If you’re watching this video, chances are
it’s because the crypto market is crashing. It’s crashing. Now, even though there are
many reasons why the crypto market crashes, they tend to fall into the same old categories.
That’s why today we’re going to look at the reasons why the crypto market is tanking and
whether it’s a dip to buy or the beginning of lower lows. My name is Guy and this is a
video you literally cannot afford to miss. I’ll start by saying that nothing in this video
is financial advice. It’s just educational content intended to inform you about why the crypto
market crashes. Please contact a financial adviser if you need help deciding what to do
with your cash or crypto. Okay, with that said, crypto market crashes tend to be caused by a
bearish macro catalyst, a bearish crypto catalyst, or some painful combination of both. Before we
dive into these catalysts though, it’s important to talk about the most important catalyst of
all, and that is leverage. You see, in crypto, it’s very common to trade with leverage. And this
basically means trading with borrowed money. So, for example, if you trade with 5x leverage and
provide $100 as margin, you can trade as if you had $500. Now, this significantly increases
your potential returns, but also your potential losses. For instance, imagine you’re trading
a crypto with 5x leverage and going long, which means betting that its price will go up. If
that crypto falls by 20%, you will be liquidated. This means the $100 you put in as your margin
gets automatically sold. And this is called a long liquidation. On the flip side, imagine you’re
trading a crypto with 5x leverage and going short, which means you’re betting its price will
go down. If that crypto goes up by 20%, you will again be liquidated. This means the $100
you put in as your margin is basically used to buy the crypto you are betting on. And this is called
a short squeeze. Now, you need to understand this because most of crypto’s short-term price action
is driven by either long liquidations or short squeezes. Suppose there’s some bearish macro or
crypto catalyst like the sudden escalation of a war, for example. Now, the actual impact this
has on crypto could be objectively minimal, but it’s enough to trigger a massive wave of
long liquidations due to all the leverage in crypto. During these flash crashes, it’s common
to see hundreds of millions, sometimes billions of dollars of long liquidations happen in the
span of a few days, sometimes even a few hours. As we just learned, this translates to hundreds of
millions, sometimes billions of dollars of crypto being automatically sold in a very short period of
time, which causes crypto prices to fall sharply. And not only that, if this price drop happens to
cause BTC, ETH, or some other major cryptocurrency to fall below an important price level, like say
$100,000 or $4,000, then this tends to trigger more long liquidations and also panic selling
from other crypto traders and investors. In turn, this can trigger even more long liquidations,
pushing crypto prices lower than you’d expect in the short term. Now, the good news is that
these so-called cascading liquidations tend to be short-lived and usually end after a couple of days
at most. After that, it’s fairly common for crypto to experience a V-shaped recovery as traders and
investors realize that prices fell much lower than they should and start buying the dip. And as a fun
fact, this V-shaped recovery is often caused by short squeezes from traders who started shorting
at the lows. Now, it’s extremely important to note that the price action after a long liquidation
ultimately depends on the catalyst that caused the long liquidation in the first place. If the
catalyst was something severe that could continue to create exogenous shocks, then the dip may not
get bought as aggressively and prices might have a harder time recovering. We’ll get to all of
that in just a second, though. First, you need to know where you can track these liquidations.
The most popular website for this is Coin Glass. It’s completely free and we’ll leave a link to it
down in the description. If the crypto market is crashing as you watch this video, then well, be
sure to check it out. If you can see that there were lots of long liquidations over the last 24
hours, then there’s probably no need to panic, at least not yet. That’s because you need to
make sure you’re appropriately set up to take advantage of this volatility. So, be sure to
check out the Coin Bureau deals page because that’s where you’ll find signup bonuses of up
to $100,000, trading fee discounts of up to 50%, and cash back on deposits of up to 75% on crypto
exchanges. These deals won’t be around for long, though, so take advantage of them ASAP using the
link down below or the QR code on the screen. Now, with all the liquidation stuff out of the way, we
can finally start looking at the actual catalysts that cause crypto crashes. Remember, it’s
technically not the leverage that causes the crash in the first place. There’s almost always
a bearish catalyst that triggers these long liquidations. To know what comes next, you need to
understand them. And you’ll recall they fall into two buckets. Macro catalysts and crypto catalysts.
