Rotating from mania to mania?
By Wolf Richter for WOLF STREET.
Bitcoin, currently trading at around $63,000, has plunged by over 50% from its all-time high last October and is down 37% year-over-year. In terms of market cap, expressed in despised inflation-wracked US fiat, about $1.2 trillion of bitcoin value has gone up into thin air.
Ethereum, the second-largest crypto by market cap, has plunged by 64% from its all-time high last August, is down 26% year-over-year, and $364 billion in market cap has vanished since the peak.
XRP, another top crypto by market cap, has plunged by 68% from its high in July last year. About $138 billion vanished.
The crypto market cap index by CoinMarketCap, which tracks all major cryptos, has plunged by $2.08 trillion since October. Over $2 trillion in value, expressed in despised worthless fiat, gone up in smoke. And yet, outside of the crypto world, there haven’t been any significant ripples.
On the other side of the equation are the massive gains these cryptos produced until their highs last year. Betting early on these cryptos was among the winningest bets of all time. Bitcoin went from zero to a market value of $2.5 trillion over the span of about 16 years, without ever having to produce any kind of product or service, revenues or profits, or even financial statements, or walk befuddled analysts through an earnings call or whatever.
Other cryptos, by now many thousands of them, came along to duplicate that feat. Cryptos were the best-ever get-rich-quick scheme of all times. But anyone can create their own cryptos, and there are many thousands of other cryptos now, many of them have been left behind for dead.
But who needs cryptos to get rich quick if the stock market’s tech sector is now providing that service for free and with less hassles?
And there are the mega-IPOs coming up, including by SpaceX, which is literally going to the moon, not just figuratively, and its valuation at the IPO price has already gone to the moon, at $1.77 trillion. At this price, it is valued at 93 times its trailing 12-month revenues of $18.7 billion, and now it’s time to sell some cryptos to shake loose some cash to buy SpaceX to hitch the next mania to the moon? With SpaceX, folks will at least get a slice of an actual company with amazing products and innovations, and not just digital units on a blockchain.
Or sell some cryptos and buy the semiconductors that have produced WTF charts on a daily basis? The other day, we talked about Micron whose market cap had spiked to $1 trillion, from $500 billion, in 48 trading days. The share price had exploded by over 850% in 12 months and by over 1,300% in 14 months. The shares rose further over the past few days, but today are down a little.
If you look closely, you can see the Dotcom Bust, during which the shares collapsed by 98%, and then remained below the 2000 high for 24 years (data via YCharts).
For a good look at the mania in the broader semiconductor space: The Direxion Daily Semiconductor Bull 3X Shares [SOXL] has spiked by 550% over the past two months, since the end of March. Over the past 12 months through yesterday, it spiked by over 1,400%, meaning it multiplied by 14. Today, it gave up some of those gains.
In turn, it’s not unusual for this triple-leveraged semiconductor ETF to collapse by over 90%, which it most recently did in 2022. In terms of the math, SOXL would have to drop by 93% this time to wipe out the 1,500% gain of the past 12 months.
Is this still a good time to chase this mania? This chart shows the percentage gains of SOXL and MU over the past 12 months (data via YCharts).
Why bet on cryptos if you can have so much fun, and so conveniently, and instantly, with semiconductor stocks that became a mania and went parabolic, and triple the fun with triple-leveraged ETFs?
But the dollar amounts are bigger with the semiconductor industry and the AI-related stocks. Therefore, the dollar amounts of the gains in portfolios are bigger, and they show up in mundane ETFs that are widely held, such as S&P 500 index funds, dominated by a dozen stocks that combined have a value of $30 trillion. And when they turn south eventually, they’ll make a much bigger dent in dollar terms.
Crypto’s 50% drop took out $2 trillion, and it didn’t produce any ripples outside of the crypto space. A 20% decline of the top 12 stocks by market cap, not including SpaceX yet, would take out $6 trillion. The total market value of the stocks in the S&P 500 is currently close to $70 trillion. A 20% drop would take out close to $14 trillion.
But as with cryptos, these stock holdings are spread around the world, not just in the US, and a portion is held by institutional investors, not just retail investors.
So any damage gets spread around the world, not just in the US, and it gets spread around investor classes, not just retail investors.
