What's Happening with Crypto

We'll either go higher or lower LOL

April 24, 2024

1,178 Words | 3 Min 55 Sec Read

Welcome to another issue of Passionate Income.

Today we’ll be discussing what's happening with crypto as we head into Q2.

In particular, why the explosive growth we saw in Q4 and the first part of Q1 has slowed down, what it means and when it might pick back up again.

Let’s dive in.

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Been a while since we touched on crypto so let's get caught up.

Between January 1st and March 15th, Bitcoin climbed a stunning 72%, from $43,290 to a new all-time high of $73,100.

Source: TradingView

During that same time, alt coins exploded, with meme projects like $WIF skyrocketing a stunning 1,667%.

Since then, the market has cooled off dramatically.

From it's peak of $73,100, Bitcoin had dropped as low as $60,800 (a near 17% dip) before settling at its current price of $66,700.

At the same time, mega cap alts like $AVAX and $DOT have dropped anywhere from 40-50% or more.

So what's got the market down?

First, if you know anything about crypto, you know Bitcoin leads the market.

If $BTC is going up, smaller coins will follow its lead. And if it’s going down or crashing, the rest of the market crashes harder.

I mention this because the impetus for prices going up in Q4 and Q1 was the expectation and eventual ​approval​ of a spot Bitcoin ETF in the US.

Since the January 11th approval, over $45 billion has flowed into Bitcoin, sending both it and its smaller cousins higher.

Source: ​BTCETFFundFlow.com​

Unfortunately, over the past few weeks those inflows have turned negative (into what we call outflows). Meaning, instead of money flying into the space, it's been flying back out into cash or other investments.

Source: CoinShares

In addition, fears of a war between Israel and Iran sent the crypto market tumbling 17% in just 48 hours (between April 12th and 13th).

Last, a variety of technical indicators - including the overly simplistic but still useful Relative Strength Index (RSI) - showed Bitcoin was overdue for a correction. In particular, the RSI climbed to nearly 90%, a level that's only been beat once over the last five years.*

*At the peak of the 2021 bull market, which lead to a one year bear market where Bitcoin dropped a terrifying 75% while many alt coins dropped 90-99%.

So are the good times over?

Looking to historical patterns, crypto follows the direction of the US stock market and overall global liquidity.

And in election years, the stock market tends to go up.

Especially when a candidate is up for re-election, with markets ​averaging​ a 12.2% gain.

In addition, BlackRock shows that when January of an election year starts positive, there's an 80% ​chance​ stocks will end higher by New Years.

In short, while the ​threat of a recession​ (which would tank both the stock market and crypto) is real, there are plenty of reasons to be hopeful.

See, while we're not in the business of forecasting - and definitely don't provide financial advice - most experts in the industry believe we're in what's known as a mid-cycle ​​Accumulation Phase​​.

"Mid-cycle" because it's unlikely we've completed a full Bear Market to Bull Market cycle, and are instead in the phase that precedes a euphoric, "everyone's getting rich" bull market.

"Accumulation Phase" because the market is neither rising or falling, allowing investors time to make strategic investments before the next big move.

Ideally, investors hope the next big move will be positive one, sending both Bitcoin and alt coins exploding higher once again.

If that next move is to the downside, however, many experts believe we'll enter into a prolonged "mini bear." Meaning a medium-term bear market where prices likely drop (and keep dropping) for a matter of months.

The good news about a mini bear is that if ones happens, we'll likely see higher prices in late 2024 into Q1 and Q2 of 2025.

The reason that's good news is twofold.

First, it allows investors more time to increase their income and increase their investments. While it's normal to want the market to go up so we can profit, in reality big profits are made by buying when everything is cheap (bear market) and selling when everything is skyrocketing (bull market).

Second, many experts believe that if things start getting really crazy this year, the cycle will be cut short. If that happens, investors will see profits sooner, but have dramatically less time to take advantage of rising prices.

Depending on your financial situation, this may or may not be a good thing.

If you're low on capital to invest, odds are you won't be able to make any big investments over the coming 30 - 90 days. Meaning, if prices start exploding in Q2, odds are you won't make that much.

On the flip side, if you're in a good cash position - and have already made / are continuing to make lots of investments - odds are you want the market to go up as soon as possible.

*The above breakdown is highly dumbed down and crowd-sourced from multiple sources. While no one knows the future, I personally am a big fan of the following crypto channels: ​Erik Krown​, ​Blockchain Backer​, and ​Alpha Beta Soup​.

All of which are present data-driven hypotheses, instead of the social media moonboy hype you see on most channels.

Either way, what we do know is that crypto presents both asymmetric upside and downside risks.

While it's possible to make 25x, 100x and even 1,000x gains, it's also possible to lose 100% of your investments.

So, if you're going to dabble, make sure you follow the industry's #1 rule:

Never invest more than you can afford to lose.

And if you're a hardcore crypto fan like I am, keep your fingers crossed the market starts going up again sometime soon.

💡 Takeaway: While there are no guarantees, if election year patterns play out in the stock market, it's likely we'll see crypt rise higher before New Years. But if Bitcoin crashes below $59,000 and stays there for a while, it's likely prices will remain depressed for Q2 and potentially Q3.

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