The Stock Market Can Tell Us Things About Crypto

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To investors,

The crypto market is separate and distinct from the stock market in many ways. The assets in this new industry trade 24/7/365, are available to anyone with an internet connection, and historically have gone up or down based on different value drivers than public equities.

But it would be a mistake to completely ignore what happens in the stock market when evaluating crypto assets. For example, the stock market and crypto both succumbed to rising interest rates during 2022 and 2023. As the cost of capital got more expensive, investor demand was destroyed. It didn’t matter what assets someone held.

This relationship between stocks and crypto is likely to only get more important over time too. Wall Street is starting to look more closely at various cryptocurrencies. They will slowly add them to their portfolio. This means that the institutional world will begin to allocate capital to crypto based on a similar risk-on or risk-off analysis.

Over time financial assets become more correlated as the holder base widens to include majority of finance.

So what is happening in the stock market right now?

Things look a little dicey. Michael Arouet points out that the Nasdaq index is the most overbought it has been since 2018.

Charles Schwab’s Kevin Gordon shows the “S&P 500 Tech sector's price/sales ratio is going vertical and at an all-time high.”

Like I said, things are getting dicey. This doesn’t mean that you should avoid investing in the stock market though. Since 1988, it has been more profitable to invest at all-time high prices than any other day in the market as long as your time horizon was at least 6 months.

And right now we have an all-time high of the S&P market cap concentrated in the 5 largest companies.

Where do we go from here? Your guess is as good as mine. But I do think it is important that crypto investors start paying more attention to the stock market.

Defiance Capital’s Arthur Cheong articulated this well recently with the following comments:

“Nuanced take: Entirely possible the crypto market is maturing and we dont see a complex wild swings with 70-80% drawdown every 2 years but instead a complex secular growth like what S&P 500 went through post 2008 GFC.

Excluding the Covid-19 crash on 2020, US stock market either range bound or gradually grind up where every bears calling for major crash proven wrong but returns also increasingly concentrate on the big cap and mega caps while value and small caps remain unloved for a long time.

Similar things playing out would mean most alts are uninvestable but some winners will deliver ground shattering returns and hopefully we get an Nvidia like outcome every few years while most alts are gonna disappoint.”

I have no clue if Arthur is right or not, but his nuanced take is worth considering. The crypto market is growing up. The assets have been de-risked from just a few years ago, so you shouldn’t expect to get paid as much in returns if you are taking less risk.

The ground is shifting. Update your mental models. Seek out as much information as you can. The future of your portfolio will depend on it.

Hope you all have a great end to your week. I’ll talk to everyone on Monday.

-Anthony Pompliano

JP Thor is one of the lead contributors to THORChain, master of the memes, and has some insane ideas.

In this conversation, we talk about his background, we talk about building a billion dollar platform with only 5 engineers in 18 months, promise of crypto, milestones and obstacles we need to overcome, and then conversation ends with some wild ideas you need to listen to.

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THORChain Founder Built $2+ Billion Platform While Being Anonymous

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