And in the past, drops of around 20% didn’t produce significant economic ripples in the US. But the much bigger drops during the Dotcom Bust did eventually produce economic ripples, though most of the economic damage occurred in the cities where these companies were located, while the ripples further afield were minor.
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Should have included MUU (also Direxion) just for fun.
You think monthly/quarterly rebalancing takes place in June to lock in gains as part of portfolio management or just…well…HODL?
I’ve been investing in equities since I was a teen. For the last five years I have not put a toe into the water. I “coulda, shoulda, woulda”…I am a fool. I lost out. But I have never been so darn afraid and frozen in place as right now. I guess I will just continue to “miss out”. I’ll have to live on 5%/yr return for now. The screw will turn at some point.
You did not actually miss out, per se. These are imaginary dollars. A $1.8 trillion valuation for SpaceX does not exist in real cash. Sure, they will pull $75 billion, or maybe another $75 billion. However, very few investors will exit even at a $1 trillion valuation—likely much, much less. It is the same with the rest of the market—a few lucky ones will exit, but the majority of these imaginary dollars will vanish just as quickly as they appeared. To miss out is to assume you entered at the right time and exited at the right time. Mark Twain has a story about that—’The $30,000 Bequest.’
That’s a great story!
Lookup how Yahoo stock did during the last crash.
And how investors fared.
They say in manias people get the itch right before the crash.
How does the saying go? “The best time to plant a tree was 20 years ago. The second best time is now.” You gotta be in the market *all the time* Of course I wouldn’t dump a large pile of cash in right now, but I would start dollar cost averaging. Invest the same amount every week, month whatever, and you automatically buy more when prices are low, less when prices are high. That’s the true magic of automatic IRA/401k payroll deductions.
About six months ago I made a comment that I didn’t understand what Bitcoin was actually FOR and someone told me to “Have fun staying poor” since I didn’t own any crypto gambling tokens like they did.
karma
Great article, Wolf. It will prove to be very timely.
Re: karma
Here is what someone with loads of good karma could do: wait until SOXX is down a good 12% from its top. By then, NVDA, MU, ASML, AVGO, and AMAT will all have rolled over. Then, sell a call in SOXL and buy 12-month calls in SOXS with the proceeds. This is what they call a YOLO trade.
Better yet, skip selling a SOXL call and just buy a good bunch of SOXS calls with cash—don’t do a YOLO. SOXS is like an option already—only five bucks. Then you wait six to nine months, and then sell. Then buy a Maybach with your good karma. Not financial advice—only for Gamblers Anonymous.
I think there is a sucker made every second….so does Musk….and he sure knows how to sell those tulips to them.
BTC, ETH, and XRP are _tools_ that make for easy and cheap monetary transfers for individuals, corporations, and banks both locally and internationally.
The wild valuations swings unfortunately work against this use case.
New uses will arrive, like the ability to track ownership of real assets such as land titles, cars, etc.
HOLDING these tokens is pure speculation. BTC has lost >75% of it’s value 3 times on it’s rise to $120K. It could go to $1M or it could go to $0. Both seem equally likely to me.
The other tokens are, IMO, pure gambling. Ignore them.
The fact that anybody can create their own token isn’t relevant. Anybody can make a painting but they don’t affect the value of a Rembrandt.
Ok, sounds interesting.
As a financial transaction tool blockchain algorithms may have some value. Maybe $2.99 per transaction or something. More security than the old bank wires or live checks perhaps.
Still, I’m not sure why Bitcoin itself has any use or value. I’ve missed the crypto boat for all these years apparently, but I am sleeping quite well this week as the betting tokens crumble into dust.
There won’t be any dust
The original purpose of Bitcoin was purely political. Remove currency from the control of governments. The motivation being that governments cause inflation by minting currency, so if a government couldn’t devalue the currency by creating unlimited amounts of it, there would be no inflation. The flaw in this thinking is other factors can cause inflation (see wages and prices). Also by removing currency from government control, you also remove stability that (most) governments provide. So Bitcoin is forever adrift in a stormy international sea of speculation.
There was an article a few years back that sounded persuasive. If you live in a country with exorbitant inflation or an unstable currency having your funds in crypto was a real solution.
I believe the article was focused on people in Lebanon when it was suffering from inept gov.
