Markets are directed by rather simple dynamics, which are in many ways aimed at influencing the emotions of market participants. If you want to see the price of tomatoes go through the roof, create a shortage. If you want to see the share price of a certain stock fall, simply restrict business operations in one way or another. This will ultimately produce weak results and earnings, which will initiate a price collapse. Markets tend to be favorable investment vehicles for those who are able to control their emotions. Simply because it is an arena of emotional manipulation. News events are designed to trigger an emotional response. Alternatively, a logical response is obtained by consuming data and conducting analysis. However, what happens when it comes to a scenario such as regulation? Proposed regulation creates uncertainty, equivalent to a surgeon’s anesthetic. When a surgeon is about to initiate reconstructive surgery, he needs to ensure that there is no movement. An anesthetic allows him to work and make adjustments, even removing parts of the body. We are currently witnessing the “surgeons” begin their reconstruction of our beloved “space”.
Governments around the world are all hot on the regulatory front at the moment. The most notable is the US with a proposed ban on algorithmic stablecoins. When you consider that we are deep into a bear market, such news gains even more power. It ultimately smothers adoption and invokes fear and uncertainty. The three main ingredients that make up the well-known term: FUD – fear, uncertainty, and doubt. This type of news paralyzes the market, ultimately making it easier to control. The uncertainty encourages many to adopt a “wait and see” approach, which ultimately removes buying support from the market. The majority of market participants within the Crypto space are speculators. In other words, they continue to dollar cost average into the coins they have identified and are simply awaiting better days. The fear of how far regulations could go is enough to put many on the bench.
This Is Exactly How The Market Will Drop
As mentioned in a recent post, the $19K to $20K level is already exhausted. The removal of additional “buying support” will ultimately trigger another leg down. Now, one can argue whether the timing of this regulatory crackdown is simply coincidental, or strategically planned. I am not going to go there. However, the reality is that it does have a strong bearing on the market. When you add to it, inflationary concerns and a market meltdown, you begin to appreciate the thesis that suggests lower lows. I do however believe that Crypto will resurface earlier than the stock market and other sectors. From my own analysis, I am picking up that it is not too far off. I think that once we experience another capitulation event based on the dynamic that I have just presented, we will be looking to bottom.
We are living through unprecedented times, and we need to remember that. We can and will try our best to navigate our way through this storm. Please do not consider the information shared in this article as investment advice. These are my own thoughts and deductions, based on my personal study and analysis of the market. Stay strong, catch you next time!