Here's why you want a drop

by Ben Lilly

Eagerly Awaiting Drop

I’ll admit, I can’t wait to see a steep correction.

Most investors and traders would assume this selfish desire originates from jealousy or envy with the hopes of getting in at a better price. OR that I’ve got shorts or puts which are currently getting crushed.

What I’ll say to that is not a chance. It’s a bull market and I find it’s easier to ride it higher.

The reason I want to see a 20%+ sell-off is that I’m impatiently waiting for the moment when the next leg higher happens for crypto.

The catalyst behind this leg higher is a result of a serving of the good stuff. Pure unadulterated debt. The nicotine of markets. Once you have a taste, you just want more.

To see what I’m talking about, here’s a chart of U.S. debt securities and loans versus the Wilshire 5000 Index. It shows how debt grew in tandem with the stock market.

The chart shows as debt went parabolic, the markets followed suit. We’ve seen this in other markets as well through history ( ie - Japan in the 1980s). Bubbles tend to form as debt goes to speculative purposes instead of productive. An example of this would be taking out a loan to buy stocks. However, when it comes to crypto, we are a long time away from that point.

Instead, we want to focus on those early years. And looking at the chart above and deciding where crypto is currently at, I can’t help to think we’re at 1970.

The barometer I use to judge the growth of the crypto credit markets is DAI. It’s a debt backed stable coin that’s created from locked-up assets. If you have $10,000 of crypto you’re able to lock it up and borrow DAI against it. Here is the growth of DAI over the last year.

It’s exactly what you want to see, growth. And its growth coincides with the crypto market.

Now what I want you to focus on is the big leap in mid-September 2020. DAI went from under $500 million outstanding to a little over $900 million in a matter of days.

It followed this correction in Bitcoin…

A 21% drop in just over two weeks. About $50 billion was wiped off its market cap during that stretch.

A week later, DAI exploded and reached the $900 million mark mentioned earlier. In the chart below the jump in DAI in circulation happened within the purple box…

The purple box happened just after the only 20% correction for Bitcoin during this bull run. The result of this correction put the brakes on the rally for about two months. As the brakes were cooling down Bitcoin and other assets we witnessed more DAI get minted.

This cooling-off period where DAI got minted and the market coiled was followed up with 187% in Crypto’s total market cap over the next few months.

The leveraging effect of debt in the marketplace combined with the Grayscale Effect is why Bitcoin and Ethereum are going vertical.

If the next dip in Bitcoin prices ends up taking place in the next few weeks, the timing couldn’t be better.

I expect more DAI to be minted ahead of the next wave of Grayscale unlockings. When the Grayscale Effect takes hold of the market in February, the added credit in the market will push markets parabolic again.

View the dip as a reset on the market. And if we begin to see DAI get minted again just prior to the next wave of unlockings, then position yourself for another wild ride.

Your pulse on crypto,

B. Lilly

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