It's So Obvious
Investors,
The sky is red.
Whales have legs.
Gravity doesn’t exist.
If I told you any of these statements with a straight face, you’d assume I was insane.
And you’d be right!
Let me add one more to that list…
Bull markets produce negative year-over-year returns.
Once again, if I told you that an asset was in a bull market and it simultaneously had a negative return over the past year, you’d be right to question my sanity.
Fortunately, I wouldn’t ever do that to you and try to pull the wool over your eyes.
I respect you too much to play tricks.
So what am I talking about here?
Bitcoin.
As much as I love the digital asset and believe in its long-term value proposition, we must grapple that long-term outlook against the current market headwinds.
It’s why I’ve been vocal that Bitcoin is in a new bear market since early November…
In fact, Bitcoin officially generated a negative YoY return on November 19th, which cemented my belief that Bitcoin had transitioned from a bull market to bear market.
When this signal officially flashed one week after my “new bear market” proclamation, it became obvious to me that we had officially flipped regimes.
The last time Bitcoin flipped from a positive to negative YoY return was in February 2022, resulting in a significant bear market and a broader risk-off environment.
Let me be clear… this is not a market-timing signal.
This is a regime indicator.
If we look at the Q1’22 signal, Bitcoin rallied +23% over the next 7 days after the signal and nearly +30% over the subsequent 53 days.
But after that rally came to an end and bear market dynamics strengthened, Bitcoin fell an additional -67% over the next 8 months and produced a series of lower lows and lower highs (aka downtrend structure).
I’m not cherry-picking this data either…
Go back to any of these past signals and you’ll see the same conclusion.
The fact of the matter is that the transition from positive YoY returns to negative YoY returns has marked a clear regime change into a bear market.
Perhaps this current signal will be wrong.
I have my rules to indicate if/when that might be the case.
But the lesson here is simple…
We must be grounded in truth & logic, instead of ignoring data to reaffirm our bias.
Many investors attempt to dismiss the data with a response along the lines of “but Caleb, you’re only looking at data from the past”, to which my response is simple…
None of us have data from the future.
All we have is data from the past.
Since data from the future doesn’t exist, dismissing data because it’s “from the past” implies that ignorance is the best method for generating future returns, which is clearly incorrect.
If you want to lend me your crystal ball, I’ll pay you a lot of money for it.
Seriously, a lot of money.
In the meantime, I’ll use data to my advantage and write these reports with the intention of providing investors with the best possible alpha that I can, using my 12 years of experience in the market to navigate constant uncertainty.
That uncertainty isn’t going away anytime soon.
In the remainder of this report, I’m going to cover the following topics:
Liquidity dynamics and analyzing various liquidity datapoints
A new signal for Bitcoin that I’m watching for bottom confirmation
What I bought in my long-term portfolio this past week and why
Let’s begin…