In financial market traditions spirit animals are used to describe overarching trends: the bull refers to an overwhelming consensus to be buying while the bear refers to the diametric opposite. However in view of the recent market actions, a lesser known spirit animal seems to be winning over the investment circles, the wolf.
BTC/USD has been range bound since the beginning of the year
The wolf market is characterized by markets moving in a tight trading range, increased volatility, high stock correlations, and quick reversals. The wolf market makes it hard to pick assets based on fundamental qualities, and the choppy price action, and quickly wears out the directional investor.
What is driving the space?
Unlike pre 2020 when digital assets were pretty much a geeky niche market. In 2020 and 2021 we saw the mass migration of traditional finance (“Tradfi”) players into the space which brought with it not only the capital, but the players, their strategies and their beliefs.
And the most important one was valuation. Valuation is how an asset holder views the price of his asset: expensive, cheap, or fairly valued; and in the case of Tradfi, digital assets were lumped together with tech stocks.
Whether the above holds true or not does not matter in the game of trading, because pricing is ultimately determined by the day traders who make and break the markets by buying and selling.
And right now those same traders are on their knees with their hands cupping for wisps of hope or despair from the lips of the Federal Reserve Bank.
High interest rates destroy growth stocks like tech stocks which are intrinsically valued using financial models that use base interest rates as glue. And when tech stocks sneeze, Bitcoin catches the flu.
War and supply chains disruptions are but the tinder that sets inflation on fire. Which is why when those events do make it into the headlines, the fundamental investor knows that the hands of central bankers will be twisted into hiking rates.
How about some hopium?
After more than 12 years of continuous money printing, quantitative easing and doubling down in the name of market stability, we have a whole generation of traders and investors who only know high interest rates from story books and wikipedia articles.
Monetary and fiscal policy somehow have merged into one ungodly chimera (by classical standards) which will not allow the invisible hand of Adam Smith to go anywhere but up. Afterall the price to pay to allow the hand to go down will be global unrest, which is unacceptable by modern standards.
So here you go, this is your hopium. In 10 years time, there won’t be a single trader or investor who will believe that bear markets exist because just like eradication of smallpox, bear thoughts will have been vaccinated to extinction.
Buy or Sell?
Looking at a five year period, there are only two digital assets that will make it through (with a 99% confidence), Bitcoin and Ethereum. Both of them have survived the nuclear winter of 2018-2019 and have proven themselves to be key assets in the development of anything related to digital assets. If the industry grows further, it will be on the back of those two cornerstones.
A sure bet is to accumulate those two no matter the price, dollar cost averaging your way.
Else if you feel like trading the opportunities that this wolf market is presenting: trading in and out, scalping and taking punts at possibly revolutionarizing projects, please be aware that this spirit animal bites back.
Unlike bears and bulls, you can’t ride wolves.
By: Nathaniel Tsang Mang Kin
