Market Analysis


The first three weeks of 2022 have been brutal for risk assets including stocks and crypto. Long forgotten is the traditional Santa rally and suddenly cheerful $SPX 5,000-5,300 price targets seem much farther away. The culprit can be multifold: Midterm seasonality, profit taking on last year’s winners, continued capitulation on last year’s losers, a long overdue technical correction, but more importantly and perhaps more profoundly the realization that the asset bubble brought about by excessive monetary intervention has started the process of imploding all around us as the Fed is now forced to raise rates and end QE having completely misjudged the persistence on inflation. In short, carnage:

The Fed may well try to engineer this market correction with hawkish talk versus hawkish action to produce a soft landing to lead to further rallies as alluded to in the 2022 Casino, but the tape highlights the devastating damage that is now inflicted on the exuberant investors of 2021 and again the now obvious point:

The monetary dominance over all things price discovery with all their dreadful consequences is again playing out in front of us and yes, my repeated contention last year of correlated liquidity flows is playing out with the 50% crash we’re currently witnessing in Bitcoin:

Heck small caps and $RUT currently have a 93% correlation on the weekly chart:

You’d think this price action may prompt a “told you so” type article, but rather I find the macro backdrop actually steer me in a different direction, that of becoming a Bitcoin supporter which seems odd given that currently my notion of the everything bubble apparently beginning the process of playing out.

Which brings me to the point of this article: (R)evolution. Revolutions are a rebellion against the status quo. Sometimes they are done for nefarious purposes, sometimes out of necessity against relentless and unjust oppression. In a political sense they can be violent, in the intellectual sense rebellions can be of the mind. Evolution is adaptation to changing circumstances. Both terms I sense apply to me in assessing the world we live in.

Specifically I am referring to my evolving views of our global monetary system and in contrast the efforts undertaken by many to create an alternative, Bitcoin being the current dominant expression of such an alternative.

I’m not writing this piece to push any particular agenda, rather I’m sharing my macro assessment to highlight how I’ve become a supporter of Bitcoin. In my discussion last summer with Michael Saylor I’ve called it a highly emotional space and it continues to be. I’m not a FOMO guy or relentless cheerleader, my personality is too analytically wired for that, hence my focus to call things as I see them and I’ve charted Bitcoin for a couple of years now publicly offering my as objective as possible view (see also The NorthCast).

Many people call it a scam, a bubble, others are fanatical supporters that aggressively attack dissenters and of course there are tons of scams around a new tech space that has filled many minds with greed and promises of easy riches. And riches have come to fruition for some while the volatility and massive price drawdowns also have resulted in massive financial pain for many others.

It’s a young space filled with emotions, greed, and lots of opportunities. But because it is young it is also immature. The relentless cheerleading in the recent year without discerning price flow and technical structure analysis has led many people off the cliff. Slogans are no long term substitute for analysis.

Frankly in many ways it all reminds me of the wild days of the 2000 tech bubble. Many companies also proved to be fantastic long term investments but the early over excitement of the day also ended in -90% drawdowns that wiped people out. I’m not a making prediction here, but just for reference such an analog drawdown could bring Bitcoin back down $7K. So entry points and exposure matter, but so does a long enough time horizon and vision to see past the growing pains and search for opportunities that can change the status quo in a major way in the long term.

My relationship to Bitcoin specifically has been observational for the past few years and I’ve certainly taken my own potshots at the craziness of the explosion of this new industry with its flamboyant characters and classic type bubble actions we’ve seen in recent times.

But taking potshots is easily done from the cheap seats with no exposure and this is what I intend to change for myself. I want exposure. Not as a trade, but as a long term allocation as I see many macro changes taking place that frankly affect all of us in one way or the other. And to this end I’ve continued to explore, assess and to educate myself.

As I am writing this article markets are going through its first larger correction since the March 2020 lows. And it’s a brutal one. Absolutely carnage in the celebrated funds and meme stocks of 2020 & 2021 and the majority of the general stock universe . Small caps down 20% from the November highs, many individual stocks down 50%-80% from last year’s high. Carnage. And yes Bitcoin along with all other crypto currencies is getting mauled as well.

