EXPLAINING THE CURRENT CRYPTO RALLY

Cryptos have staged an outsized rally following a “crypto winter” that began with a large decline in 2021. We have seen this pattern before following large drawdowns in 2013 and 2018. Based on this limited sample size, CryptoWorld has developed a narrative exemplified by the mantra “prices (always) to up.” Thus, the present rally is yet another example of a crypto rally based on a false…

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Crypto Rally is Deceptive

The Bitcoin rally is Deceptive

This article examines the dynamics of cryptos’ price increases and concludes that CryptoWorld’s growth has outstripped the foundation that supports cryptocurrencies, with negative implications for investors. The arguments in this article are based on a new book, “CryptoWorld Narratives: Eight False Narratives that Prop-up Cryptocurrencies,” by Ezra Zask, (t.ly/D33L4) Cryptocurrency Because it…

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the Latest Crypto Rally Explained

Cryptos have staged an outsized rally following a "crypto winter" that began with a large decline in 2021. We have seen this pattern before following large drawdowns in 2013 and 2018.

Based on this limited sample size, CryptoWorld has developed a narrative exemplified by the mantra "prices (always) to up." Thus, the present rally is yet another example of a crypto rally based on a false narrative and, according to the narrative, this rally should take Bitcoin above the previous high of $57,000.

However, as I discuss in detail in my book, "CryptoWorld Narratives: Eight False Narratives that Prop-up Cryptocurrencies," t.ly/3xdLv while narratives (stories) drive a group's demand for crypto, the demand is based on emotional appeal, which makes them more volatile than asset prices based on economic value. rather than rationality. This is true for the present rally which is based on emotional factors.

The crypto rallies since 2017 are driven by a self-fulfilling cycle which is also a feature of financial bubbles.

The cycle goes like this: a price increase in crypto causes an increase in demand for cryptos, which leads to a further price increase, which leads to more demand, etc., etc.

The key takeaway here is the cycle occurs because a price increase feeds into a narrative that causes a price increase. The only thing that is driving this rally is the price increase.

There is an unconvincing rationale that this rally is prompted by the possibility that the SEC may approve crypto spot ETFs. There are several problems with this explanation. First, the SEC approval is uncertain, second, there is widespread disagreement about the extent to which the ETFs will cause demand for cryptos. Third, the biggest problem with this narrative is that demand for the pending ETFs will only occur if the price of cryptos continues to increase or is perceived to be rising. So we have the situation that a price increase in cryptos (via demand for ETFs) is caused by a price increase in cryptos.

Of course, these rallies have momentum that may prop up crypto prices for a while based on continued price increases, actual or anticipated. Eventually, reality will deflate this rally. It is wise to heed John Maynard Keynes' dictum that irrational market movements may last longer than your budget.

Please view my book on Amazon: "CryptoWorld Narratives: Eight False Narratives that Prop-up Cryptocurrencies," t.ly/3xdLv

Poverty in America

A definitive explanation of the persistence of poverty in the UI.S. Desmond cites the important role of the decline of labor unions. However, in the context of the current battles over budget priorities, he may not give sufficient weight to the limited role of taxation as a means of redistributing wealth to the poor. The fact that the Republicans cling to the disproved Laffer curve (or its latter-day versions) is a macro-factor that is outside the scope of this article. #investing #inequality #economics #poverty #politics #budgets #taxation #welfare https://www.nytimes.com/2023/03/09/magazine/poverty-by-america-matthew-desmond.html?smid=url-share

Investors Shun Hedge Funds for Real Estate

A combination of differences in performance and economic conditions have led investors to increase holdings in real assets and private equity at the expense of hedge funds and actively managed mutual funds. ​https://www.bloomberg.com/markets/fixed-income

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Hype Drives High Tech Stocks

https://www.ft.com/content/75f3ed84-62ae-4cb4-947f-bd7e75591481 It turns out that Hype is the missing factor in factor investing. With all the hype given to factor investing is turns out that “Hype” may be the most important overlooked factor. The factors that have received the most attention include Value, Small Size, Low Volatility, High Yield, Quality , and Momentum. However, as this article…

