Rapture #255: Market Musings
My calls this year have been accurate, though I wish I would have pulled the trigger on basically fully liquidating a bit quicker rather then near the end of January. Still, if you are a consistent reader of Rapture, you will know I have been crypto and macro bearish for the entire year. Even pre-FTX implosion, I still thought there was more pain to go.
That being said, the past is the past. Below are my thoughts on what the future might hold.
Crypto native capitulation may be over
At this juncture, I believe all of the major crypto native capitulation likely has taken place. Miner capitulation reached the highest levels in more than 1.5 years in November, FTX blew up, and many crypto funds have lost a significant portion of of their value just this month.
Genesis/DCG looks to be fine (for now). Marc Cohodes is running a short campaign against Silvergate, which, if successful, could cause some more dominos to fall if they go bankrupt. Nearly all major remaining US based institutions use Silvergate for banking.
Coinbase has about two years of runway based on their current expenses/cashflow profile. They will likely have to cut their workforce to remain competitive in this environment. I think worst case scenario they sell to a large tradfi bank. Regardless, I think their services survive.
CZ is acting pretty erratic on Twitter and I think the US government is gearing up to be more active in investigating Binance. Coinbase and Binance are basically the only two large exchanges left, with Coinbase dominating the American market and Binance having a stranglehold on the off-shore market. Any adverse action against Binance could definitely hurt the crypto markets. I do think the US government will be aggressive in targeting Binance in the future.
Still, I think the probability of any of these events that can cause further crypto native capitulation are low. Could always be wrong.
Don't think crypto bear market is over
Yet I still remain cautious and do not think the crypto bear market is over purely because I don't think the macro bear market is over. There is too much risk to being heavily allocated to crypto when so much of macro is uncertain. The fact that Fed Chairman Powell is now maintaining a more dovish tone likely means there is pain ahead in traditional markets. Furthermore, the likelihood that large banks like Credit Suisse will default is increasing by the day. Even BlackRock is halting redemptions in their real estate funds.
We will see. I am opting for being defensive as I have no clue what happens in the next few months with inflation, economic growth, and corporate defaults. Previously, I thought inflation would continue to rage and the Federal Reserve would continue to raise interest rates. I am no longer as confident in that hypothesis, as there are many indicators (oil prices, food prices, housing prices) that inflation is decreasing quickly.
That being said, even if we see a pullback in inflation temporarily, I still think it will come raging back as we are just at the beginning in wage inflation picking up. I think politically, domestic labor will have much more influence going forward as anti-trust issues, worker rights, and American companies prioritizing the needs of the country becomes much more important.
Disclaimer:
The Content on this email is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this site constitutes a solicitation, recommendation, endorsement, or offer by Rapture Associates or Mattison Asher or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information on the Site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based on such information or other Content. In exchange for using the Site, you agree not to hold Rapture Associates, Mattison Asher, and its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the Site.