I’ve long spoken about the liquidity correlation and have questioned the validity of the hedge argument. At this stage Bitcoin has not proven itself yet to be a hedge again inflation or market selloffs or excessive money printing, I would argue it’s been a beneficiary of it as has all crypto. Think stimulus checks. Think unprecedented artificial liquidity that seeks a return.

But yes, while my evolution in thinking may have left me miss out on some opportunities I also feel validated by my liquidity analysis and I would argue I haven’t really missed much in the last year from an investment perspective only from an opportunistic trading perspective. But I’m viewing all this through the lens of a long term investment.

So with rate hikes coming and the Fed supposedly rolling off it balance sheet will Bitcoin not continue to suffer? It may well do that and for me that then offers a long term entry point, as I sense the correlation dynamic will change in due time, but I’ll get to that point later.

As readers know I’ve been of the view that excessive central bank liquidity has driven the largest asset bubble in our lifetime. The one trick pony of ever more intervention successfully and repeatedly employed by central bankers time and time again is seeing the previous denied consequences unraveling before our very eyes and the events of the last few months were really the last straw for me.

You intervene to rescue the system from a crisis. Fair enough. No problem with that. But if you keep relentlessly intervening despite the larger crisis being over you are inviting disastrous consequences and we see vast structural impacts now. Wealth inequality has taken on obscene extremes while rampant inflation is now hurting the middle class and the poor with consumer confidence in the proverbial toilet. No, the institutional arrogance of central bankers have hurt people. Look, it may well all be that they see themselves as the saviors with all the best intentions in the world. Although the revelation of insider trading by several Fed officials last year should dispel this self anointed notion of them being the good guys. Greed and profit motive runs deep at the Fed, the supposed public officials serving the public interest. After all, recent Fed presidents have made it a point of cashing in big time pig time by collecting millions of dollars in speaking fees from the very institutions they were previously in charge of regulating.

And be clear: Fed leadership has revealed itself to not only be self serving, but also grossly wrong about key issues facing the economy with disastrous consequences for the public. The housing bubble was easy money induced and the threat from subprime openly denied by Bernanke caused millions to take the bath for that costly mistake. The Fed mandate of full employment as a cause celebre to keep rates low was revealed to be a straw man as the Fed cut rates 3 times in 2019 when unemployment was at a 50 year low of 3.5%. And now the inflation fiasco, stubbornly insisting on a transitory inflation narrative while growth was exploding higher and fiscal stimulus was flooding the system, through all of it they kept relentlessly printing exacerbating the asset bubble we see imploding around us.

The Fed, the supposed lender of last resort, has devolved into a creator of a repetitive boom and bust cycle with a proven track record of perversely benefitting only the few often at the long term expense of the many. And in process they have debased the monetary system and distorted all normal functioning of price discovery under the illusion that they can keep it going consequence free.

Actually it’s not an illusion, they know exactly what they have done. After all Powell in April 2016 highlighted what was to come to pass:

“it’s plausible to me that rates will have to remain very low for a very long time to achieve stable prices and full employment, but that such low rates will drive excessive credit growth and create irresistible upward pressure on asset prices, including real estate prices. I’m thinking of a situation in which a broad range of asset prices are moving up well beyond what fundamentals would justify; where the other tools we have don’t seem to be addressing the problem or have failed to do so; and where low interest rates are pushing up asset prices and driving credit to excessive levels, probably over many years, and thus are a principal cause of the threat.”

The very threat we now face, an asset bubble bursting, having made housing unaffordable for many, the rich richer and leaving the less well off to take the bath for what is to come.

Indeed it was during the same meeting that the Fed’s Williams warned against the Fed to lose sight of it price stability mandate:

“In thinking about monetary policy, I am drawn to the Hippocratic Oath of doing no harm. Our primary focus should remain on our dual-mandate goals. We know from the history of central banking that when you lose focus on price stability, that has very significant costs to society. But assuming that we are in the vicinity of our goals, we should take care that monetary policy does not inadvertently contribute to fostering the emergence of imbalances in the economy, because the cost of trying to use monetary policy to tame imbalances after the fact are simply too large.”