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LIQUID ALTERNATIVE INVESTMENTS

Liquid alternative investments were introduced with great fanfare after the Credit Crisis of 2008. The pitch for the mutual funds and ETFs that used hedge fund strategies emphasized their advantage as substitutes for bonds in investment portfolios. These funds have proliferated in the intervening years and the pitch has not changed materially. Laurence Siegel presents a comprehensive analysis of…

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"Sophisticated" Investors Invest at the Peak of the Tech Bubble

“”Sophisticated” Investors Invest at the Peak of Tech BubbleMuch of that investment (in technology start-ups) poured in last year, as the valuations of private start-ups were hitting a peak. Hedge funds, private equity firms, sovereign wealth funds, corporate VCs, and mutual funds between them supplied two-thirds of all the money that went into venture investing globally last year, according to…

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"Sophisticated" Investors Invest at the Peak of the Tech Bubble

"Much of that investment (in technology start-ups) poured in last year, as the valuations of private start-ups were hitting a peak. Hedge funds, private equity firms, sovereign wealth funds, corporate VCs, and mutual funds between them supplied two-thirds of all the money that went into venture investing globally last year, according to data provider PitchBook." While most of the literature on behavioral finance has focused on individual decisions, it appears that the most sophisticated investors are also prone to the biases and emotions that distort the decisions of the less-knowledgeable investors. https://www.ft.com/content/6395df7e-1bab-4ea1-a7ea-afaa71354fa0

Crypto Investors have a "herd-like mentality"

Low-income, young males are the most likely to invest in cryptocurrencies. They tend to exhibit “herd-like behavior,” investing when prices rise and losing money when they decline; typical behavior during financial bubbles. These latecomers are also the least knowledgeable and least able to withstand losses. These investors also follow a “hail Mary” strategy similar to investing in lotteries,…

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Crypto Investors have Herd-Like Mentality

Low-income, young males are the most likely to invest in cryptocurrencies. They tend to exhibit "herd-like behavior," investing when prices rise and losing money when they decline; typical behavior during financial bubbles. These latecomers are also the least knowledgeable and least able to withstand losses. These investors also follow a "hail Mary" strategy similar to investing in lotteries, making a low probability, high reward bet. Another reason given by crypto investors is the poor outlook for attractive returns on stocks and bonds. #investing #money #cryptocurrencies #ezrazask #investing #financialbubbles #investmentstrategies #digitalassets #digitalmoney https://www.jpmorganchase.com/institute/research/financial-markets/dynamics-demographics-us-household-crypto-asset-cryptocurrency-use#infographic-text-version-uniqId1677161899801

Crypto Carpet Bombing

SEC reacts to continued turmoil in the unregulated cryptocurrency industry

“Crypto Carpet Bombing” by SEC and CFTC following the FTX fiasco in an effort to constrain cryptocurrencieshttps://www.nytimes.com/2023/02/18/business/crypto-crackdown-regulation.html

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"Crypto Carpet Bombing"

"Crypto Carpet Bombing" by SEC and CFTC following the FTX fiasco in an effort to constrain cryptocurrencies https://www.nytimes.com/2023/02/18/business/crypto-crackdown-regulation.html

Venture Capital Downgrades Tech Company Valuations

The valuations of VC-backed tech companies depend more on the supply of VC capital than on changes in the economics of the companies. The downturn in VC capital has caused a large drop in tech company valuations; as much as 80% for some https://www.ft.com/content/6395df7e-1bab-4ea1-a7ea-afaa71354fa0

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Venture Capital Valuation of Tech Companies collapse

The valuations of VC-backed tech companies depend more on the supply of VC capital than on changes in the economics of the companies. The downturn in VC capital has caused a large drop in tech company valuations; as much as 80% for some

FTX Market Manipulation

One of the clearest cases of the need to regulate cryptocurrencies. The manipulation of markets described in the article is reminiscent of the stock market before regulations were put in place to prohibit these practices. https://www.nytimes.com/2023/02/15/technology/ftx-modulo-capital.html?login=smartlock&auth=login-smartlock #cryptocurrencies #digitigalassets #FTX #ezrazask #investments…

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