BTC and Crypto something Wallstreet jumped on and the SEC and even Trump. Why not create something out of thin air and sell for trillions
I’m utilizing the Bored Ape Yacht Club Crypto Bit Coin Market. Takes two really exciting investments and combines them into a brand new investment with solid potential. I’m able to create AI pictures, upload as NFTs and then have the image printed on physical bit coins. Already got friends and family holiday presents locked in.
This sounds like perfect currency to use on our Mars colony.
“Can’t cry in the casino.”
Love that quote.
Investors in the IPOs of SpaceX, OpenAI, and Anthropic will learn much like Icarus what it means to fall from great heights.
It’s just madness at this point. My wife has some stock in CTBC bank in Taiwan that she’s had for over twenty years. It’s gone up 200% in five years, 65% in one year and 27% in the past month. The only reason is because it’s lending to TSMC and other AI players in Asia. It’s has been a great dividend stock, but I’m almost ready to fly to Taiwan and cash out before it’s too late.
Everyone’s retirement feeds the beast via 401k. Where else do people go for returns? Buying houses to rent. The safe bets don’t keep up with inflation/money printing.
I don’t have all the answers, but I understand a balance sheet and profitability. Good investments exist if you’re patient. There’s a whole economy outside of AI, space, and tech. Slow and steady wins the race. Also, being frugal helps gorw a nest egg.
In case anyone missed the news, Hegseth was bragging how they stole over $1 billion in Iranian Bitcoin(some may spell it “sh”*tcoin).
And here I thought the value of it was that it was safe from government or other theft.
“Speaking at the Reagan National Economic Forum, Treasury Secretary Scott Bessent revealed that the U.S. has seized roughly $1 billion in Iran-linked cryptocurrency as part of a broader campaign to choke off Tehran’s financial networks.”
No irony on it being called Reagan National Economic Forum, issuing in massive deregulation and Alan Greenspan and company belief on the power of capital and markets to regulate itself, while burying a few voices that spoke to the risks of black box derivatives market. At least Greenspan admitted he got it all wrong but hindsight is hardly useful to those impacted.
Interesting. If true, then I wonder if the confiscation caused btc to drop. Freedom from govt control is the main thing about btc. What good is it if the freedom can be denied through confiscation pf btc ?
I remember when the internet was supposedly going to be free from government control. Goodness were we naive.
When the tech bubble peaked in March of 2000, do you know what one of the first stocks to collapse was? Microstrategy! Closing price March 10, 2000: $313. Closing price April 17, 2000: $30.63. Down 90 percent in 26 trading days.
Yeah it’s been good to be NVIDIA.
From one mania to the next.
What’s the next application for GPU’s? Ill invest in that I promise.
Should have never sold. I’ll have fun staying poor (before someone tells me that). My favorite anonymous insult received was after I questioned bitcoin as well. Something along the lines of “sounds like you’re about to lose a lot of money”. Yeah okay sure.
I remember when the Voodoo graphics cards came out in the mall. That was a giant leap at the time.
I was trying to figure out if my computer could take it.
I can’t even remember the games it played but it was some pretty awesome 3d tech.
It’s been a straight shot from those early pentium 2-3 days. Those were exciting days.
WW2 vets were running the world with their savings. They had actual sense and I’m not sure they thought a whole lot of their kids. Which I totally get now.
Hahaha
MW: Micron suffers record market-cap wipeout as Broadcom casts a shadow on chip stocks
It broke its own record, it didn’t break Broadcom’s record.
MW: A war-weary Treasury market faces a fresh test with Friday’s jobs report
XRP, that invisible specter otherwise knows as Ripple, is down 47% in the last 6 months. OUCH!
Maybe they should change the name to Fantom.
I have been trying to wrap my mind around and study the crypto thing for a couple years now…
I still don’t get it…don’t know.
So I will wrap my mind around the fox tail or what not that my beagle dog has in her paw..
Easier problem to solve…
Haha
Maybe there is nothing to “get”…
I was musing today that the crypto wind down is because those ‘investors’ are now chasing semis, MU, SanDisk and so on.
I’ve been an SP500 and dividend index investor for decades after losing my shirt in the dot com meltdown in 2002 (good ol PMCS, LU couple others I can’t remember) and feel things are frothy, but where would I put my money? Timing the market is a fool’s errand, so it’ll just ride.
The swings are crazy. Broadcom lost 12% of is value today…$290 BILLION in one day. That equals to 5 Ford Motor Companies or 4 GMs…in one single day. Why? Because their 3rd Quarter forecast is only $16 Billion instead of what analysts wanted which was $17.2 Billion.