And here we are, the Fed having lost focus on price stability with very significant consequences to society with imbalances too many to count.

They did this, they knew better, but they did it anyways even though they were urged my many to ease off last year. They didn’t.

And citizens have absolute no say in this incompetence imposed upon them. You and I have no say, but now we’re all stuck with higher prices whether year over year inflation will come down or not doesn’t matter. Prices are not coming down. And Powell knows this too:

They knew in 2016, they knew in 2021, and now they are chasing their tails trying to fix last year’s policy error.
I don’t pretend to know where this journey is going. All I know is that they’ve expanded money supply and by extension facilitated a historic debt expansion by ungodly amounts and that everything is historically imbalanced and consumers are now taking a bath for it with coming monetary tightening possible causing a recession as a result of the asset bubble bursting. Imagine:

And so yes, it is frankly very hard to want to trust these monetary unelected regimes. Be it in the US or in Europe with the arrogance of ECB president Lagarde not even wanting to pretend to want to stop QE or to raise rates in the face of the European citizenry taking the bath for higher prices. Yes, year over year inflation will eventually prove transitory, but the long term damage inflicted on society could last a generation.

Which brings me to the revolution part. We have no say. I can rant against the system all I want, but it won’t change a thing I can only control my behavior and my allocations. And I want an alternative in my allocations versus the institutionalized system intent on devaluing my hard earned cash and purchasing power. Something they can’t touch. What other alternatives do we have? Real estate? Already have a nice house, thanks. Not interested in buying into a monetary induced housing bubble. Been there, done that. Thanks. Bonds? You jest. Gold? Yea I like it technically and there’s a possibility if you have the patience of a glacier. Stocks?

Markets, despite the recent correction, remain historically horrifically overvalued:

Yes there will be rallies, heck maybe even new highs still, but downside risks remain vast for years to come and the recent obliteration of many individual stocks serves as a stark reminder that last year’s bubble warning were well rooted in fact.

Which brings me to the unproven hedge argument from earlier: While crypto and Bitcoin has rallied with everything in recent years equity allocations last year took on historic proportions. I propose that the coming long valuation adjustment in the broader market will have current holders of equities eventually seek for an alternative and Bitcoin as a digital asset class will offer such a long term venue. There is a hell of a lot of more money in equities than there is currently still in Bitcoin. And heck, perhaps my own conversion process is sign of things to come. Or perhaps I’m pulling a classic Isaac Newton and join the party late just before it all blows up for good. But I don’t think so because I’m not coming here near a top, but rather with a view to patiently look for entry opportunities in the year ahead letting technicals be my guide.

No, the revolution may still be in the very early stages and it may yet have to suffer a much larger drawdown in time versus the current 50% shellacking from the November highs. After all the Fed hasn’t even started to withdraw liquidity and regulation is still outstanding which brings me to other points in favor of Bitcoin:

Regulation is coming but it’s not coming in the form of a ban, institutions are looking to invest but they hate uncertainty and regulation will give them certainty. While retail may have gotten burned to a certain degree by shorter term leveraged trading strategies institutions will have a longer term horizon and more stamina to withstand drawdowns.

The final point is a human component. Yes, there is all kinds of craziness in the space and scams and bots, but my impression is there are people, many of whom much smarter than me, who generally care about making a contribution to changing the world for the better by creating an alternative to the monetary North Koreas that rule our financial world. Jack Dorsey strikes me as such a person and his effort with CashApp is such an example.

I don’t know personally many people in the space but I’ve had the opportunity to speak with Michael Saylor at length twice now, including a bit outside the podcasts. While he, like myself, gets a lot of hate and derision on social media, he strikes me as very earnest in his conviction and arguments. Doesn’t mean he is right, or that I am right. Only time will tell. He has now got more skin in the game than anyone I know. I can’t speak to his investment strategy, nor is it my place nor is it anyone else’s. We are all responsible for our own decision making and our investment allocations and I am making a choice of wanting to seek exposure into Bitcoin this coming year.

