Dealing with a -11% Day in Crypto - 01/04/2024
Pedma's Portfolio Management Journal
Introduction
Good morning! If you are exposed to cryptocurrency or actively follow it, you definitely would have noticed the significant movement we experienced yesterday. This occurred right after we surpassed the 2023 highs, and everyone was positioning themselves for the breakout. It's funny how it works, isn't it?
My guess is that someone, for whatever reason, needed to reduce their exposure and used the increase in liquidity and volume to unload their positions with minimal slippage. Imagine having a massive position that you want to sell. You can't simply offload it on the market at random and expect to get good fills, as there is insufficient market depth to absorb such pressure. So, one way to ensure minimal slippage is to wait for a time when many people are buying, and then start placing your offers on the market. This buying often occurs at key levels that many people consider significant, like new yearly highs or all-time highs. But this is just me speculating about what might have happened.
One of the funny memes is that Jim Cramer mentioned positive aspects at the peak, and the market crashed soon after. At this point, there's no denying that Jim's opinions have a negative correlation with market behavior.
There was also a report from The Block suggesting that the SEC might reject all Bitcoin Spot ETFs in January. This article was widely circulated on Twitter and may have caused some short-term panic. Many people are poised for the success of this ETF, and anything that deviates from that expectation naturally instills fear. In my estimation, it would be a massive short-term setback if the ETF were not approved.
News articles have a significant impact in the crypto world. We witnessed this when a major crypto news outlet incorrectly announced the acceptance of the Bitcoin ETF. It caused a substantial market movement, despite being incorrect. If my memory serves me correctly, it was on the 16th of October when the market moved 13% intraday. As soon as everyone realized it was false, the market plummeted. These incidents exemplify the immaturity of the market and represent the risks we must endure to be exposed to its potential outsized returns.
