Dear Crypto Natives,
The S&P 500 dropped 7% in 4 minutes this morning. Worst day for stocks in 10 years.
What does that mean for crypto?
Time to panic?
Zoom out a bit—yeah stocks are down 15% from all-time high, but we’re just back to prices 10 months ago. The end of the world? No. A setback. An overreaction. Maybe a buying opportunity. This ain’t 2008. We were due for a correction.
That’s one take.
Here’s another—RIP Moon. Markets and governments are still severely underestimating coronavirus. We ain’t see nothing yet. Millions will die. Health system will be overrun. Secondary effects will paralyze world economies.
It’s “this will all blow over” vs. “bye-bye good times”.
Guess what? No one knows which way this’ll tip.
Ok, crypto natives—so is it time to panic?
If the corona-doubters are right global markets will be back on track soon—maybe crypto picks up where it left off. A final frost before crypto spring.
But what if they’re wrong?
That’s the question to ask. If it’s bye-bye good times that’s new—that’s a world we’ve never lived in while on the bankless journey. Crypto’s never lived through a sustained downturn in the broader market, let alone a generational economy-paralyzing pandemic. Sure, crypto is uncorrelated with stocks—but it’s still a risk-on asset, isn’t it? It’ll tank with the broader economy, won’t it? Back to winter time?
RYAN, SHOULD I BE PANICKING RIGHT NOW?
No.
In times like this, you don’t panic, you position.
Weigh the probability of a bad, bad scenario. What’s the likelihood? 20%? Higher, lower? It’s not zero. If crypto and stocks get hit hard, will you be okay? Do you have enough low risk assets in your portfolio? Maybe you need more. Do you have margin? Maybe you need less. (Remember the crypto barbell strategy).
Positioning shores you up to weather a storm. You position now, so you make good decisions if the storm comes. I say if because the timing of storms is uncertain.
Why position? To avoid the worst—selling your crypto at the bottom because you panicked, didn’t prepare, and had no choice.
There’s one thing in all this everyone agrees with. With interest rates near zero or negative, if things get bad, world governments will use increasingly exotic monetary interventions and unprecedented economic stimulus in an attempt to make them good again. They’ll do what governments in debt always do. They’ll print money.
Market’s aren’t just hoping for this—they already expect it.
And if that happens, I think crypto money gets stronger. The crypto money system is credibly neutral, not subject to arbitrary supply increases—a parallel money system resting next to the traditional system like a lifeboat next a ship.
Maybe the ocean liner starts to take on water and people flee to the lifeboat.
Maybe this is the paradigm shift Ray Dalio’s been talking about.
Maybe non-sovereign money is the one asset you don’t want to sell in the 2020s.
Maybe it’s fine. Or maybe it’s bye-bye good times.
Either way, you don’t panic. You position.
Position yourself to stay alive and come out stronger on the other side.
Position yourself for the paradigm shift.
- RSA