Buy the dip? lol. Going to be bumpy ride soon?ish? At least we’ll have a front row seat to the fireworks courtesy of Wolf.
Wait till Nvidia loses 12% in one day.
Bookmark this!
I will be surprised to see NVDA stock falling 12% in one trading day. Unless there is a stock market crash. I don’t know what other factors can make this happen.
A primary factor may be: a normal valuation.
The current PE of almost 33 is about double a “historical average.”
I dipped my toe into SOXL on a recent pullback (a week and a half ago), gaining a few percent, before watching it gain another $100 in share price since then!
I currently have the other side of the bet (but am also wary of holding too long: mania and all).
My wife was recently given advice from her (generally financially ultra conservative) father to “put $50k into bitcoin and let it sit there forever.”
Signs of the top?!?
Once NVDA’s circular financing/round-tripping gets exposed, you will see a 12% drop. NVDA invests billions into startups and data center providers, then these companies use NVDA’s funds to purchase NVDA’s hardware. Until then, I will continue to wear my Tin Foil hat.
Eight_mile_road,
Some estimates show that less than half of the chips purchased have been installed. This is related to a combination of needing to prepurchase tight demand and that data centers take a long time to build and of course some are delayed or canceled. There are no absolute numbers but there are those that crunch amount sold with capacity brought online. That may just mean worse news for those that purchased as future generation chips will also have different racks and so on.
It doesn’t help China is becoming self-sufficient as well. How this plays out is hard to tell as mania could just keep going with companies buying up everything available and doesn’t order based on any realistic demand.
nvda will crash when the hyperscalers
one by one pull back on capex,
and then the supply chain collapses,
if their chip demand goes down,
so does demand for MU, SnDk, et al
I bought NVDA in Dec 2017. My cost basis is now under $5/share. I have sold often on the way up, taking some profit off the table. Over the years, I have held thru HUGE drops (as Wolf has talked about in other posts), yet has ALWAYS come back and hit all-time highs. My belief in the big picture of the AI story (NOT just AI agents), but the unseen possibilities in ALL aspects of the the global economy. There will be applications and uses that the visionaries can see, but we can’t. My go to scenario is to think about the movie “Blade Runner”. I don’t know what, how or why, but there are always people/entrepeneurs who do see things and will have the tools, capital and vision to make things happen that will change everything and how we do it.
Many companies will fail, but the winners… the ones investing the most in this technology (with a vision), will continue to soar. The cycles will be bust and boom, but at least for now, NVDA will be at the forefront, not just for it’s GPU, but its CUDA moat and investments in so many different aspects of the AI build out. Its recent foray into the CPU field just announced (the RTX Spark) is a shot against the bow of Qualcomm, AMD and Intel.
Jensen Huang has made me a lot of money and it is not yet time to bet against him and his vision! If the stock falls 30-40%, I’ll start buying again. YMMV :-)
Half way there, NVDA went down 6% today…taking $320 Billion off its market cap.
“With SpaceX, folks will at least get a slice of an actual company with amazing products and innovations, and not just digital units on a blockchain.”
Almost spit out my coffee!
He forgot the /s
If people buy this stuff on margin and they get margin called. Do they just go broke if it goes bust?
At times like these, I always think of the quote from the Jurassic Park sequel: “Oh, yeah. Ooh, ahh, that’s how it always starts. Then later there’s running and, um, screaming.”
Or from Alien: In crypto, no one can hear you scream.
I suppose the nature of passive investment is that it amplifies “the madness of crowds”.
Semis/AI does produce something. Needs Real Estate, Construction, Utilities, etc. Pays people well who spread their money around.
I’m trying to wrap my head around whether I can think of any investment that’s safe against the backlash.
It sounds like we have some Luddites here.
Yes, there is a mania around AI, and like in the past, the wheat will separate from the chaff.
Semis are the engine that drives AI and just about everything else in our economy. Just look around your home and see how many gadgets have integrated circuits.
Hell, you can’t have many surgeries without robot assistance. Cars have radar within!
Just wait ten years and see how AI and semiconductors are even more deeply embedded into everything you touch.
How about a grid collapse? Or the development and release of some type of “Covid” software that decimates through the internet? The belief in Bitcoins invincibility has been destroyed if you believe Hegseth.
