The Crypto Winter Is Coming
Crypto winter, that’s it game over gone are the days of easy money gone are the days when you could yolo all of your money in a dogecoin and become a millionaire gone are the days when if you missed dogecoin you could yolo all your money into Shiba inu and become a billionaire.
Here come the days where CNN recommends that you lose your password to your 401k accounts this was such a crazy week there was a lot of clarity that happened this week with regards to the fed telling us what’s about to happen to the future of stocks and crypto and everything else.
So if you didn’t watch the hours and hours of press conferences from the fed meeting and if you didn’t read the principles for reducing the federal reserve balance sheet because you’re not a money nerd like me then i want to give you a brief summary of what happened and what’s about to happen next i’m excited let’s get right into it.
Well come for the finance and stay for the drama so much drama this week from stocks to crypto the volatility the fed meet Kevin selling all of his stock portfolios and getting called out for it me using his titanic reference and getting called out for it graham buying NFTs and getting called out for it.
Eremy finally buying bitcoin and getting called out for it it was crazy i’m just kidding those two didn’t actually buy any of those things they’re still boomers i want to quickly address something that i did in my last video where i used a titanic reference because i thought it was brilliant.
So I ran with it I saw it on Instagram I saw it on Reddit I had no idea who to give the credit to so I didn’t hope that people would correct me and by the time I gave the credit it was too late people were like oh you stole it from Kevin so it was a sincere mix up I apologize to Kevin and to make it up to him.
If you don’t know who meets Kevin is he’s an incredibly talented finance content creator here on youtube he is way more talented than me way more successful he’s got way more money and he’s way smarter than me and I’m not just saying that I really do believe it and I’ve learned a lot from him over the years.
Crypto Winter and The Finance Content Creators
And I know you will too but all of this sort of got me thinking because here on youtube the finance content creators or YouTubers are like the least cool YouTubers because we don’t drive fancy cars we don’t have flashy lifestyles we’re all friends here but it doesn’t stop people from creating mountains out of molehills.
Because drama is fun and it makes the world go around but it also got me thinking in the context of Kevin selling all of his stocks because he got a lot of flack for it when I first heard about it I didn’t think much of it and I can’t speak for Kevin but here’s what I’ve learned my goal was to take a million dollars invested into a dividend stock portfolio.
That’s yielding on average four per cent per year which would give me 40 000 a year of passive income for the rest of my life that I would retire and travel the world on but thanks to youtube I was able to reach that point relatively fast but I never went through with my strategy and I know for a fact that.
If I could time travel to the three years ago Andre before youtube and if I was to tell that Andre hey today I’m buying NFTs and speculating several hundred thousand dollars on these assets like pokemon cards and I live in an expensive house the Andre of me three years ago would have just called myself an idiot.
You’ve changed man money’s changed you I’m not talking about lifestyle inflation or anything like that it’s because what got me here won’t get me there and what got me here is living extremely frugally living way below my means eating ramen noodles but normal human beings want to reach for more.
And what I didn’t take into account three years ago that I do today is that I still work hard if not harder than I did three years ago because I want to realize my potential how far can I take this how long will I have this privilege of having a youtube audience may be long enough that I can create something bigger than.
The youtube channel itself I don’t know but the point is if you want to get to that next level in life which I believe normally human beings want to do anyway we have to change our relationship with money at different stages in life personally I take more risks, for example, I understand hedging and leveraging and creative ways to offset my higher income.
And I’m even considering doing a cash-out refi and pulling 80 equity out of my fully paid off house just so I can take that cash and invest it into a more liquid investment like a stable coin like usdc which could pay up to eight per cent per year in interest which would be enough to pay down my new mortgage loan and give me some options.
