Every now and then reality gives us all too clear evidence that the cryptocurrency market is not as self-contained (or disconnected) from traditional stock exchanges as some may like to think.
The age-old slump in trade and capital flows that now is plaguing cryptocurrencies is, in fact, entirely consistent with the exceptional lows reached by the inclination to invest found in traditional stock exchanges.
As this graph recently published by Crédit Suisse shows, capital flight from stock exchanges and high-yield bond markets has reached all-time highs:
And of course this money is not going to cryptocurrencies, nor to other investment assets. It is simply out of any market.
I think we need to draw some conclusions from this overly clear picture:
– Among those who invest in cryptocurrencies, the majority are poorly informed about their specific attributes and treat them the same way they would any other stock market asset.
– Neither cryptocurrencies nor traditional stock exchanges are going through a bubble. By definition, bubbles start when the curve of the above graph reaches and exceeds the upper horizontal line, which indicates the boundaries of the market’s “euphoria” levels.
– From a historical point of view, these low levels of inclination to invest predate phases of speculative bubbles with strong increases reached in a very short time (as clearly seen in the graph).
On a very trivial level, beyond all the analyses that the media (including us) make every day to identify constants in the markets, the behavior of investors follows well-defined cycles that are seamlessly repeated.
Therefore, if today we are at the lowest level in the inflow of investment capital, we do not need our sharp reflections to predict that a new phase of increases will quickly lead us to a new speculative bubble.
Such flawless regularity in the long run often leads analysts to adopt a “fatalistic” attitude, as if the markets were governed by an almost divine-like cyclical law, greater than any rational decision.
Personally, however, I see this regularity as proof that there is a constant and regular manipulation of the markets.
Such a regular cyclical nature is actually nothing more than the consequence of the fact that those who manipulate the markets necessarily move between only two alternatives: increase or decrease.
On the one hand, upward manipulation sooner or later reaches a level beyond which the gain that is obtained with further increases is lower than that obtained by suddenly turning the market downward and bringing the new trend to extreme minimums.
The same, of course, happens in the other phase of the same cycle, when an extreme fall forces the manipulators to create a new bullish phase.
In essence, therefore, the law underlying this regular cyclical pattern is quite simple and we can define it as a law of profit maximization.
And we can divide it into three categories:
– There is no market without manipulation.
– Manipulation is always aimed at maximum profit.
– The bullish or bearish direction of a market is always subject to the target set out in point 2.
Looking at the whole crypto market, thousands of articles in all these years have provided us with evidence or suspicions about manipulation (even in BlockchainTop we have often dealt with it).
But together with direct evidence or specific indications of this type or that type of tampering, it is also possible to prove the existence of manipulation as a structural element of this market.
And the proof is in the regular periodic movement between euphoria and starvation of this market, similar to the one reported by Crèdit Suisse for traditional stock exchanges.
For bitcoin (which we’re going to use here as a benchmark of all cryptos) this cyclical movement is quite obvious.
Below are the peaks and lows reached during the 4 main bitcoin bubbles that have occurred so far:
- 2011: from $32 to $2 (- 94%)
- 2013: from $230 to $70 (- 70%)
- 2014: from $1,200 to $173 (- 85%)
- 2018: from $20,000 to $5,800 (- 71%)
We are therefore perfectly consistent with the profit maximisation law that I have assumed to be systematic in all speculative markets.
Bitcoin and other cryptos do not evade this general standard.
Now, as BlockchainTop only targets investors, it is also good to comment on what may be the best way to use the data presented so far.
I’d like to suggest that investors have a non-ideological attitude to the law of profit maximisation.
In many previous articles we have stated many times that manipulation is a structural reality of the markets, of all kinds of markets.
Real estate agencies manipulate data on property prices (data for which they are the sole source).
Central banks manipulate the price of gold (not for speculative purposes, but for political ones) and act on interest rates and the liquidity of traditional currencies to manipulate stock exchanges.
Official commodity indexes as well as many other asset indexes use special platforms for trading transactions that affect their own benchmarks.
In other words, wherever assets are put up for sale in order to obtain a return, forces must necessarily be put in place to maximise returns.
All we need to do, as investors, is to acknowledge this reality and accept that without these forces there would be no cycles of euphoria and starvation in the markets.
And without these cycles, there would be no possibility for us to have high yields of any kind.
So those who hope to make money out of cryptocurrencies, the traditional stock exchange or even real estate, but at the same time want these markets to be permanently free from manipulation, they are contradicting themselves and, much worse, they are seriously at risk of never having any return at all.
Much better, instead, is to skillfully exploit these alternate cycles of the markets, buying at the low end and reselling at the high end, according to the good, old habit of the so-called “shady speculators”…
The team at BlockchainTop
P.S. As you have been able to see in the graph reproduced in this article, we are at a point of an all-time low that has reached an extreme, both in traditional stock exhanges and in the crypto market.
Therefore, there is no better time to invest than this, before the opposite trend strongly brings the market back to a new and highly profitable bubble.
And in the crypto market, the best way to take advantage of the next upturn is to invest in smaller coins, which have an enormously higher growth potential during bubble phases.
This type of investment takes advantage of the dramatic medium-term movements typical of minor coins and chooses the right time to get out of the investment before the bubble bursts.
At BlockchainTop we have created a specialized service to invest in the medium term by taking advantage of the cyclical fluctuations of this market… so…