretty much the same.

So is the pattern of these long, drawn-out corrections that just don't seem to end. I think this is just like 2014.

Max: Good call, Alex. Having lived through that Mt. Gox collapse in the crypto world, I know that was a monster.

Mt. Gox was one of the only exchanges at the time, and I'm pretty sure that 12 months prior, it was responsible for about 90% of crypto volume. Certainly when I was buying, the only place to buy was Mt. Gox. I was wiring money to Japan, where Mt. Gox was located.

When it collapsed, it felt like the end of the world. But crypto showed us resilience there.

Why don't we jump over to Alex? What are your thoughts here? Independent of Juan's.

How to Trade the Bitcoin Relief Rally

Alex: I have a pretty similar outlook. What I'm looking for in the next few months is to take advantage of that rally that Juan is talking about. So, for anybody that might have missed selling earlier in this year and has rode the market down, that relief rally is going to offer some selling opportunities.

Say we do get a 50% Bitcoin rally here. That’s going to offer you an opportunity to claim some exit liquidity — to stock up some cash for what I would imagine is going to be a further drawdown toward the end of the year.

We're just so oversold that there should be a rally in the near future.

But the macro conditions are pretty terrible. Juan used the word “recession.” I think it might be fair to throw in the possibility of depression, especially now that the dollar is getting strong and markets around the world are showing some major weakness.

With inflation the way it is, I wouldn't be surprised if the Fed’s plan for demand destruction works too well.

We're going to find out how Bitcoin reacts to major global events, including what could be the most bearish macro backdrop it’s ever seen. And we're going to find out in the next six to 12 months.

Exciting times and a scary time.

Max: That’s what I'm looking for. But regarding Bitcoin fundamentals, I like the on-chain metrics.

You've got the Lightning network, its capacity going up in terms of nodes, dollar capacity, and the number of users coming to crypto. All these factors are still on the rise.

So, my certainty has never been so high for Bitcoin’s long-term trajectory. And I feel like there’s a lot of people in our camp who want to buy so bad that we try and get as much as we can by waiting for the price.

Is that the mood on the call here?

Balancing the Ugly and the Opportunity

Alex: You have to balance the ugly-looking, short- and medium-term trajectory with the very positive long-term overview of Bitcoin and cryptocurrencies.

Which again takes me to my strategy right now and over the next six to 12 months:

I want to take advantage of this upcoming rally in the short term. Maybe to offload some crypto and load up on dollars to prepare for what I think is going to be a great buying opportunity later this year or early next year.

That’s what I'm really looking forward to: a big buying opportunity.

Exactly how long that takes to play out is up for debate. But the big opportunity that’s coming up is what we're focused on.

Max: Preservation of capital is the name of the game right now. Just have a strong hand when the blood is on the street, so that you can come in and do some serious damage.

Courage to Move Into a Burning Building

In case you don’t have the courage to do that when the time comes, I don't want to be the person crying in your Cheerios.

Because it does take courage to move forward into a burning building. And it will feel like a burning building at that time, won't it?

Marija, why don’t we step over to you? What are your thoughts on the conversation so far?

Bitcoin Dominance Rises and Falls. Here’s Why That Could be So Important.

Marija Matić: I’m specializing in smaller altcoins. Altcoins are connected to the macro situation in much the same way that Bitcoin is. Virtually everything is correlated, at least to some degree.

But at the same time, Bitcoin and altcoins have a shifting dominance. And that’s what I’m looking at.

During a bull market, Bitcoin loses its dominance because altcoins gain much more in terms of market cap.

During a bear market, such as this, Bitcoin gains dominance. For example, Bitcoin has gained around eight percentage points in terms of market cap dominance this year.

And right now, Bitcoin’s dominance is around 44% when it comes to the total market cap.

Going back to the end of 2020, it was 70%.

Basically, it has really decreased during the bull run, but now in the bear market, the Bitcoin dominance is recovering.

For altcoins, bull markets are everything, and that’s what I'm waiting for.

When I truly believe in my favorite altcoins, I hold them with conviction.

Plus, as Alex and Juan mentioned, I may also use some relief rallies to sell into strength and have some more money to buy the bottom.

Altcoins tag along with Bitcoin. The difference is they tend to fall faster and rise faster, depending on market conditions.

They have less liquidity, so that’s why their price is more volatile. They're riskier and less well known than Bitcoin, which is why they’re more volatile.

That’s also helps explain why some crypto investors traders are actually trading the dominance chart, like they were trading any other chart.