Now, you can think of macro catalysts as being the fuel and crypto catalysts as being the spark
that lights the fire. Macro conditions need to be bullish for crypto to rally. And you can think
of bullish macro conditions as being a period where bullish macro catalysts are happening on a
consistent basis. If macro conditions are bearish, then no number of crypto catalysts will trigger a
rally. The same way that no number of sparks will cause a fire if there’s no consistent supply
of fuel. And yes, bearish macro conditions earlier this year are essentially the reason why
bullish crypto catalysts like the announcement of a Bitcoin strategic reserve had next to no effect.
There was a constant stream of bearish macro news. Now, if you’re not sure whether a macro catalyst
is the reason why the crypto market is crashing, then look at what stocks are doing. If stocks
are also crashing, then it’s probably because of a bearish macro catalyst. If only crypto is
crashing, then it’s probably because of a bearish crypto catalyst, something specific to crypto.
This will give you a sense of where to look if you’re not sure why crypto is crashing. Anyways,
as a rule of thumb, bullish macro catalysts are anything that suggests that there’s going to
be an increase in liquidity. In plain English, bullish macro catalysts are any announcements
that suggest that governments, central banks, or other large institutions will start printing
or spending lots of money. That’s because asset prices are primarily influenced by changes in
global liquidity rather than their fundamentals. And yes, this is precisely why so many companies
trade at such ridiculous multiples. When new money is created, this money eventually finds its
way into assets. And because the markets are forward-looking, investors often price in this
future increase in liquidity as soon as it’s announced. Obviously, the same is true for crypto.
The difference, though, is that crypto is much more sensitive to changes in liquidity. That’s
because it lies further out along the risk curve when compared to assets like bonds and stocks. So,
investors tend to adjust their crypto positions first. This results in liquidations and all that
aforementioned fun stuff. Now in terms of specific bearish macro catalysts to watch these days there
are three. Those related to monetary policy, those related to fiscal policy and those related
to geopolitics. Bearish monetary policy catalysts include a higher thanex expected inflation print,
a lower thanex expected unemployment print, and the Fed saying it’s going to keep interest rates
higher in response to these economic data points. You can track the CPI and unemployment data using
the Bureau of Labor Statistics website. You can track the Fed’s decisions on its website. And
you can track the market’s expectations of these data points on Market Watch and the CME Fed Watch
tool. We’ll leave a few links in the description, don’t worry. Now, bearish fiscal policy catalysts
are primarily centered around reducing government spending. Fortunately, or perhaps unfortunately,
this seems extremely unlikely to happen as governments need to continue spending for reasons
that are outside the scope of this video. The good news in this case is that it means liquidity is
likely to continue rising indefinitely and that it will be very hard to have a recession.
In the words of macro analyst Lynn Alden, nothing stops this train. And it’s important to
note too because everyone continues to be focused on the Fed. With fiscal policy being the primary
driver of liquidity growth, monetary policy has taken a backseat. Everyone seems to forget this,
so try to remember it. The Fed still matters, but it’s not nearly as important as it once was.
So don’t go crazy over Fed cuts and quantitative easing. Anyhow, there are many ways you can
analyze government spending. One way is to look at the US government deficit tracker from
the bipartisan policy center. If the deficit is rising, you can safely assume that this means
liquidity is rising. As you can see, the deficit certainly is rising. We’ll leave a link below.