Crypto and The New Opportunity
If a new better opportunity presented itself the point is three years ago Andre had no idea this was possible because I didn’t have that vantage point that wasn’t my circumstance so to tie it all back to Kevin I think it’s easy to look at someone’s 30 million dollar net worth and make an assumption about what he’s doing and think to ourselves.
well I would never sell my stock portfolio I would be in capital preservation mode and I would have invested in bonds or into a four per cent dividend-yielding portfolio and I could make 1.2 million dollars a year and live off that for the rest of my life but at the end of the day we’re not Kevin and we don’t have his vantage point in his circumstance.
Because perhaps for him it makes sense to sell out and do what he’s doing because even if his stock portfolio went to zero which I don’t think it ever will because he’s just too smart to let that happen he would be perfectly fine if anything I’d say it’s a question of responsibility in terms.
How Kevin chooses to use his power of influence in helping people along their investing journey but what makes sense for Kevin to do may not make sense for everyone else to as well but he has to be honest with himself and balance that out with transparency of his actions.
And so far I think he’s done a really good job it’s just that ultimately those decisions are not up to us to make personally I try to understand other people’s perspectives and vantage points before I make an opinion and sometimes I don’t fully understand.
This is why I don’t have an opinion but all of this is to say that Kevin’s titanic reference was awesome and to leave Kevin alone but now let’s talk about the thing that is on everybody’s mind right now the crypto winter but first what is a crypto winter technically a crypto winter is defined as a drop in values for an extended period of time.
And since we’ve lost over a trillion dollars worth of the market cap of crypto and we’re down over 50 per cent from the all-time highs I’d say we’re kind of already there plus there are talks of a new executive order directly from the president issued as early as next month February.
Crypto and The Tax Regulations
This is supposed to give us more clarity on taxation and regulation and we don’t really know what’s inside of this new potential executive order but that doesn’t stop the market from speculating and creating rumours about the new stable coin and everything else.
Which gets investors scared and they sell the market drops but the real question is how long will this crypto winter last and the answer to that question depends on this guy this guy’s job is to make a really difficult decision like if this ten of hearts was the economy his job is to pick between inflation and employment.
This is impossible unless you’re a magician his goal is to walk that thin line between cooling off inflation not crashing the markets while keeping everyone employed and that’s probably the single hardest job on earth right now and because the answer is not spelt out for us.
Because we have no idea what he’s gonna pick it’s our job to guess which one he does month to month and that’s the name of the game but this week has been pretty crazy because the market went up it went down it went up and it went down and there’s a few reasons why and the biggest reason is that investors were looking forward to tech stock earnings.
And tech stocks are an extremely important barometer in helping us see what’s going to happen to the economy in the near future the second reason the market went down is because of geopolitical conflict but that’s a whole separate enchilada so earnings did come out this week and the earnings were really strong.
Microsoft for example beat analyst expectations they reported 18.8 billion dollars worth of profit which is an increase of 20 over the same time period last year but the stock still went down five per cent on Wednesday how does that make any sense also tesla had a record year of the profit their expected earnings per share eps was to be two dollars and 38 cents.
But they reported 2.54 cents beating expectations by 6.8 per cent their revenue was expected to be 16.6 billion and they reported 17.7 billion dollars that is an increase of six and a half per cent over the expectations but the stock still went down over five per cent on Wednesday again.
Crypto and The Down Stock Values
How does this make any sense to be fair tesla did end two per cent on Wednesday in the green but still why are these companies making all of these earnings and how are their stock values still going down is this the sign of a coming winter or a recession I think I found the answer with this article right here.
Tesla records a record profit but its outperformance was below average think about that headline for a second its outperformance was below average so you’re telling me this company did better than you expected just not way better therefore you’re gonna sell it that is why if the only information you had on hand right now about a company is its earnings.
And if you had a time machine to travel back before they announced their earnings most people would buy into the stock hoping to make some money right because you know it’s going to beat expectations but the reality is if you had done that you would have lost money.
How does that make any sense this is why it is almost impossible to try to predict the market because sometimes it’s irrational and part of the reason why this happens is that in addition to earnings companies also give us their guidance their future projections as far as what they expect will happen in the near future.