To sum up, we’re holding with conviction and waiting for the rally. But above all, we have a long-term commitment.

Max: That makes sense. Bitcoin dominance was a metric I used to rely on heavily. I used it a lot in my analysis. And for the points that Marko raised, I've shied away from it a little bit lately because stablecoins are also in that metric and that ruins it a little bit, makes it a bit less useful.

This is a question for both of you, whoever wants to answer: Have you guys found tools that are nice and easy to use? A tool that’ll show Bitcoin dominance versus the rest of the altcoins, excluding stablecoins?

Marija: There are a few charts that show stablecoin dominance. However, you have some that don't include all the large ones. So I think these charts can be improved. I know some traders that are making their own by pulling their own data for these stablecoin charts, which is a great thing.

But I'm using incomplete ones, unfortunately. Because they're not the comprehensive ones on TradingView.

Alex: I was about to say, it pays to have your own data and to know how to do data analysis.

Marija: Absolutely. And you just gave me a great idea, Max. I think we’re going to work on that.

Max: Very good. So Marko, talk to us about your analysis and worldview coming from the stablecoin side of the things.

How is that playing into all of this? First of all, at the macro level, are you agreeing with the rest of the team here? And if so, how are you leveraging the stablecoin markets to maximize your returns during these times?

Why Dollar-Cost Averaging Could Be Critical

Marko: From my standpoint, I think that it’s really interesting how the crypto markets went through this whole storm.

Because I don't think it's just the macroeconomic factors. We also had two huge blacks swan events.

One with Anchor, which raised around $50 or $60 billion of retail money with LUNA and TerraUSD (UST). And then the whole situation with Three Arrows Capital, where they were just taking loans left and right from everyone.

They made a mess, not just for themselves, but for all centralized lending platforms. So there were forced liquidations in many areas.

I think the Anchor meltdown showed us that there are still certain mental blocks together with the macro pressures that are keeping investors away from the market.

So, we were cautious when we saw how the Fed was throwing out that “inflation was transitory,” or after when it called this a “soft landing.”

Now, we’re now seeing the opposite. For now at least, the Fed is more hawkish.

I think that one viable approach is to dollar cost average in the month. That’s what I'm doing.

I don't mind buying $1,000 Ethereum or $20,000 Bitcoin And I REALLY would not mind buying Ethereum below $1,000 or Bitcoin below $20,000.

I'm itchy to buy back 100% of my positions, but I’ll keep waiting. I just want to spread out my ammo. I don't want just to buy everything now.

People are really smart in the market, so wherever we can see some liquidations, like what happened with Three Arrows Capital, I think people will attack these liquidation points much more in crypto than traditional assets.

Why? Because of the market transparency. We can see them on the blockchain. That’s very different from what happened with GameStop last year. Then, big funds were shorting the stock, and it was very hard for investors to figure what was really going on.

Max: That question of contagion — it’s such a huge topic and we haven’t really talked about it too much. We’ve got a glimpse of it and every day that goes by, it seems the world gets set up for more contagion. Meaning, we become more and more dependent upon each other.

I think back to 2008 and the contagion that started with the Iceland stock market and … and then eventually led to the U.S. housing collapse … and many other failures from there.

Now, we fast forward 14, and I think the contagion is again going to be epic.

We're already seeing developing markets suffer.

But in the crypto market, I don’t think we've seen the end of it. There’s going to be a lot more pain and suffering. I think maybe Marko and I are the two most bearish people here. But we'll see.

Joel, why don't you share your thoughts about what you've heard so far and what you think is going on with the market?

Joel Kruger: Well, I think everybody has articulated where we're at right now. The most interesting thing for me right now is the difference between this cycle and previous cycles.

Since inception, Bitcoin and then other cryptocurrencies, have lived in one of the most risk-beneficial climates of all time.

It’s ironic, really. Bitcoin and later altcoins were born out of a rejection of the traditional system. And yet, the crypto market has had the benefit of flourishing in a time where we've seen one of the most risk-friendly market environments of all time, up until 2022.

And so, right now, this is the first we're seeing a pullback happen at a time where we're also experiencing legitimate bearish price action in U.S. and global equities. So I think that this is an important test.

In each four-year cycle, we see a pullback. In each cycle, we see a different type of stress test.

The current test is critical. We will soon see how this asset class will ultimately respond in a period of legitimate risk-off forces in global markets.

