Founder of Pangea: Why do I think there are huge short-selling opportunities in the future market?
Original compilation: TechFlow intern
Original compilation: TechFlow intern
I believe there is a huge short opportunity for $ETH near $1200 in the next 2 months. We haven't seen a real crash yet, July/August is probably the worst month. Here are my thoughts:
We are currently in a big "macro trading" market regime, if you plot the price of $ETH and $BTC together with the inflation picture, you will find that the crypto market is very sensitive to the macro, and the crypto currency has been with the Nasdaq Indexes are closely linked.
To be precise, $ETH has a correlation of around 0.8 and a beta of around 2.0 relative to Nasdaq, which is unlikely to change in the coming months given the current lack of catalysts for cryptocurrencies. The ETH merger is likely to happen in October/November, and the Dank Sharding roadmap shows we are still a few years away.
Simply put - $ETH is likely to be just a leveraged and liquidity bet on Nasdaq for at least the next 2 months, a more aggressive way to express your macro/inflation/ company earnings, etc.
The problem now is that I think Nasdaq still has a lot of room to fall. In an arguably more uncertain environment, we're still only down about 30% from the most recent ATH, compared to about 45% off the previous ATH in 2008. QQQ still has a downside of more than 20%, and $ETH still has a drop of more than 40%.
Stock prices are driven by two things - future earnings and the leverage you are willing to pay for those forward earnings. Much of the stock decline we've seen recently has been due to multiple compression due to rising interest rate expectations. We're only now starting to see the early stages of lower earnings revisions, many hedge funds/fund analysts I've spoken to still aren't looking at a full-blown recession, and very few are willing to, as it's a tough career choice.
As such, there could be more low-yield corrections in the coming months, especially given that this is a unique phase of the market that few investors experience. This will send the stock market lower and the headwinds for cryptocurrencies will follow.
BTW, people often think that stocks are already cheap (i.e. "Coinbase is trading at 8 times earnings"), but that's not accurate, and the decline continues when earnings still need to be cut.
So why short ETH at $1200 here? Because there is too much bad news gathered here.
1) 6/29 mid-year GDP outlook
2) CPI announcement + FOMC in early July
3) 2Q22 company financial report announcement starting in late July
All of this could further damage the stock market, here's what I expect to happen:
GDP growth is out tomorrow and I expect the numbers to show a sequential decline. This will strengthen the position that we are now in a recession, as we have seen two consecutive quarters of negative growth, coupled with higher unemployment and a wave of wage cuts. We already hear from Atlanta that the GDP growth numbers are likely to be bad.
A recession can have three effects:
1) Adding more uncertainty = more downside
2) Earnings will need to be cut further
3) Further compression of share price
I don't buy the argument that a recession would cause the Fed to raise rates less aggressively and allow the stock market to rally because:
1) Inflation is still high and hasn't slowed down enough
2) Benefit from fewer rate hikes will be offset by lower earnings + uncertainty
I believe the 6/29 GDP data is the first domino we need to see $500 ETH in the short term.
After the GDP data is the upcoming CPI data and the FOMC, there is a real theme here that inflation got worse in July and August because:
1) Travel has not been released yet
2) Oil demand spikes during summer (eg, 4th of July, holidays, etc.)
3) Housing prices continue to rise
4) Food prices continue to deteriorate as oil prices rise
This will further weaken the vitality of the market. Furthermore, recent market moves suggest that comments from the Fed surrounding rate hikes have been shrugged off, which only increases the odds of a downside.
If GDP+CPI+FOMC all go according to plan - we will probably see triple digit ETH again.
For years, tech investors have been complacent (especially in the software industry) with rising earnings and rising salaries. I remember doing analysis when I was doing public stocks and finding that software stocks rallied 80% of the time after earnings.
I believe this is about to change, we've seen layoffs at large well-known companies (eg Tesla), slowing growth warnings (eg Snapchat), and I believe this is just the beginning.
I've talked to employees at other large, well-known companies, and they've told me that more and more companies are starting to downgrade their internal metrics for the first time in years.
Q2 earnings may be the last domino we see the crypto market truly capitulate. Combine that with the liquidation of ETH below $1,000, and crypto sentiment already at all-time lows, and it's just the beginning of disaster.
All in all, I believe that $1200 ETH has a very favorable shorting opportunity, everything is in place, only the wind is owed. Remember to have protection in place - I recommend $1300 as a cover point.
Original link
