Original: 《The Second and Final Crypto Crash》by Ann

Compilation: jk, Odaily Planet Daily

A bear market typically involves an outsized price drop with a long trough in value that doesn't end until many years later. The last round of the market (2018) experienced such a situation, followed by the black swan event in 2020-the macro market crash caused by the new crown. In November 2022, when FTX went awry and Bitcoin hit $16,000, it experienced a 50% price crash similar to 2018. And we are about to face a second similar crash.

2018 = 2022，2020 = ?

There are disturbing similarities between the market crash of 2018 and 2022, which was caused more by the cryptocurrency industry itself than macroeconomic reasons. This is a clear cryptocurrency event that was not caused by a market-wide crash. Yes, this crash was preceded by a Fed rate hike, but the final blow was delivered by our own Sam Bankman himself.

The 2018 and 2019 crashes were the first "shocks" after all-time highs, the first lows.


2012-2019 Bull Market Post-Crash


In the fourth quarter of 2022, FTX crashes

Both of these crashes were followed by a rally that gave the false impression that “the market is back,” but in reality there is usually some sort of retesting process before the bear market is truly over.

In the last bear market, this "retest" was the market crash triggered by the new crown. I believe we are facing a similar situation now, waiting for the equivalent event in 2020.

For the second crash, I noticed a few features:

• Before the crash, there was a rebound and "the market is back" sentiment. Not only are prices rising, developments like institutional adoption (like the Blackstone Bitcoin ETF) are also in this vibe.
• The seeds for the next bull market have already begun to be planted. It is the "DeFiSummer" of 2019 to 2020. And now, anything resembling DeFi Summer is "Infra Summer". I believe resttaking will play a huge role in this.
• What's more, unlike the first crash, the second crash was influenced by large macro events and was completely outside the control of the cryptocurrency industry.

US stock market rise will stop

On the last point, hints of those macro implications are already emerging. The Nasdaq has shown fragility over the past year, most recently posting its worst performance since February. Curiously, cryptocurrencies did not follow this rally, perhaps indicating that traders were more skeptical of the Nasdaq’s “dead cat rally.”

It's like digital assets don't believe in this rally. It is conceivable that if the Nasdaq falls, then the already skeptical cryptocurrency prices will not react well either.

Recessions often occur during rate cuts

Also, the rate hike should have an effect. In the past, recessions didn't happen when the Fed raised rates, but when they started cutting them.

As you can see in the image below, the gray overlays mark recessions, and as you can see, they always occur during rate cuts. This was true both in 2008 and in the dot-com crash of 2000.


source:

Second Quarter Results

We are also approaching earnings reports for the second quarter of 2023, which are expected to disappoint as the post-pandemic boom begins to wear off.

The company is expected to report earnings this week. We can expect market volatility, and while Bitcoin prices have been flat in recent weeks, it’s about being prepared. (In technical analysis, this indicates that the Bollinger Bands are contracting—the calm before the storm.) This means that volatility is approaching, although this indicator alone cannot determine the direction of price.

Aside from a short-term reaction, this week's earnings report could be the first domino in a wider macro event. It won't be long before we find out.

** The debt crisis is looming. ** Now, US interest payments have soared to $1 trillion due to higher interest rates. How the government will pay for this huge spending, rather than cut spending elsewhere, is unclear, but it will be interesting to watch.


U.S. government spending rises 15% in June

How to prepare?

As with all potential doomsday events, the more pressing question is how we, as individual market participants, should respond to potential volatility.

I have a few suggestions, the most important of which are:

1. Don't lose money by trading low-quality currencies

What makes this bear market different is that we will still be inundated with junk coins, fads and shitty projects. From the 2022-like Azuki trend, to the recent frenzy over "memecoins," the market has been trying to scam you out of your last penny.

As I write this, yet another very disgruntled project — a project called “Worldcoin” — has launched their token. If I were to list some of the money stealing projects that have become popular on social media lately, I would include Rollbit, Hamstercoin (what are you thinking, social media people!) and Arkham Intelligence for June-July 2023 fraud list.

There seems to be no end to this vain attempt to get you to give away your money. Never fall into their trap.

2. Income assets

I know you're thinking that even if Ethereum had a 5% yield, it wouldn't be able to offset losses when the digital asset plummeted 50%. But looking at yields alone is not enough. For me, by "harvesting" my digital assets (I use the word harvesting very broadly to cover all kinds of DeFi strategies that allow me to earn income), the biggest benefit is once the assets are safely stored in DeFi vaults , I would become too lazy to intervene. For example, it may take 7 days to unlock some tokens. It can help prevent panic selling during sharp price drops.

It is not so much because of the yield rate, but rather to prevent hand shake.

3. Observe the loan level

More recently, as bitcoin prices have risen to $20,000 and ethereum has risen to $2,000, some have begun to borrow more aggressively (against assets that have temporarily appreciated in value).

I'm not a fan of this practice. The market volatility of the past year has really been inappropriate for managing loans. The price fluctuation is too big, it will make you sweat. Unless you just love the thrill, I think taking out a loan is just too much hassle, too much risk, and too little benefit.

4. Relax...and watch the world burn

When I tweet that I love bear markets, I'm not exaggerating. The recent ETHCC event in Paris and all its side events showed that the crypto community is more vibrant than ever after the tourists have left. The development work doesn't stop, there are more projects to help you not get distracted.

Additionally, the disruption in traditional finance seems worth watching. We will see how the old ways of traditional finance end its weaknesses, and if it collapses, crypto will emerge as a new generation of financial systems. I suggest we all grab some popcorn and wait and see.

It might sound grim, but take this as "just relax and don't worry too much". Things might get worse, but not before they get better. Human society has its own mysterious way of evolution, and this may be just one of the processes.

The most important thing is to keep the money and live.