My sentiment is similar to the others here: I think we've seen a good pullback to this point, and I think that we'll see additional declines.

Usually when you see bottoms, they're accompanied by these panic-type moves that are sharp and intense. And right now, we're just seeing consolidation. So, that to me, it ultimately suggests that we're going to see deeper pullbacks.

But as everybody has articulated here, we’re here to recognize the value proposition in the long term and to recognize that whatever the case, whether we’re trading $20,000 or $10,000 in Bitcoin, it doesn’t really matter in the grand scheme.

The opportunity and the value proposition is certainly there. Especially after the pullback that we've seen over the past several months in 2022.

Max: Why I’m So Hungry to Buy

Max: Like Marko, I find myself in this situation where I'm so hungry to acquire more coins, but I think the price is going to go lower. So, I’m holding off.

From this conversation so far, I think I'm one of the most bearish people on the call. But then, I fear being so greedy for big bargains… that I wind up waiting so long and miss the market. I never get back in.

And so I think I'll be following Marko's tactics — buying well before I think the low is in. Just to start accumulating and start getting in there.

Joel: I just want to add something that I think it is very important. Everybody is fixated on the low. But again, if you think about the long-term value proposition here and what Bitcoin — and ultimately the healthy part of the rest of the market — should do, it really comes down to this:

If it’s going to be successful and deliver on its promise, it just doesn’t make a significant difference.

Whether we're trading at $30,000 or $20,000 or $10,000, it just doesn't make a difference, say, five years from now.

The ups and downs we’re talking about today with be irrelevant then. Again, like the sentiment that has been expressed here, I think it’s important to just be able to believe in what we're doing here and to continue to take on exposure at any price …

Below $100,000 Bitcoin! That’s how I look at it.

Marko: I just want to wrap on what was Joel said. In retrospect, if you look how narratives changed in the last bull run, we were just chasing narratives. And I think this could actually be one of the best times to invest.

Remember: At the top, everyone was obsessed with finding the highest returns. We’re already far away from that euphoria and frenzy. Now we’re back down. That gives us easier bets.

Mainstay cryptos like Bitcoin and Ethereum were boring at the top. Everyone wanted something more exciting. Now, Bitcoin and Ethereum, are exciting again.

So, right now, you don't need to chase the newest Layer-1 protocol. You can just invest in Bitcoin again and be right about that, and potentially have ridiculous returns in a few years.

Bitcoin and Crypto More Mature Than Ever

Joel: The other thing I think that is important to highlight is the maturity of the market. I’m talking about the institutional adoption that we're seeing. It’s critical. We did not see much of that in previous cycles.

Over the past 24 months, we've seen tremendous institutional adoption. And that doesn't necessarily mean that these have already maxed out the exposure that they plan on taking.

To me, it means that they’re seriously looking at crypto. Institutions like funds and banks, and hopefully, other, larger institutions, are going to come in.

Family offices that are taking a serious look at this, are starting to position for the future cycle. And these are institutions that do not make decisions on a whim.

As that presence starts to build exposure, I predict it’s only going to fuel more appetite going forward.

And again, this is different than previous cycles because we're really seeing that presence there. These guys aren't going away. And so, that is going to make it exciting too.

Juan: In my mind, one of the crypto narratives that has really stuck in my mind, in this bear cycle, is that if you listen to a lot of institutional folks talk about macro, they'll always mention crypto now.

Important: Most Big Bitcoin Investors Are Now Just Betting Against (or with) the Fed

Before, they wouldn't touch it. Now, everybody is starting to see, Bitcoin — and crypto in general — as a proxy for how tight or loose monetary conditions are.

A lot of people see it this way.

So, when global investors start sniffing out some type of future central bank pivot, I think they'll promptly pile into Bitcoin. Because now, Bitcoin is almost universally seen, even more so than gold I would say, as a proxy, as a bet against central bank policy.

If you think they're going to ease, Bitcoin is going to leverage those returns. If you think they're going to tighten, Bitcoin is going to leverage those that too, on the downside.

Their narrative is starting to settle that this is how you play central bank policy. This is how you position for the dominant players in the market: Central banks, especially the Federal Reserve.

Max: One of the things I look at is the Weimar Republic. And something that’s ingrained in my head is the chart that shows massive depression … and then, even more massive hyperinflation.

People talk about how the Fed’s backed into a corner, they're between a rock and a hard place.

If they try and do anything remotely like slashing inflation, they're going to crash the whole economy.