As I’ve pointed out earlier I’ve been charting Bitcoin for a couple of years now and I find it technically very appealing and precise, hence I aim to keep charting it to find entry points to start accumulating. Feel free to follow my chart process in The NorthCast, it’s free. As I said I’m not pushing any agenda just sharing my thoughts as incomplete as they may be, but these are my main points.

The revolution is a conscious choice to find an alternative to an imposed monetary system, the evolution is to come to the conclusion that Bitcoin is such an alternative. So to fans of Bitcoin I say this: One of you. To those that are not: Don’t hate, appreciate ;-). That’s what makes a market.

On a final note, Michael Saylor and I have recorded another in depth discussion this week and you may find it of interest for your own decision making process:

For the latest public analysis please visit NorthmanTrader and the NorthCast. To subscribe to our directional market analysis please visit Services.

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Categories: Market Analysis, Opinion

32 replies »

  1. THANKS much sir for your time and most perceptive, most rational, analysis of the complex chaotic world of the most important thing other than good health. The Money.
    The clip of Powell on a 60 minutes interview of how they create the “Money”, would be a great inclusion to this piece.

  2. I appreciate your analysis. On the human component aspect, i would like to add there are more actors in crypto who care about making a contribution to changing the world for the better. From all of them, i think Charles Hoskinson with its Cardano project is probably the most commited actor in this spere (he has many haters as well, especially people angry about either the price aspect or the project which has been quite a long and steady process to ensure blockchain technology could benefit the people). What you actually tried to depict on the human component is actually a core aspect of cypherpunk movement, and sometimes, crypto traders tend to forget about it when price valuation becomes a predominent subject in discussions.

    • Bitcoin is the revolution. Please never compare Bitcoin with other altcoins that are mainly inflated by marketing to make their creators rich. Altcoins are nothing more than startups. There is nothing wrong with the innovation and ideas of the projects, but you don’t need your own coin for any of these projects.

      There is no second bitcoin. Take care.

      • I wasn’t talking about bitcoin. I’ll add bitcoin has no monopoly over any cypherpunk philosophy.
        On the free aspect, you should probably get more educated about software licences, because at the core of your reply, the matter is about whether you consider the MIT licence superior to the Apache licence.

          • Seems like you bitcoin guys need to start reading before replying. I’m not comparing bitcoin with cardano, full stop. I just talked about cypherpunk movement.

            No matter your personal view against eUTXO or PoS (except at that point of the discussion, i ponder your inability to understand this blockchain technology itself). I just wanted to highlight the personal view of Charles Hoskinson. You are free to disagree with him if you don’t like him for some whatever reason, but just don’t assume the ideology and utopia of cypherpunk started with bitcoin (it started in 80s with a bunch of technology outside of the current cryptocurrency obssession, bringing us important stepping stones ranging from GNU, EFF, GPG, SSL and so on).

            I understand you want to be rich, dreaming about a SATs world, telling all unbelievers to HFSP, but at least, get educated about technology.
            This is because of this state of mind, bitcoin could eventually lose if you continue to live in denial : i don’t talk about the alt vs btc here, i’m talking about the inability for the average maxi bitcoiner to confront criticism. I wish bitcoin would succeed, but while the btc community is lucky enough to be in forefront of this modern battle, it seems unable to confront itself to the real world after 13 years. For example, outside of the silliest newstitle about cryptocurrency being a threat for a bunch and undeserved reasons, one recent article highlights the challenges facing blockchain technology as a whole
            This is clearly an example of media getting a clearer understanding about blockchain technology and not having a usual binary view. This is your problem, this is bitcoin problem, and all this time, you just focus on some alt contender while totally disregarding what is at stake.