And a lot of the tech market right now is telling us the tech was king but these kinds of growth numbers are just not sustainable spoil you once shame on me spoil you twice you can’t get spoiled again and so when investors hear that they’re like meh when I want to be spoiled I’m going to sit out of the market until you can spoil me again.
But then it does get a little bit more complicated with the central bank and the federal reserve and the things that papa pal looks at to see if the economy has recovered are finally starting to look good high wage growth high employment high company earnings and everyone was making all of this easy money in the market kind of reinforces.
Crypto Winter and The Federal Fund Rate
The thought process that the economy is strong is time to cool it down that’s when everyone screams so finally Jerome Powell came out on Wednesday to tell us exactly what he’s thinking and here’s what he said he wants to increase the federal fund rate as early as March and remember.
The federal fund rate is the cost for banks to borrow money from each other right now that cost is zero but the market has priced in four increases each increase is 0.25 per cent which means the market is priced in a federal fund rate as high as one per cent by the end of the year in nutshell members of the fomc are all in agreement with each other.
That raising the rates will not affect the labour market but he did say something in there that really did scare the markets which are that the fed will be moving away from very high accommodative policy to substantially less accommodative policy and overtime to a policy that’s not accommodated.
It means that the time for making easy money in the markets is coming to an end so their strategy moving forward is that next month in February they’re still going to print 30 billion dollars worth and by march, they’re going to stop at which point they’re gonna reverse course and start to sell-off.
Their nine trillion-dollar balance sheet remember 5.7 trillion in treasury bonds and the other 2.7 trillion in mortgage-backed securities the real question though is when are they going to start selling how much are they going to start selling and how will all of this affect the markets I try to find the answers in their principles for reducing.
The federal reserve balance sheet did not give any specifics it was completely useless why can’t they just teach this stuff in school or why can’t they just tell us exactly what they’re gonna do it’s so frustrating to try to guess it just says that they’re gonna play it by ear and adjust it up and down depending on the market conditions.
Which I guess makes sense so I tried to find other guesses and the best guess I was able to find was from Goldman Sachs which guesses that they’re going to start reducing in June that’s when they’re going to start selling at the rate of 100 billion dollars a month ultimately for me the biggest question I have is this.
If the federal reserve balance sheet was 4.1 trillion dollars before the pandemic started and if it’s at 8.8 trillion dollars today if we assume a rate of 100 billion dollars a month in a decrease wouldn’t that take 47 months to fully taper that’s almost four years.
Crypto and The Effect on Jobs and Wages
So either Goldman Sachs is wrong or they’re actually going to take four years to taper either way I have no idea what’s going to happen at that point because I can’t see that far into the future but either way I’m just paying attention to jobs for the middle class I’m calling my parents every week and asking them about their job about their wages.
Because if those wages and those jobs get cut that is probably the single biggest indicator of a coming recession which I honestly don’t think we’re going to have this year based on everything we know so far until we get more clarity from the federal reserve as far as what they’re going to do with.
The sell-offs and at what pace then there’s gonna be more pain to come in the market because there’s more uncertainty and that brings me to the ultimate point of what I learned this week it might seem super obvious right now to just sell everything right because.
If we know for sure that in the next few months things are only going to look worse why not just park our money in cash sell everything just wait on the sidelines the reason you don’t want to do that is that even if you got the timing right on the exit you’ll almost certainly not get it right on the re-entry and this is because even.
If I knew 90 for sure what was going to happen to the economy I would still never sell because there’s a huge difference between knowing something and living through it and when you’re shelling out and you’re sitting with all of this cash on the sidelines and you’re watching other people make money you get extreme FOMO and that’s exactly.
when you’re gonna make the mistake of buying back in at a higher price than what you sold at and you lose money that is why I’m staying invested I’m not selling anything.