I'm not saying it’s the most likely scenario, but referring to the Weimar Republic chart, the dollar-mark rate plunged as Germany was deflation, but then, with German hyperinflation, it went to the moon. The mark was worthless.

I can see that happening to the fiat currencies. Ten years ago, the promise of Bitcoin was that it was going to replace fiat currencies when they destroyed themselves.

And I think we're in this volatile whiplash situation where we have these booming markets, crashing markets and then booming markets.

And that’s why I think I'm near-term bearish, because I can just see that crash being severe. But then, when fiat money hyperinflates, I see Bitcoin coming up the other end with tremendous speed.

That gives me so much confidence to do dollar cost averaging. It gives me so much confidence to hold Bitcoin, because I predict that the speed with which we get to the other side, the speed of the Bitcoin recovery (especially in nominal dollar terms) is going to be so fast that crazy amounts of wealth are going to be created.

The Dollar Fails Not on Weakness, but on STRENGTH

Juan: I would tend to agree, but I don't think we're going to see hyperinflation. I think the monetary system will somehow get redefined long before that happens, because I don't know that we've seen a strong case for hyperinflation in the dominant global currency, the U.S. dollar.

Other fiat currencies, minus the dollar? Yes. They can hyperinflate away. But with the dollar itself, everybody is short.

This is a tangential topic, but one of the things that I've learned during the March 2020 crash:

When everybody owes a currency, that currency tends to fail by getting stronger, not weaker. And I listened recently to an interview with Real Vision Finance. Raoul Pal was making this point: The dollar is going to fail from strength, not weakness.

I mention the March 2020 crash because I was looking at an algorithmic stablecoin. I know that’s kind of a bad word now, but Dai (DAI), the crypto stablecoin, is overcollateralized.

So, they always have more assets than the issued money. But with every DAI in circulation, this is a stablecoin worth $1.

Every DAI that exists has been borrowed by someone. And so when the crypto markets started that vicious, very short-lived crash in March 2020, DAI shot up.

Why? Because so many traders were short, because they needed to repay their loans, because their collateral was losing value. They were scrambling to get their hands on some DAI so they could pay back their loans.

That confirmed the argument that, when currency that has been virtually borrowed into existence, it fails by going up in value.

it doesn't fail by hyperinflating; it fails by getting stronger.

And now look: The great majority of the players, big or small, are avoiding cash dollar holdings like the plague.

That means they’re effectively short dollars across the world.

I think the U.S. is about 25% of the world economy. But here’s the thing: The U.S. dollar is about 80-85% of global transactions, in other words, settled in dollars.

So, it doesn't fail by melting away in value, it fails because everybody needs it to pay back their loans. It fails from strength. And right now, I believe we’re facing such a time when the dollar getting stronger and stronger is a massive threat to the global economy.

Central banks will not be able to sit back and just let it happen. Something is going to have to be done about that.

They call it the dollar wrecking ball.

And for good reason: Whenever it goes up sharply in value, institutions face bankruptcy. Because they are short.

So, the only way the Fed can ease the pain is by printing money.

And this is why you go into crypto as for the money printing trade.

Suppose they don't print? Then they just throw the world into a great depression. The bet on crypto, for me at least, is that I don't think that the authorities will let that happen.

I say they're always going to intervene. They're always going to step in and try to save the system.

At the end of the day, they either print, or the world sinks into another kind of hyper phenomenon — a hyper depression.

They will print. Crypto will go up. Simple.

Max: Agreed. Maybe the word hyperinflation is out of place, but certainly, not for developing countries.

Juan: Sure. Most developing countries are screwed. Absolutely. They will probably see hyperinflation. I've lived through a few of those in the past 30-plus years.

Marko: People don't trust in the dollar anymore, that’s the crux of it.

Max: Let’s wrap up. Maybe putting everyone on the spot for a final thought is a bit too painful. So I might just skip it.

Marija: I just wanted to say, thank you, Max. It’s been a pleasure.

Max: Thank you everybody. I think that was a really productive conversation. I hope we have it again soon. I was a lot of fun!

Juan: It was.

Alex: Thanks, everybody.

About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

Crypto
See All »
A
ETH $1,721.10
B
BTC $21,609.17
B
MATIC $0.78942
B
B
ADA $0.463787
B
CRO $0.128225
B
B
B
B
MKR $858.19
B
B
XLM $0.109742
B
C
ZRX $0.313345
C
ANKR $0.040622
Crypto Ratings
Loading...
Weiss Ratings