May 19, 2021: Rorschach test says “angry”

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Tell me what you see…

Here is a picture of the (futures) markets as of this writing:

I took a look, and the first word that comes to mind was “angry”. Angry. The futures markets look angry.

Crypto

Unless you’ve been hiding under a rock (and maybe even if you have), you’ll know that cryptocurrencies and the US stock markets have been on fire. Cryptocurrencies gained around 3x (as measured by Bitcoin) from the start of 2021 to around mid April. Then, a series of unfortunate events (which mainly rhymes with Melon Tusk) occurred and everything started going down in fits and starts.

Today, or rather the past 24 hours, Bitcoin went down roughly 18% (as of this writing), though at the peak it was closer to a 30% drop. While Bitcoin has recovered from the lows, the current price action seems to suggest more downside in the near future.

Will it go down more? Or will it rebound? Who knows? A 30% drop in Bitcoin is basically par for the course. It’s something that happens so frequently that you can probably set your clocks to it. And at least all the previous drops have seen Bitcoin recover, and then some. Though in some cases, it took years before it eclipsed the prior highs.

Stocks, again

To round back on the main topic of the day. I had a not so immodest thought, that maybe the speculative fervor in stocks and crypto are linked. Maybe, it’s just an expression of excessive money sloshing around the system, and mostly in the hands of people who are ill-prepared to deploy them wisely, leading to excessive speculation and, in many cases, outright gambling.

So, if the underlying causes are the same, and the folks frolicking in these playgrounds are the same, then maybe, just maybe, when one goes down, the other goes down with it?

In some sense, this is an extension of what I’ve wrote before (see quick note on April 20) — those things which were going up a lot, seems to be hit the hardest, and crypto, with its absolutely mind-blowing out-performance year to date, seems to be first in line to take it on the chin.

To be fair, almost everything is going down today. So it could also just be a garden variety “batten down the hatches and sell everything” panic.

Or it could all recover tomorrow, as if nothing had happened. Yes, I’ve had a lot of practice saying a lot of words, and yet saying nothing.