  3. Thank you for your nuanced and very honest explanation of how you came to support Bitcoin.
    The massive wealth inequalities created by our debt based economic system threaten to destablise many societies and greatly exacerbate social and political divisions. This will undoubtedly lead to social upheaval in many countries. The central bankers and spokesmen of capital such as Klaus Schwab offer nothing to the billions of ordinary people seeking a decent income. Hence the importance of cryptos which are not controlled by ruling elites across the world and offer new forms of economic empowerment.
    I would take issue with Michael Saylor on one key issue and that is his insistence that the only crypto of any worth is Bitcoin. This is a very narrow view and ignores the massive innovation taking place amongst smart contract platforms which are experiencing exponential adoption. One example being Ethereum which will become a deflationary asset after Eth 2.0 is launched this year. Stable coins are being used by people in developing countries with high inflation to preserve their wealth and save. NFT’s, love them or hate them, are here to stay and offer many possibilities besides pure speculation.
    I would urge you to continue with your open mind and take time to explore other aspects of the cryptoverse. Welcome to the club.

  4. “You intervene to rescue the system from a crisis. Fair enough.”

    Yes, but the intervention should have never been done with QE. At most, the Fed should step in as the lender of last resort to provide loans that must be paid back. You can’t have the central bank of a government printing money to buy the government’s bonds which is essentially a clandestine way of canceling the government’s debt.

    And with QE, the debt is effectively canceled as the government doesn’t pay net interest on the Treasuries/MBS purchased by the Fed as the interest payments get remitted back to the Treasury and most of these bonds will likely stay on the Fed’s balance sheet in perpetuity. If you don’t have to pay interest on a loan and can roll it over on the Fed’s balance sheet forever, it’s not a debt.

    However, this scheme does depreciate the currency. And the burden of the nullified debt achieved by this quasi-MMT policy is transferred through inflation from the government to the people with little or no assets and future generations that aren’t inheriting wealth. QE should never be implemented at any time.

  5. Sven, I have long appreciated everything you have to say, because of your insight and balance (except your past takes on Bitcoin). Now I have nothing left to complain about!

  6. Have to disagree with you on Bitcoin Sven. As you have said it is young and immature and regulation could come along and change everything. In my opinion buying Bitcoin is speculating and gambling not investing. I stick with quality stocks, ETF’s & funds that always pay dividends to own them. I don’t try to find “home Run investments. If
    what I buy doubles or triples in value them I sell it and take the money and run and invest those profits somewhere else. Investing is about income and dividends. I invest
    for dividends and a positive return. Gamblers worry about all the other stuff.

  7. The game theory around #btc is tremendous. Politicians can never promote severe austerity to drive us away from the looming debt spiral. The lightening network used as a way of sending money instantly from any citizen of any country to any other citizen of any other country is a door that can never be closed and provides freedom that undeveloped countries need. It may be hard for older generations to grasp, but this is a payment system/technology that will be exponentially embraced. I am glad my eyes were opened 2 years ago by Preston Pysch and so glad Sven that you are intellectually honest enough to consider as well.

  8. Let me start by saying that I own over a quarter million $ of Bitcoin so am no No Coiner.

    Bitcoin is not a hedge. It’s not digital Gold. It’s not a store of value. If it were any of those things it wouldn’t be down now 50% alongside meme stocks and other trash based solely on the Fed tapering the monetary firehouse.

    Gold and Silver are stores of value. This is evidenced by the fact that it’s held up very well against the backdrop of these same assets despite being ACTIVELY suppressed on a daily basis by the US & UK governments. Let’s see Bitcoin be rehypoticated and dumped by the $ Billions in illiquid early morning trading and STILL remain within 13% off it’s all time record high. And No, the blockchain will not prevent rehypotication or dilution of Bitcoin…otherwise prove to me via that same blockchain how many BTC PayPal, RobinHood or GBTC have backing their holdings right now! Hell, BITO is an ETN of a futures market that holds no Bitcoin; it’s ALREADY substantially rehypoticated yet even that gets a free pass from the ‘Block is immune to artificial supply” crowd.

    What Bitcoin is, is an escape valve. It’s outside of the banking cartel. It’s borderless to the point of flipping a middle finger in the face of every dictator, totalitarian regime and banana republic. And it’s decentralized; Gold and Silver are not (the LBMA & Comex have proven that with certainty for 2 decades).

