The start of the year is a cleansing experience.
New Year’s resolutions generate some short-term activity.
Gym memberships swell, then are quietly forgotten by the end of spring break.
After a year like 2022, you are probably conditioned for survival.
You might be looking around for the next shoe to drop, even though there has been an endless number already.
This has a psychological impact.
It shapes what you are paying attention to and how you think.
And this can become an anchor that keeps you from moving ahead.
All of which can hold you back from seeing new opportunities as they evolve and emerge.
So the start of the year is also a good time to take a look at how you’re thinking about the current environment. Then deciding whether some adjustments might be required.
Then you want to look at where your focus is and maybe should be.
Because there is another big year ahead. And now is a good time to set yourself up to tackle it.
But first, let’s consider the survival mindset and how it can hold you back if you’re thinking this way.
The survival mindset is helpful until it isn’t
If you’ve ever had a chronic injury or pain, you know all about survival. And if you eventually found relief, you likely realized something else —chronic injury and pain drive you to adapt and compensate.
This adaptation and compensation can help you to work through whatever challenge you are facing at the time.
But it also shapes how you interpret everything you see and hear.
This mindset will shape the decisions you make.
And at times, survival mode decisions can be detrimental.
The same thing applies in a down market.
Over time you learn to compensate and adjust. There is something oppressive about so much negativity in the market. The constant price declines and negative news. The assumption is that there’s a scam around every corner.
Eventually, this shapes your thinking and reactions.
It alters the way you see opportunities.
So if you’re using the word survival to describe your crypto experience, the first step is to examine and change the way you think.
Leave the crypto dragon slaying to someone else
The end of the year was eventful.
There were a bunch of expected catalysts.
And some unexpected ones.
There was the FTX debacle that knocked a bunch of existing crypto dominos over.
Now there is a mob of players wandering through the battlefield looking for the next crypto dragon to slay.
What company is next?
Who is the next big scammer?
By the time people start doing this, it’s time to adjust your focus.
It’s time to unlearn and move past this chronic death spiral experience.
Now I’m not saying you shouldn’t be aware of what is going on. You should. But only be aware. Don’t bother obsessing about whether DCG or Silvergate has problems. Or anyone else.
Leave that stuff for the guys that crush skulls and take names for a living, AKA short sellers.
While all the attention is there, you can focus elsewhere because there are lots of things going on out there.
And the more people that are obsessed with finding the next FTX or whatever, the more they will be distracted as markets change. They will be late to the next opportunity as it unfolds.
In crypto, there are a few things you could be keeping track of as a barometer of activity.
One is simple price action. How are various tokens, altcoins, and cryptocurrencies responding to negative news? Are the reactions shallow? Which news or stories bring out the most selling? Which look strongest?
Is there a theme that stands out or seems to be picking up interest?
You might want to look at the themes that raised money in 2022. The first half had a lot of investment. The second half was relatively quiet by comparison. Then keep an eye on the themes that are attracting capital in 2023.
You may want to keep an eye on development talent as well. Where are developers staying, and where are they in demand and moving? This can give you an idea of where future opportunities may come from.
Lots of building is still taking place. And the leaders out of a downturn aren’t the ones with an idea or something that hasn’t been executed yet. It will be the ones with the infrastructure that is ready to go.
You won’t be able to see these themes clearly if you’re in survival mode.
If you’re busy hunting dragons from the last cycle, you’re going to miss these clues.
What else might be important?
There are many potential catalysts to be aware of as well.
One thing is an ongoing pullback in leverage, which may change as markets firm up and confidence returns. This means the action may be more restrained on the downside in crypto. Not saying that it will, but with less liquidation potential, the fast downside moves will be fewer and shallower.
As the US congress is sworn in and committees are decided, regulation will eventually come to the fore. While this applies strictly to the US, it will influence regulation elsewhere as it gets going. And it may, from time to time, influence trading activity.
And don’t forget the drama of the ongoing bankruptcies and hearings around various 2022 crypto train wrecks. These will provide entertainment porn for the naysayers and haters. And these events will also shape how regulators respond, and new crypto players decide to operate.
