The market will NEVER price in future fundamental gains correctly, and it never will, yet it continues to attempt it over and over again, creating volatility in the wake of every attempt. This volatility ironically leads to a devaluation of the network because it can no longer be trusted to perform like users expect it to. Some will get burned and ragequit, forever exiting whatever value they had left. I find these dynamics to be somewhat interesting.
We see this happen all the time.
Most Bitcoin bull markets are catalyzed by some stupid thing that the market is trying to price in. In summer 2019 it was the Bakkt Futures Market. Buy the rumor, sell the news. The day that Bakkt launched and it was obvious that institutional investors weren't lined up out the door like the market expected them to be, the entire market dumped right back to the doubling curve over the next few months in classic blow-off-top volcano formation (as is often the case).
More recently our all time highs were created by the exact same FOMO: institutional adoption. Except this time we have Michael Saylor and Elon Musk and entire countries like El Salvador jumping aboard the Bitcoin train. In classic fashion we pumped up, people got greedy and longed the top expecting a 2017-style mega-bubble, and they all got wrecked on the flash crash down the $30k last May. Classic pump and dump is classic.
But that doesn't mean we are in a bear market
Everyone seems to think we are... even though we are still trading above the literal doubling curve and all we've been doing is trading in the $30k-$65k range since November 2020. Leave to retail to decide a bear market is trading sideways after rocketing up from $10k ($4k during COVID crash). Uh huh, x10 in two years, but sure, this is a bear market. That logic makes perfect sense.
So what is the market trying to price in right now?
It should be obvious by now that the market is trying to price in a full-blown recession, and that's going to fail just like everything else. Again, these things CANT be priced in. They will always fail. Market get scared right before an earning season and now that earning season is about to kick into high gear as we head into summertime.
Even if the summer bull run is muted because the economy is struggling pretty hard, there will will be a summer bull run. This assume the plane won't crash into the mountain during the next few months, but again that's a random event that could happen anytime between now and the next 2 years.
Next recession will be artificial and also not.
The Federal Reserve knows the score. They know exactly what they are doing. We haven't had a recession for 14 years. They've pushed it off for longer than expected; good for them. They don't want a recession, but they know it's going to happen. If it needs to happen it's better that they control the demolition rather than let the building fall over sideways. I feel like that must be what's happening now given the situation.
They know that this "inflation" is not happening due to an increase of the money supply, and rather deflation created by disrupted supply lines from COVID and sanctions against Russia. This is not a problem they can fix, but they are acting like they're helping the inflation 'crisis' by raising rates. This will catalyze a recession. It's basically guaranteed the economy collapses within a year or two unless they decide to reduce rates back to zero. They are signaling the opposite, so we must assume that the something is going to randomly topple over this house of cards within the next year (two max).
The market knows this, and it is shaking in its boots. However, the market has also tried to price it in right before an earning season and they are overreacting and trying to guess when this thing will go down. There's a 99% chance the market is going to guess wrong, and we can capitalize on that. Again: bet against the market.
Summertime sadness
If everything goes to plan... this summer could be the last bull run we get before one of the most epic crypto winters hits us like a ton of bricks. None of us are going to want to sell the peak. Everyone will be talking about a mega-bubble coming at the end of the year. Best hedge accordingly if that happens. Going long is not an option.
Easy come, easy go.
The market is willing to get greedy when it's doing very well, because everyone is up big. Don't be one of those people willing to go long because "you can afford to lose money". That's the worst strategy one can possibly employ in gambling. Do the opposite: take money off the table. Force yourself to do the opposite of what everyone else is doing (getting greedy when the market is up big). All the real gains are made during these edge-cases. Rebalance and lower volatility to win.
Buy the rumor, sell the news.
In this case we find ourselves in today, it's the opposite. The market has sold the rumor of increased rates, and will inevitably buy back during Q2 earning season (again assuming house of cards doesn't collapse within the next quarter). At the same time, I'm also hearing reports of the Russian and Chinese economy actually doing quite well, with the Russian central bank increasing interest rates to an absurd 20%. If the FED tried to do that everything would collapse instantly. I'm still not quite sure how that's even possible or what the goal of high rates like that is. Certainly easing will become trivial when the time comes to do so.
Conclusion
The economy looks terrible and the market knows there's going to be a brutal recession that will likely be much worse than 2008. However, it still doesn't know when this will happen and is trying to price in the event now. This is a foolish endeavor that is almost guaranteed to fail just like all price-in events do. If we can figure out how to bet against the market in this case there could be easy money on the table in the short term for those of us willing to go bullish during the most unlikely time.
Return from Betting Against the Market: It's Impossible to Price in Future Events. to edicted's Web3 Blog