    This is why I pay good money for Bitcoin but I happily do the same for precious metals.

    • Thanks for your comment. I was hoping to find one coming from someone who is involved and sounds credible and sees it mostly as an escape without excusing it’s obvious weaknesses.

  9. Market is not paying (premium) for MSTR -flat revenues. The stock skyrocketed on Bitcoin it trades in tandem Stock plunges on Bitcoin plunging it trades up on Bitcoin trading up ! It’s accounting ingenuity! Can you imagine if revenues were growing at 30% a year ? Stock plunging on no growth revenues it’s worth 200

  10. Very interesting as always, however I’m not as optimistic. I’ve invested myself 3 times in BTC since 2017, yet now I have no exposure because of one key issue for which I have yet to find a convincing answer: that is the energy wall ahead. By its core design, BTC consumes just too much energy — and exponentially so. We’re now at Argentina-level, it keeps growing and it’s just not sustainable. Only weak countries (Kazakhstan, US libertarian states) will allow BTC mining on their soil to continue draining their energy production, and that is only until it threatens people’s basic energy needs.

    IMHO, a much more energy-efficient design is needed (eg. the proof-of-stake experimented in the ETC blockchain). It’s just physics. Personal beliefs, politics and greenwashing about puffed-up low carbon energy sources won’t change anything about that. If crypto really is the new tech bubble, BTC might turn out to be its AOL unless it changes course.

    • Bitcoin mining consumes LESS “energy”, than plugged in and turned OFF televisions (standby mode).

      I propose instead: You unplug your TV’s after watching – and I’ll keep on Bitcoin’ing. The “Energy” argument is weak, and communistic. Don’t even get started on Gold+Silver’s energy & eco footprint.

  11. Absolutely agree with your tweet today: “Thanks Federal Reserve for buying $1.3 trillion in mortgage backed securities since March 2020 when it was absolutely not necessary to do so further fueling home prices & making it ever more unaffordable for many.” That really has been a gross stupidity and error that was obvious from the start to anyone who pondered it.

    I remain agnostic, for now, on blockchain technologies and bitcoin type assets but the last few years of Fed actions have only made the ultimate triumph of them more likely.

  12. This sunday evening you tweeted, Sven:
    “This market has been carpet bombed by bad news for weeks on end. Indeed one may argue this is one the worst news cycles yet.
    There will come a time when the news gets better.
    The concept of ‘relief rally’ may take on a whole new dimension.
    Very probably true, BUT it has not anywhere near priced in the already baked in effects of ukranian invasion and consequent sanctions, so I would contest there is significant further downside before any material relief rally will happen. Until that is done any brief violent rallies should be sold like last week’s. I would bet we see SPX 3600 before we see it at 4600.

  13. Trench warfare as 4200 SPX approached in the last hour of RTH today (Monday 7th March), neither side won conclusively but bears look to have a strong hand. No doubt the empire will do their best to boost things in quieter overnight trade. Unless the cavalry materialise out of somewhere soon there could be a somewhat precipitous decline imminent. Once it exhausts itself a sharp bounce is likely but good luck timing that coming, will it be from 4200, 4000, 3600…?

  14. Astute Sven: “After 13 years of ‘there is no alternative’ you now have multiple alternatives to lose money in.
    Stocks, bonds, crypto and cash.”

    The next 2 to 5+ years are going to be a wild roller coaster, I guess, buy and hold anything is likely to lose. Though you didn’t mention gold, PMs and commodities – they could do OK if you have good nerves.

    I think we’ve had the bounce and it’s time for some real pricing. Reminded of the Mad Magazine character whose name currently eludes me: What, me worry? Here’s a list of things markets are not worrying about:
    – war in Europe
    – increasing interest rates
    – withdrawal of Fed punchbowl (however temporary)
    – increasing inflation
    – increasing energy and food prices especially

    I could go on but you get the drift. Reality doesn’t matter. Yet.


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