Never forget – cryptos rise and fall on global market liquidity. Whatever the fundamental factors are, day-to-day liquidity is the most important thing for crypto prices. It ‘s still a small market – so if we see a wide drawdown in liquidity, crypto prices will suffer.
The above is academic. But the risks outlined below aren’t. You may have noticed rising geopolitical tensions. There are other factors that could smash liquidity – and bring cryptos tumbling down.
In addition to geopolitical risks, weird things are happening in the banking system. China is stomping on the stimulus, while Western central banks lower rates. Nothing seems to work. No matter how great cryptos are – they are a macro asset.
Trumped?
The McDonald looks like a lock to win the US presidential election in a few weeks. He is crypto positive – but if elected – he could create risks for market liquidity. It’s no secret that Trump is widely hated by the US political establishment.
So what happens when McTrumper wins?
Bedlam!
The Trump 2024 campaign included at least 2 assassination attempts – and now his staff is asking for anti-missile systems for his jet. If Trump gets into office – social unrest is a best case scenario. He may be killed – which looks like civil war if you ask us.
Markets will react negatively, and the US economy will hit the wall going 200kph.
The Harris ticket doesn’t look amazing for cryptos, although it may not result in cryptomageddon – at least not at first. The same people who put Biden into power are backing Harris, and we all know how bad Biden has been for decentralized currency.
Middle East Madness!
War across Iran, Israel, Iraq, Yemen and Lebanon. And that is just so far!
Oh yeah – forgot about the US, Russia and Turkey. They are all at the table too.
Things in the Middle East look rough – and the situation is getting worse. There are at least three nuclear powers on the list above, and some major oil producers to boot. We also know that oil infrastructure is a target – so that spikes the punch.
Without getting into doom porn – we can say that escalation in the Middle East could be bad for market liquidity. You already know low liquidity would be bad for crypto prices (not to mention the human tragedy).
There is another aspect to widening war in the Middle East – the knock-on impact of shipping channels shutting down (Yemen) and lower oil output (Iran/Iraq). The global economy is flagging, which makes higher oil prices even more dangerous.
Curiously – despite all the tension, oil prices won’t rally. There must be a lot of oil floating around the world if prices can’t rally under circumstances like these.
Bitcoin Goes Macro
BTC ETFs connect Bitcoin directly to the big game. Today, big macro problems mean lower Bitcoin prices. If you don’t have a macro view – this is the time to start!
The macro view is pretty dark. While central banks are cutting rates, long-term bond yields are headed higher. It’s hard to jam that into a coherent worldview, but the weirdness doesn’t stop there.
Banks are hoarding cash – which makes it look a lot like they don’t think rate cuts will be enough to spur the global economy. Less cash on the street is de facto tightening, and it could create a self-reinforcing cycle if left unchecked.
But wait – there’s more!
Oil prices are headed lower at a time when widespread war in the Middle East is likely. It is counterintuitive to say the least. The Saudis seem to think that a flagging global economy is to blame, which follows banks hoarding cash, and the broken bond market.
Now that Bitcoin is a global macro asset that is highly leveraged to liquidity flows, the lack of market liquidity could mean a crypto crunch. It isn’t great news – but it looks like the global economy is on the rocks.
The Q4 Question
We are almost half way through Q4 2024 – and the world looks confusing at best. While stock markets are headed higher (at least in the short term), the middle term view for market liquidity is far harder to read.
The financial media echosphere is still hot on central banks cutting rates – but as we mentioned – rate cuts likely aren’t enough to deal with whatever is happening behind the scenes in the global economy. If the FED keeps cutting – and rates continue higher – the global economy is adrift with 7 billion souls aboard.
And then there is gold, which is making all time highs in USD on an almost daily basis. None of it adds up unless we have officially hit stagflation – which means few are prepared for an economy that won’t resemble anything from recent decades.
BTC Blastoff, Sooner or Later
Bitcoin is headed higher – the question is the price level where the rally starts. While major cryptos have recovered from the lows logged a few months ago, they are far from all time highs (except for BTC).
If you understand the oddball macro environment we are wandering through, you will understand that a major liquidity drawdown is possible. Think the markets we saw in 2008, plus a neutered FED that looks clueless.
In a market dislocation, crypto prices will be slammed lower. We could see BTC look for support at the $20,000 level if things get bad. There is no fundamental driver for these price declines – should they appear – they would be driven by panic selling.
Clearly – BTC at $20,000 is the buy of a lifetime. Remember that if you ever see it happen – even if it seems like the world is ending.
Here Comes 2025
We are months away from 2025 – but some major themes that will impact the crypto market are already in play. Central banks are behind the curve, and aren’t seeing the reality of a darkening macro environment.
War and political violence are wildcards that could erupt into global markets at any time. The 2024 US Presidential election is as wild as they have ever been – with both sides hosting increasingly extreme views.
Cryptos are still a tiny market – currently trading with around a total marketcap of $2.4 trillion USD. As one of the most liquidity driven markets globally, that figure could rise by a multiple of 4 or be slashed by 70% based on how 2025’s drivers evolve.
The risk of a serious liquidity crunch is real. Hedge accordingly.
