Trump May Have Popped the Crypto Bubble

The good thing about relative weakness is that so long as the strongest part of the market, Bitcoin, keeps doing its thing, the rest of the smaller and possibly dead fish can float upwards behind it. One of the features of this crypto bull market that was very different from the ZIRP-driven 2021 and 2017 runs is that you could not just buy any old shitcoin and out-perform Bitcoin by taking on more risk anymore. I think what happened is that the crypto bros scared the hoes away to a degree, and the public money that flooded into shitcoins and NFTs in previous cycles did not show up this time. This was a Wall Street driven cycle thanks to record inflows into Bitcoin ETFs while shitcoins lagged behind the crypto King. It is very funny that the system these people created to try to overthrow the established financial order is now wholly dependent on it as everyone accepts that Bitcoin (in white) is just a triple leveraged Nasdaq (in blue).

Bitcoin was able to diverge from the triple leveraged Nasdaq a bit after the election and when Trump announced his tariffs this year, in part because it mirrored the massive inflows into gold and also signaled that corruption was legal now, but also because many major crypto trading firms were able to take leverage off the table ahead of the election and Trump’s April announcement earlier this year, knowing they presented too much risk. This meant these firms were able to put on risk in ways that adapted to the post-election and post-liberation day situations, and leverage is always the answer to “how do crypto rallies go so high?”

You buy Bitcoin, its value goes up. You then take out dollar-denominated loans on your Bitcoin you are using as collateral to buy more Bitcoin, reducing your debtload as a percentage of your collateral while increasing your dollar debt. You now have leverage. The price goes up again, and your percentage of debt falls even more, and you take on more dollar debt to buy more Bitcoin. This is the short story of a crypto rally. When a surprise comes in, like the president announcing 100 percent China tariffs late on Friday, and the price of Bitcoin falls, the percentage of your dollar-denominated debt rises. If that percentage rises to a point known as a margin call, you must pay your debt down or add more collateral, lest the programmable bank forcibly sell your Bitcoin you took out loans on to buy more Bitcoin. Those margin calls are why crypto crashes so hard.

That’s the short story of what happened a few weeks ago in crypto’s largest leverage bust ever by several orders of magnitude, and the fallout from that event is starting to accelerate the market’s circle around the drain. Trading firms dictate much of crypto’s rallies, and that kind of surprise out of nowhere undoubtedly created some bodies currently washing up on beaches somewhere, whereas before they were able to plan ahead of election and liberation day dates. Debt crises don’t happen overnight, just the crisis part, and based on how past leverage flushes have unfolded, I would bet on history repeating itself here as the market has likely pulled back further since that Trump post because crypto is being sold to pay very big debts.

This really could be it for this bull run. It already looks like it is for shitcoins, and Bitcoin is threatening to make a very significant technical invalidation. A bull market is just defined as a series of higher lows and higher highs (a higher low is where buyers step in and reverse a decline at a price higher than the last pullback and start another rally towards a new high), while a bear market is a series of lower lows and lower highs (where each time the price bounces from a lower point than the previous one to a high lower than the previous one, meaning that buyers don’t think the previous price has the same value anymore and sellers are eager to sell any rally).

Bitcoin’s previous higher low on this high timeframe bull run is roughly $101,000 back in June. It made a higher low shortly afterwards, then shot off to all-time highs. As I write this, it is around $99,000, and if it breaks this extremely key level and falls to a lower one and stays there long enough, that would be considered an invalidation of the multi-year trend of higher lows that Bitcoin has consistently established since January 2023.

Many dismiss technical analysis as voodoo or the “male version of astrology,” and to a degree they are right, especially on short timeframes–but on longer timeframes like the weekly charts above, many of these tools are good at identifying patterns, and I wasn’t taught technical analysis in finance school because it’s meaningless. Key levels like $101,000 make sense as an important figure because this is where the market previously established that Bitcoin was a good buy (it’s also a big psychological number for the same reasons that companies price items at $9.99 and not $10).

If Bitcoin is no longer a good buy at $101,000, then Bitcoin is not in a bull market anymore. If it establishes a lower low this week and makes repeated ones later on, it will be in a bear market. Those tend to get very ugly for crypto, as countless trading shops get boarded up and carried out as the degenerate weight of the cycle drags their balance sheets down. I’m old enough to remember when many crypto firms were dumb enough to take “free” 20 percent interest on Luna’s stablecoin without asking questions about why its founder programmed a death spiral into what looks like the textbook example of a Ponzi scheme. FTX was the culmination of many other smaller shops blowing up during the 2022 bear market, in large part because they had participated in an obviously fraudulent Ponzi scheme many people at the time called out.

And shenanigans like this are undoubtedly still happening. The president has his own stablecoin and decentralized finance platform that I’m sure has no bribes flowing through it. Trump just pardoned Binance founder Changpeng Zhao, supposedly because he didn’t know who he is according to his 60 Minutes interview that Bari Weiss cut from TV, but my bet is it’s because money laundering game recognize money laundering game. Justin Sun, the oldest scammer in crypto, who you honestly kind of have to hand it to for surviving this long, has been a constant feature around the White House this year. As a longtime observer of an industry I once had hope could create truly decentralized finance, only to accept that the best it can do is build an unregulated casino, I can attest that things are getting dumber, not smarter. The ETFs have created something of an institutional firewall around Bitcoin and to a much lesser degree Ethereum, but Solana gained prominence specifically because crypto bros reference it as the casino.

And the casino is down over 40 percent from its most recent high made back in September. Ethereum is down over 36 percent from its most recent high at the end of August, while Bitcoin is down over 20 percent from its all-time high from last month. Typical bear market drawdowns for Bitcoin have been 70 to 80 percent (although with the explosion of ETFs I wonder if that is still the case) while shitcoins fall 90 percent or more, and these current losses compared to past drawdowns demonstrate how if this is the end of a bull market, it’s also just the beginning of a brutal bear.

Shitcoins have already created a much lower low on long timeframes and now must reverse this trend quickly, lest other male astrology knowers sell on the knowledge of large timescale trend following 101. We are not at invalidation of the bull market yet, but things look bleak, sentiment on my crypto Twitter feed feels like it’s at lows not seen since FTX shut down, and a lot of traders are assuming that the Trump-induced blowup was the beginning of the end for the market. Time will tell whether or not they are correct, but if they are, I cannot think of a more fitting end to the most shameless and sinister crypto rally yet. Most crypto bros underperformed the easiest thing you can do, buying Bitcoin and forgetting about it, and now they are potentially staring down another crypto winter with nothing to show for it, all induced by the president they enthusiastically voted for farting out a TruthSocial post late on a Friday that he TACO’d on by Sunday night.