The Debt Bubble Vs. The "Sustainable Market"
Updated
There is currently a divide within speculative market analysis: Are we on the verge of total collapse due to over-leveraging and ballooning debt, or are overall market conditions actually improving over time, resulting in more long term sustainability?
I think Bitcoin and cryptocurrencies are going to be a huge factor in determining what's going to happen. A while ago, I wrote a post about the psychology behind leverage and asset growth:
I also wrote a post about why I think we could be nearing a final distribution, or "blow-off" phase in the broader scope of market cycles:
On the other hand, I wrote about how Bitcoin may prove some long term resilience and sustainability as an asset, and not return to its 200 week Moving Average for years:
So, which is correct? Usually the answer is some combination of different scenarios. The charts I used for this post show essentially what I believe to be not only the most extreme, but also the worst case scenario. This is essentially speculative fiction - or science fiction. In the end, I must be able to accept that in writing these posts, I'm not trying to make the perfect financial decision. It's impossible. I must be able to let go, live in the present, and not worry about being right or wrong. I've already made a good financial decision by buying crypto in the first place. Anything else is just trying to do what I can to make "decent" decisions. I must be able to see this from the perspective of "this is interesting, and I'll be satisfied with my life regardless of what happens," instead of "this is interesting, but also I'll be really stressed and sad if things play out in a particular way." I've realized that's no way to live my life. If I'm going to continue writing analysis and making charts, it needs to be from a position of fun and speculation, rather than trying to cope with anxiety related to uncertainty. I'm sure some of you can relate! I'll probably make a separate post about this.
Now, onto this extreme-case scenario. What happens in this case, where Bitcoin gets to 6 figures and crashes back to
4K or lower? A total liquidity and debt crisis. More firms default in China. Firms begin to default in the US. Institutions deleverage, and there is a mass liquidation event where people begin to hedge with material resources. It becomes revealed that Bitcoin and crypto was essentially a final grasp at generating infinite wealth, and even the wealthy got wrapped up in it to their demise. Inflation gets out of control, and currencies collapse. Is there evidence supporting that this could happen? Sure there is. Institutions are finally piling into Bitcoin, yet the dollar is rising. Institutions are also beginning to accumulate some cash positions in case things get out of hand. There is a case to be made that crypto will end up much like the market during the dotcom bubble euphoria. I believe it's already at this point, particularly with NFT's. I do not think crypto was big enough for this to happen in 2017. But now it is. This is a multi-trillion dollar market. It also may not reach those higher levels noted on my chart. Many would agree this is unsustainable.
As for the Dow Jones chart, the pattern indicated by the triangle and the symbols is the "Great Depression Fractal." I'm not the only one to have taken notice of these similarities, but I've been writing about it since 2018. The yellow trajectory on that chart is unchanged since I drew it two years ago. A crash like that could take decades to recover, and it would cause even more radical political changes. Things could shift heavily to the left or right, depending on the nation. During that period, major socioeconomic changes would also occur (some good, some bad). Under a circumstance like this, there could be accompanying catastrophic events, such as wars, famines, and anything else you can think of.
In the best case scenario? There is a crash, but it's not as severe. I do think the Dow Jones (right) will eventually correct to the lower part of the long term channel (first red X). Clean energy, infrastructure, health, and mental health would become more dominant in the market than tech, and although prices would remain low for some years, a healthier economy emerges. Perhaps even cryptocurrencies play a healthy role in this transition, and because of stablecoins, they maintain a multi-trillion dollar valuation, despite NFT's and other bubble components of the crypto market declining in value. My hope is that we move eventually towards a more connected society - both to each other and to our environment.
My plan? Just let go. Sell some crypto and stocks soon and re-prioritize my life.
We're all figuring it out. This is not financial advice! This is meant for speculation and entertainment only.
-Victor Cobra
I think Bitcoin and cryptocurrencies are going to be a huge factor in determining what's going to happen. A while ago, I wrote a post about the psychology behind leverage and asset growth:
I also wrote a post about why I think we could be nearing a final distribution, or "blow-off" phase in the broader scope of market cycles:
On the other hand, I wrote about how Bitcoin may prove some long term resilience and sustainability as an asset, and not return to its 200 week Moving Average for years:
So, which is correct? Usually the answer is some combination of different scenarios. The charts I used for this post show essentially what I believe to be not only the most extreme, but also the worst case scenario. This is essentially speculative fiction - or science fiction. In the end, I must be able to accept that in writing these posts, I'm not trying to make the perfect financial decision. It's impossible. I must be able to let go, live in the present, and not worry about being right or wrong. I've already made a good financial decision by buying crypto in the first place. Anything else is just trying to do what I can to make "decent" decisions. I must be able to see this from the perspective of "this is interesting, and I'll be satisfied with my life regardless of what happens," instead of "this is interesting, but also I'll be really stressed and sad if things play out in a particular way." I've realized that's no way to live my life. If I'm going to continue writing analysis and making charts, it needs to be from a position of fun and speculation, rather than trying to cope with anxiety related to uncertainty. I'm sure some of you can relate! I'll probably make a separate post about this.
Now, onto this extreme-case scenario. What happens in this case, where Bitcoin gets to 6 figures and crashes back to
4K or lower? A total liquidity and debt crisis. More firms default in China. Firms begin to default in the US. Institutions deleverage, and there is a mass liquidation event where people begin to hedge with material resources. It becomes revealed that Bitcoin and crypto was essentially a final grasp at generating infinite wealth, and even the wealthy got wrapped up in it to their demise. Inflation gets out of control, and currencies collapse. Is there evidence supporting that this could happen? Sure there is. Institutions are finally piling into Bitcoin, yet the dollar is rising. Institutions are also beginning to accumulate some cash positions in case things get out of hand. There is a case to be made that crypto will end up much like the market during the dotcom bubble euphoria. I believe it's already at this point, particularly with NFT's. I do not think crypto was big enough for this to happen in 2017. But now it is. This is a multi-trillion dollar market. It also may not reach those higher levels noted on my chart. Many would agree this is unsustainable. As for the Dow Jones chart, the pattern indicated by the triangle and the symbols is the "Great Depression Fractal." I'm not the only one to have taken notice of these similarities, but I've been writing about it since 2018. The yellow trajectory on that chart is unchanged since I drew it two years ago. A crash like that could take decades to recover, and it would cause even more radical political changes. Things could shift heavily to the left or right, depending on the nation. During that period, major socioeconomic changes would also occur (some good, some bad). Under a circumstance like this, there could be accompanying catastrophic events, such as wars, famines, and anything else you can think of.
In the best case scenario? There is a crash, but it's not as severe. I do think the Dow Jones (right) will eventually correct to the lower part of the long term channel (first red X). Clean energy, infrastructure, health, and mental health would become more dominant in the market than tech, and although prices would remain low for some years, a healthier economy emerges. Perhaps even cryptocurrencies play a healthy role in this transition, and because of stablecoins, they maintain a multi-trillion dollar valuation, despite NFT's and other bubble components of the crypto market declining in value. My hope is that we move eventually towards a more connected society - both to each other and to our environment.
My plan? Just let go. Sell some crypto and stocks soon and re-prioritize my life.
We're all figuring it out. This is not financial advice! This is meant for speculation and entertainment only.
-Victor Cobra
Note
Here is my last update on the Great Depression Fractal, if interested: 
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