📉 The real reason BTC tanked

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GM everyone. This is 2036, the newsletter that makes you smarter on crypto in 3min/day.

This weekend, bitcoin fell below $26K for the first time in months.

Your blood pressure may be all over the place, so today we’re gonna tell you:

• what happened

• the best way to invest in crypto so dips like this don’t faze you

Aite, let’s do this.  

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Binance is the largest crypto exchange in the world.

And last week, Binance.US ran into some trouble.

The problem? Liquidity.

No one knows exactly what happened, but there are a couple of theories circulating in cryptoland:

a/ Memecoins are clogging up the bitcoin network with useless transactions, making it slower. 

We’ve talked about memecoins and bitcoin inscriptions (ordinals) in the past. 

They caused Binance to pause bitcoin withdrawals twice last week.

When this happens, people panic. But getting your money out of Binance can be tricky, too, because Binance currently doesn’t have a bank wire partner…

b/ Market-makers are getting off Binance.

Market makers provide liquidity to markets in their attempt to realize short-term arbitrage gains.

They may be sensing that the US government is coming for Binance and getting off the platform in anticipation.

c/ Binance is making some unexplained moves

Last week, Binance.US withdrew all the money from its various staking pools.

It sent the majority to cold storage, and no one knows why, though we suspect they’ll be re-staked soon enough.

But when there’s low liquidity, large market orders are more likely to move the markets both ways.

That’s why prices will be more volatile in times of liquidity crunches.

Now, bitcoin is back up and trading above the $27K mark, so we can all breathe again.

But what can we take away from this?

Crypto is a nervous market. We’re not going to create a new financial system without some bumps along the way.

We’ll go through bubbles and bursts. And they’ll never be exactly what you expect.

Trying to time them is a fool’s errand.

Sometimes the market will go 2-3X higher than you think it can go, and then crash 75%. Other times it will hardly move when you’re convinced it’s about to break out.

But bubbles and busts are a concern for traders. Not for investors.

99% of traders lose money over the long-term. They’re loud when they make money and very quiet when they lose.

Investors, on the other hand, operate very differently. Take Warren Buffet.

He:

• makes 1 or 2 investment decisions per year

• sells once every few years

i.e. he spends a lot of time building conviction (through reading and understanding) and then holds.

His favorite holding period is FOREVER because it’s a lot easier to predict the long term than the short term.

That’s why day-to-day or even month-to-month predictions are mostly useless.

The longer term you look, the better your patience.

Everything else is just a desire to get rich quickly - which will never get you there.

This means that your job as an investor is to:

a) hold on to investments you have conviction in

b) occasionally, move some of your funds into things that, in hindsight, will be no-brainers

You can think of it like an onion. You start with the core to which you add layers over time.

In 2013, the smartest thing you could do was to buy bitcoin.

In 2017, it was to allocate some of your bitcoin to Ethereum.

And in 2021, it was to allocate some of your BTC and ETH to DeFi and NFTs.

Today, all portfolios should own some bitcoin and ETH. And if you’re feeling adventurous, you can also explore defi and NFTs.

The golden rule is to buy something when you have faith in it and hold it for as long as you have faith in it.

You don’t sell because it goes up or down in price but because your conviction changes. If you do your initial homework well enough, that shouldn’t happen very often.

So establish your core holdings, take a deep breath, don’t get FOMO, enjoy life and like we say in crypto - touch some grass.

The next opportunity will be obvious, and we’ll be here to bring it to you.

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