Now, bearish geopolitical catalysts are harder to pin down, but it’s easy to see the potential flash
points. Eastern Europe, specifically Ukraine, the Middle East, specifically Iran, the
South China Sea, specifically Taiwan, and many other hot zones around the world. The bad
news is that bearish geopolitical catalysts tend to be the ones that have the biggest impact on the
crypto market, presumably because they create the most uncertainty. And there’s nothing investors
hate more than uncertainty. When there’s too much uncertainty flying around, investors are hesitant
to allocate to risk assets like crypto. And I’ll reiterate that we’ve seen a lot of geopolitical
related hesitation in recent months. From our perspective, the only real risk to the markets as
far as bearish geopolitical catalysts go at this stage, though, is China invading or blockading
Taiwan, which seems relatively unlikely. But on the off chance you’re watching this video
because something like that has indeed happened, you need to know that it’s probably the most
bearish geopolitical catalyst we could possibly get. That’s just because the top performing
assets have been tech stocks that rely on high-end microchips and Taiwan makes pretty
much all the high-end microchips. Of course, crypto uses these chips too and is correlated with
tech stocks. The consequence of this is that if big tech stocks were to experience a massive draw
down, global markets would take a huge hit. And since so much of the economy relies on consumption
from wealthy individuals who hold these assets, this would throw the global economy into
recession. Never mind all the supply chain issues that would cause inflation and a decline
in productivity and mass layoffs. So if we were to see any escalation between China and Taiwan,
that would probably not be a bearish geopolitical catalyst that crypto recovers from very
quickly and it could very well be the one that either triggers the next crypto bare market
or marks the bottom of the cryptobear market. So, with all that in mind, there’s no specific place
you can go to track these geopolitical catalysts, but we would strongly advise against getting too
worked up about any headlines you see related to them. As the internet saying goes, nothing
ever happens, and when it does, it doesn’t last for long. The media makes all its money from
fear and greed. And it’s known that they tend to stick to fear as it gets the most clicks.
Now when it comes to crypto catalysts, we can group these into two separate buckets. Temporary
crypto catalysts and permanent crypto catalysts. Now logically temporary crypto catalysts are any
developments that don’t fundamentally change the crypto project or projects in question. Whereas
permanent crypto catalysts are any developments that do fundamentally change the projects in
question. Temporary crypto catalysts that are bullish tend to mark the local or cycle top of a
crypto project. A good example of this is Bitcoin listing on the CME futures exchange back in 2017.
Although this did eventually set the stage for spot Bitcoin ETFs to list, it had more impact
on BTC’s price in the short term rather than the longer term. Case in point, the listing of the
CME futures marks the cycle top for BTC during the 2017 cycle. And on that note, the approval
of the spot Bitcoin ETFs is a perfect example of a permanent crypto catalyst that’s bullish. This
is because it did fundamentally change Bitcoin. The spot Bitcoin ETFs made it possible for US
institutions to invest in BTC directly. Some of you might recall that the actual listings didn’t
have much impact on BTC’s price in the short term, but they clearly had a profound long-term
impact. On the flip side, meanwhile, temporary crypto catalysts that are bearish tend
to mark the local or cycle bottom of a crypto project. One example here is when the original
founders of the Pudgy Penguins NFT collection allegedly misappropriated funds and were ousted
by the community. This marked the cycle low for the Pudgy Penguins NFT collection and it went on
to become one of the largest NFT collections in crypto. Speaking of which, we’ve seen that
crypto traders and investors often tend to overreact to temporary crypto catalysts that are
bearish because they think they’re permanent. So, to make sure you don’t make the same mistake, just
ask yourself, has anything fundamentally changed besides the price? Is everything still functional?
Is the team still building? Is the community still active? If the answer is yes, then it’s temporary.
Now, permanent crypto catalysts that are bearish tend to be harder to spot and usually the reason
why a crypto project is crashing or consistently underperforming. The most infamous example of
a bearish crypto catalyst that’s permanent is insiders consistently selling tokens as they
unlock. This is likely to create a headwind for a crypto project. But it’s extremely important to
note that there is nuance here. Believe it or not, but research from tokconomist found that crypto
prices actually tend to fall before any token unlocks occur. This is presumably due to the
fact that retail investors will panic sell, thinking that investors are about to dump their
tokens on the open market. Statistically speaking, unlocks have little impact on price and are
usually followed by a big rally. This makes sense if you think about it, though. It’s not
usually in the interest of insiders to crash the price of a token. In an ideal scenario, they
want to pump up the price of a coin or token and then gradually sell at much higher prices as
retail investors ape in because of temporary crypto catalysts like a partnership or upgrade.