And the power of MicroStrategy’s Saylor appears to have been neutralized. His buys don’t seem to generate as much upside, and his statements don’t seem to carry the same weight as before. Will there be a new leading voice? Or maybe this aspect of crypto will trend toward decentralization as well.
There will also be different groups floating news items to lift crypto or knock it down. The media, as we have discussed before, is a megaphone for special interests and paid opinions. So these will be activated to try and influence outcomes. Watch how the markets respond to these puff and hit pieces.
When prices stop responding negatively, that’s a potential sign of a change in sentiment.
These events will move the markets back and forth over time, creating dips and lifts to use for trading purposes.
Outside of crypto specifically, there will be some macro themes to keep an eye on as well.
And a few macro trading themes
Leaving 2022, we have one of the fastest, if not the fastest, increase in interest rates in history. This was in response to inflation, driven in part by a tsunami of new money in the system and terrible policy.
Policy has created higher energy prices and a tight labor market, both of which are unlikely to respond to interest rate increases.
Bond guru Jeff Gundlach said last week there is no way the Fed gets to 5%. The market is already looking for a pause or a reversal in rates in the months ahead.
Catherine Austin Fitts of the Solari Report, said in a recent interview that if the Fed’s goal is demand destruction to reduce prices, eventually, there will be a realization that interest rates won’t work.
And that means other methods may be employed to create demand destruction. We have seen some of these. They included lockdowns, travel restrictions, and various mandates.
It is unclear which measures will be used, but paying attention to international news when countries announce new measures would be wise. These measures will be tested in one place and, if successful, may move to others.
These types of measures may produce temporary tradable moves.
A glimmer of light in the censorship landscape
One measure that has been used successfully against people until now has been censorship.
Censorship has shaped the narratives about what is going on and why. The collusion between government, law enforcement, intelligence and social media was revealed on Twitter as Musk opened up the files to various reporters.
The active suppression of information suggests that there is plenty of information waiting to come into the public sphere.
Which might be why governments all over the western world are tabling censorship legislation to give them control over public discourse.
But in the meantime, the flow of information is expanding.
Twitter has become a hub for information release, debate, and digestion, which increases the likelihood of market-moving revelations.
These revelations may drive significant market risk and instability.
Which on the trading front means potential opportunities.
Don’t forget the hard-earned lessons of 2022
Another area of importance to start the year is to heed the lessons of the year that has passed.
Number one is to think more like a financial advisor. Crypto remains a market in development. There are some extraordinary achievements and lots of failed tests. So recognizing and reminding yourself that these markets remain speculative is key.
And speculative products and assets require both scrutiny and monitoring.
Too many forgot this last year and ended up giving back gains and in some cases, being wiped out.
Related to this concept is the danger of the number one. Or, put another way, having all your money tied to one platform or idea is a dangerous financial habit. Read those victim statements from the bankruptcy of Celsius or FTX as a reminder. This doesn’t have to be you, and if you have been reading here for any amount of time, it shouldn’t be.
While the danger of number one is real, crypto gives you a solution, and that’s self-custody. So a wallet and a backup, or multiple wallets for different crypto activities is a must.
Being your own bank is a benefit but also a responsibility. Embrace it.
Tied to all of this is the all-important element of personal agency. Own your results. Own your thoughts. Own your opinions. In a world moving rapidly towards some sort of collectivism, personal agency will be a powerful differentiator. And it’s also a trait of great traders.
Review. Refocus. Thrive.
So the answer to what now requires a single step. That is to unlearn your coping mechanisms from the previous year.
That doesn’t mean abandoning risk management. Or suggest that you shouldn’t recognize that conditions are still bearish.
This year is likely to be volatile.
And that requires a trader to move from survival to opportunism.
You will only be able to interpret the market action if you are open to the information of the wider market, as opposed to laser-focused on slaying the next corrupt crypto dragon.
There will probably be more. But leave that to the guys that love that stuff. That’s old news.
The market is a discounting mechanism. It looks ahead, and so should you.
Seeing the future will be by following the crumbs left by savvy investors and wise developers. These people will have unique insights that they will show you through their actions where things might be going.
And while everyone else is looking skyward for the next thing to drop, you will have almost asymmetric insight into an evolving market of tomorrow.
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