I always like to say that “opportunity exists when the crowd thinks it knows an unknowable future.” No one can predict exactly what happens tomorrow. The best any of us can do is identify conditions. Conditions dictate probabilities. Probabilities dictate outcome.
I am candidly stunned at how eerily similar the conditions are now to what happened in 2021 when it comes to the crypto market. Dogecoin was trending yesterday on X. Sentiment from Bitcoin (BTC-USD) maxis is reaching a fever pitch, and crypto fanatics are hurling insults at anyone who dares question price movement.
It’s exactly like 2021.
I’ve argued for many weeks that the market must kill off all the bears before a rug pull.
Why? Because markets top when the crowd is most overconfident. Markets top when the crowd is most bullish. I can see it here. I can feel it from the comments on my posts. And my own signals have largely been risk-on.
But when I see such sentiment swing this violently, I know deep inside it won’t last much longer because that’s always how turning points happen.
Now to be clear, I am not anti-Bitcoin, or anti-cryptocurrency. I believe Bitcoin makes sense as a small portion of one’s diversified portfolio, weighted based on risk tolerance. I want to see crypto assets do well, but not go manic, because every crash comes after a mania. All the rocket ship emojis on social media are a bad feeling of déjà vu from what happened at the top of the crypto cycle in 2021.
The Bottom Line
My concern here is that retail investors get sucked in again at the exact wrong time because FOMO causes them to abandon all reason.
My own signals are close to flipping back to risk-off mode. March could be a high-risk month. I have no idea if a credit event will happen, but gold is waking up, Treasurys are rallying, and utility stocks have hit a bottom. These make a recipe for trouble… just as crypto is heading to the moon.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