It’s also worth remembering that a lack of demand could be the issue rather than new supply. The
lack of attention we’ve seen in crypto in recent months could in fact be the bigger reason why some
cryptos with large unlocks have underperformed. Most insiders are still holding because they want
the price to pump more. But the few insiders that are selling are crashing the price because there
just aren’t enough buyers. What this means is that you have to look at token unlocks on a case-byase
basis. In the case of Salana, Soul experienced a 90% token unlock back in January 2021 and then
rallied 50x. Similarly, Sooie experienced massive token unlocks last year, but was nevertheless one
of the top performing altcoins in the second half of the year. If you’ve been keeping track of our
SUI updates, you’ll know this is likely because Sooie Wales used Sooie as collateral to buy more
Sooie, gradually taking profit as retail aped in. So, no, token unlocks are probably not the
main reason why your crypto has underperformed. There’s a higher chance that it’s a lack of demand
combined with a bit of insider selling around the margins and retail investors selling ahead of
every single unlock creating a self-fulfilling prophecy that doesn’t get reversed due to said
lack of demand. Apologies for the explanation, but this is the stuff that you need to know. Now,
another thing you need to know about is a much lesser known but even more important example of
a bearish crypto catalyst that is or rather was permanent and that’s the shutdown of Signature’s
Signet network and Silvergate Sen network. Without getting too deep into the weeds, Signet and Sen
effectively made it possible for institutions to move large amounts of money and crypto in and out
of the markets 24/7. These critical crypto rails were shut down in early 2023 during the banking
crisis and they could be a part of why so many altcoins have underperformed. It wasn’t easy
for institutions like hedge funds to invest in altcoins on exchanges because there were no rails
to facilitate these liquidity flows. Thankfully, recent changes to crypto regulations in the US
around banking, as well as news that hedge funds are hiring traders to work on weekends, suggest
that these institutional rails are slowly being brought back online and could be back online
already. This could mean the only missing ingredient for your altcoin to rally is attention
that brings enough speculative demand to offset any sources of supply. Anyway, aside, this begs
the question of how you can keep track of bearish crypto catalysts and how long it’ll take for a
crypto project to recover when they happen. Well, keeping track of bearish crypto catalysts that
are temporary typically involves keeping up with the crypto project you’re following. How quickly
that project will recover depends largely on the macro. If macro conditions are bullish, it should
recover quickly and continue rallying. If macro conditions are bearish, then the recovery could
take a lot longer. And it’s possible there won’t be a recovery at all. At the time of shooting
this, macro conditions are becoming gradually more bullish as liquidity increases and uncertainty
decreases. And come to think of it, you could make the argument that the sell-offs crypto
projects have been experiencing ahead of token unlocks were temporary bearish crypto catalysts
because they happened primarily as a result of panic selling by retail instead of dumping by
insiders and took place against a bearish macro backdrop that minimized risk-taking and took
a lot of attention away from crypto. Anyway, keeping track of bearish crypto catalysts that
are permanent is a bit harder to do and requires paying very close attention to the news and
actually understanding what it’s all about. Most people don’t actually have the time to
do this, which is basically why channels like ours exist. This is the kind of stuff we actively
cover here. So, be sure to subscribe and ping that notification bell if you somehow haven’t already.
Now, if a bearish crypto catalyst is permanent, but the macro backdrop is bullish, this means
that the crypto project will probably recover due to the bullish tailwind on the macro side,
but the recovery may not be as big due to the bearish tailwind on the crypto side. Again, crypto
projects where insiders are knowingly selling a lot of tokens during unlocks would fall into this
bucket, not naming any names. Now, conversely, if a bearish crypto catalyst is permanent and
the macro backdrop is bearish, this means that the crypto project in question will probably not
recover at all and could continue grinding to ever lower lows until the crypto bare market bottom is
finally in. Again, the macro backdrop is currently bullish and getting more bullish by the day. So,
chances are you won’t need to worry about this possibility anytime soon. Well, let’s hope so. At
any rate, let’s hope so. Okay, if you made it this far and want another high-level explainer like
this or want to know what causes crypto to top and bottom, then you can head on over to our video
about how the crypto market works by using the link right here. Okay, thank you for watching and
I’ll see you again soon. This is Guy signing off.
