23 Jan 26' Trader perspective - What the well is going on? Is Antarctica next?
What happened on the markets today?
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“Super-cycle” is a word used in crypto for a long period of time. Bitcoin is supposed to break the 4-year cycle and move in a “super-cycle” way. Aside from that, we have minerals in a super-cycle: Gold at $5,000, Silver at $100, and Palladium at $2,000. Is this sustainable into the future? It depends; it depends on the time horizon you are looking at. I believe that at these prices for minerals, miners will make a huge effort for the next 2 years to produce, sell, and execute as much as possible. This is the “golden egg” era. So, supply-demand dynamics will eventually hurt the commodity. Will this happen in the next year? I don’t know, but probably.
US margin debt surged +$11.3B in December, now at a record of $1.23 trillion. Traders are using more leverage than ever, and margin debt growth outpaced SP500 gains by 20% YoY. Minerals are growing not because of necessity or industrial demand; they are growing because of speculation. The bubble is there, forming. Another problem with these minerals is that the government has a huge incentive to control the price; this hurts PPI and CPI by consequence. Mean reversion will happen, and it is going to be huge; we just don’t know when.
Looking at Silver’s history, there were two other bubbles: the 1980 bubble and the 2011 bubble.
In the 1972 to 1974 period, the Silver price moved +330% from bottom to peak ($1.50 to $6.65). It dropped -40% from peak to bottom, and it took 1,770 days to make a new high. Moving from 1977 to 1980, it gained +975% ($4.45 to $48), eventually dropping -92% from peak to bottom. It took 11,400 days to make a new high.
2011 saw a new high. It moved +1,045% from the 2003 bottom to the 2011 peak, going from $4.35 to $49.80. There were serious dips in between: -36% in 2006 and -60% in 2008. It eventually dipped -75% from the highs, bottoming in 2020.
Since that bottom in 2020, Silver is up +786%, from $11.90 to the current price of $103.
Another data point interesting to consider is that commodity price growth can be derived from fundamental reasons. However, the eventual parabolic move is 100% driven by aggressive speculation, leverage, and retail euphoria. In past bubbles, the aggressive movement lasted 6 months to 1 year until the leverage collapsed by itself. We are in the second period for Silver; we are 7 months into the clear euphoria phase, and since this phase started, we already have +200% gains. It is a question of time, but the clock is ticking closer. Created +$3.8 Trillions of extra wealth on that movement alone.
Silver is directly related to Gold with a high long-term correlation. Bitcoin is not old enough to be compared with both bubbles. However, looking at the 2011 bubble, on the exact day that Silver peaked, Bitcoin was trading at $1.55; it was already up +246% YTD at that time, having started the year at $0.45. Soon after Silver started collapsing, Bitcoin moved from $1.55 to $29.60 in 44 days, making +1,809% after Silver collapsed.
2020 was another good example, even when Silver only moved from a low of $11.68 to a high of $29.80 (growing +155%). When Silver peaked, Bitcoin was trading at $11,606; after 249 days, it was trading at $63,589 (growing +445%).
Bitcoin lives in its own echo chamber and is not positive correlated to Silver. However, during massive momentum—and when Bitcoin is basically underperforming—capital rotates to Bitcoin as soon as the momentum stops for Silver.
Don’t take my words too seriously; if you don’t believe me, at least watch it. Silver has a weekly -0.76 correlation to Bitcoin. I believe the single question is: when will Silver crash? It could go up another +100%, though I am not sure if it will; the risk premium is inverting. Weekly StDev is 300% higher at 16.3%. Investors that bought more than 1 year ago are up more than +240%, and those from 2 years ago are up more than +350%. Wealth is just a paper number; liquid cash is what matters at the end. Commodities produce nothing, and at this level, they don’t even protect or defend capital at these prices. I believe the big winner will be Bitcoin.
Crypto IPOs were in my news: BitGo coming at a $2B IPO and Ledger to IPO at a $4B valuation. This year is the year for crypto company IPOs. What is really great is that it creates news, feeds investors with crypto information, and gets more eyes watching crypto in the format of 10-Ks and 10-Qs, just as investors like. Also, by having information from these companies, we can better price the crypto industry. It is widely positive.
Yesterday’s outflows—after an almost $1B day of outflows—were $70M, which is basically nothing. It seems that the escalation of selling pressure is not going to happen. Today, Bitcoin is basically flat on price performance but will probably have some positive flows; I’m expecting that, or nothing big there. Signs of relief if that’s the case.
We have many geopolitical problems to focus on, and it looks like we could have a new one. Trump published a photo with a penguin. In the photo, there is a US flag and a Greenland flag; the problem is that there are no penguins in Greenland, there are no penguins in the North of the globe. Penguins are only in the South part of earth. This information plus some rumors, point to Antarctica being next move from Trump.
Antarctica can be a bigger problem than Greenland. Antarctica has huge environmental protocols, like the Madrid Protocol, that have so far protected Antarctica from commercial mineral exploration. But it has rich soil, rare earth minerals, precious minerals, iron, and so on. I can see the conflict between Europe and the US escalating if Trump starts proceeding with this “next big thing.”
Regarding Iran, the US moved an “armada” towards them. The immediate response from a senior Iranian official was, “Iran will treat any attack on it as all-out war and respond in the hardest way possible.” A single, simple move from the US on Iran could escalate into a far bigger war.
Davos is over; it was a wonderful event with great speeches and huge impact. There were talks on AI, geopolitics, and the labor market. Crypto—with stablecoins, tokenization, and regulations—had its voice.