TradFi & Bitcoin – The Frustration Of “Failure” & The Creative Power It Wields

The Driving Force

Investors turn to investments to generate a profit, just as every day people turn to banks for safety, and perhaps a little yield. However, in both cases, the desired outcome seems to be almost unattainable. Yesterday, we witnessed another brutal sell-off in the stock market. This is exactly what I have been addressing on a rather frequent basis of late. There is no fundamental narrative in favor of true market appreciation.

Markets are relying on random boosts from random places in order to “fake it until they make it”. My recent bullish whipsaw on Bitcoin was solely based on the banking crisis, as I myself had seen this coming to pass in 2023. However, I don’t believe this is it. These are just the initial rumblings, in my opinion. Bitcoin has much to gain in a complete collapse and breaking of trust in regard to the banking sector.

The S&P sold off in excess of 1.6% on an expected rate hike. There was much talk of a pause and even a pivot. However, both were unlikely, yet one still had to consider the possibility, and be prepared. Had the FED paused, the market would most likely have interpreted it as a confirmation. A confirmation that the banking crisis is actually a lot worse than communicated, which it actually is, by the way.

When you begin to look at the Crypto market, especially. There appears to be a lot of confluence to indicate a final flush before truly taking off. Yesterday’s sell-off on the S&P, and the broader stock market, brings the market even closer to that danger zone, in terms of long-term support. The S&P has been struggling around this level for a while now, not really going anywhere.

There is a chance that Bitcoin still sees $30K, and perhaps even higher. A daily close above $27.6K, and a few more rumblings from the banking sector, and there you go. However, close below $27.1K, and the banking sector band-aid holds a little longer, and you are most likely looking at a deep correction. The stock market is bound to have a bit of a bounce today after such a sell-off yesterday. However, further losses would be a rather negative sign, in my opinion.

Bearish Medium Term

This is exactly why I recently stated that I am bearish on Crypto in the medium term. Even though there could be bullish price action in the short term, the dynamics have not shifted yet. The only thing that could prematurely bring that shift is a complete banking collapse of unparalleled proportion. The reason why I think that is not likely, at least just not yet is because every effort is going to be made to “steady the ship”.

However, you can only hide such an inherent flaw for so long. Another rate hike helped to create an illusion that “things are not that bad”, but simultaneously added more fuel to the fire. The question remains: How long can traditional finance stutter and fail before people lose heart and move on? This brings me to the point of failure becoming a force of productivity. It sounds counterintuitive in nature and yet is not.

A Strange Dynamic

Essentially, Bitcoin is moving toward a future where almost any market dynamic is going to be interpreted as bullish by investors. How and why do I say this? Simply put, if traditional investments and banking services become equally as risky, or even riskier than Crypto, then why hang around? If the risk is discerned as equal or higher, investors will move to Crypto. Why? Once again, it’s simple. New technology has tremendous upside potential, in comparison to TradFi.

Let’s just say that the risks associated with either option are the same. Consider, for a moment, that the gains in the Crypto sector far outweigh TradFi. What you now have is two different asset classes with exactly the same risk profile. However, one of them has significant upside potential. Which one do you go with? Essentially, failure creates a case for Crypto. This is a dynamic that I and many others have addressed on numerous occasions.

This, my friends, is the dynamic that will initiate and drive a true decoupling. I mentioned that the recent decoupling is nothing more than an isolated event. Look at yesterday… the stock market sells off, and Crypto sells off. Ongoing failure will eventually destroy investor confidence, and to be honest, there isn’t much else to choose from.

Final Thoughts

This is how I see this playing out. As I mentioned in a previous post, the banking crisis was triggered a little earlier than expected. However, to be fair, It’s really just an initial wobble. We haven’t seen the worst of it yet. As I mentioned in 2022, a perfect course of events would be to experience a stock market crash where Crypto is initially taken along for the ride. A banking collapse, together with a bottoming event would recreate a scenario similar to the one seen in 2020.

Another significant leg down, combined with a significant failure within the banking sector would be the “perfect storm” to send Bitcoin into a fresh bullish phase. If markets find a floor after significant bloodshed, Bitcoin will once again garner attention, similar to that of 2020. If further calamity strikes that affirms a decentralized, unseizable form of money then I would be extremely bullish.

When there’s nothing much left to flush and confidence is lost, Bitcoin shines even brighter and steals the show. You cannot view price action and even technical analysis outside of macro events. This continues to happen. It’s like planning a day at the beach. You get everything ready and are fully prepared. However, you don’t check the weather forecast. Absolute foolishness, and yet this type of behavior is prevalent within the world of financial markets.

Isolated data is just that, isolated. If something is to be relevant it needs to be in the mix. Catch you next time!

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