Sorry, I am confused.
Bitcoin, Hegseth?
Bitcoin was believed by many to be the future and it’s price reacted accordingly. My friend owned Bitcoin at $100 and sold out at $1,000.
Hegseth has revealed the King has no clothes when he raided Iran for $1B in bitcoin.
AI is hype.
They cracked a wallet, not the blockchain. Regardless, Cryptos days are still likely numbered.
Once upon a time I used my GTX470 to mine BTC to buy a new GTX580. Never sold any for more than about $100. Bailed on mining when MTGoX was hacked. Crazy to think about now.
The one plus is I was an early NVIDIA fan so made a few missed $$ back there. Also, sitting on a few $$$ in MTG cards, lol.
I’m not sure if it takes a luddite to call “bubble.”
We (26 years post.COM bubble) use the internet for everything.
The fact is that overvaluation is corrected by a drastic change in price. The rule of thumb is that “it goes down more rapidly/ violently than it went up.”
What’s the opposite of a parabolic rise?
“What’s the opposite of a parabolic rise?”
An exponential fall. Look at this graph.
https://en.wikipedia.org/wiki/Exponential_decay#/media/File:Plot-exponential-decay.svg
Specifically, look at the plots for decay constants of 1, 5 and 25. This is what Wolf means when he says “Nothing goes to heck in a straight line” on his drinking mug.
Nobody talks about the mental a physical toll all this gambling takes. I did this professionally for 30 years in commodities on Wall Street. People around me kept having heart attacks, other bad things. My doctor said I was due. So on 911 I quit, and went to live in the country. Today at 88 my heart not giving me any problems like it was before, and I am very glad to be out of all this sh…t. You all now have a chance to quit with big winnings, do it and enjoy life. Whoopie.
Good advice here.
Enjoy the retirement!
Is this some kind of short squeeze?
I heard that borrowing money with bitcoins as collateral was being pushed as a way to get some money out of the appreciated value of bitcoins without having to sell. This works fine as long as the price keeps going up.
I never got BTC, but then Im a geezer. A younger buddy of mine picked up a good amount, in the low thousands and has held it during all these crazy % pullbacks, the big one 75%, and been right.
The argument now is it is the 4 year cycle before a halving, whatever the heck that means and he is going to be buying more.
My thought is sooner or later every get rich scheme ends, either becoming mainstreamed or Enroned.
If it becomes mainstreamed, which it has to some extent on Wallstreet, then it just becomes a new asset whose value is tied to rates, inflation etc.
Or it could go to zero or a million who knows.
I have learned one thing, to keep my mouth shut about it though lol.
Miners, those that run the underlying Blockchain and get rewarded for their efforts, get their base reward, payed in new BTC, halved about every 4.5 years. That reduces the supply of BTC entering the system.
By the laws of supply and demand, that reduction of supply should increase the price.
But it’s more story than truth. Over 95% of BTC has already been mined with less than an additional 1% to be added this year.
What drives the price is still “supply & demand” but a (largely) fixed supply and changing demand.
“By the laws of supply and demand, that reduction of supply should increase the price.”
I keep reading this from bitcoin trolls. But they never focus on the second part of that statement: “demand.” There is zero natural demand for BTC. No one needs it. It doesn’t do anything. It doesn’t provide anything. It’s just a useless digital unit. Any demand that exists is artificial demand created by hype, like you’re spreading, with people buying it to get rich quick, and by organized efforts to manipulate up the price, such as by Saylor’s MSTR. When that dies down, the price falls and BTC can just vanish then when the price stays below the costs of running the system for long enough.
The cool kids are only buying Fart Coin and Butt-Hole Coin now. Bitcoin and Etheruem are sooo paaasssss.
Today, Direxion Daily Semiconductor Bull 3X ETF (SOXL) currently down 18%.
Now, Direxion Daily Semiconductor Bull 3X ETF down 24%.
The believers in higher bond rates are seeing the dawn breaking.
Stocks need a rally or Monday looks dismal.
Gold broke down through its 200 day MA
Lotta wheels coming off. Bitcoin facing a day of reckoning at 60k
Maybe oil services is good to fix what Trump broke and is still breaking.
Space X Jamie Diamond/ Elon Musk Roadshow, they are now best friends (Lol). I like seeing the collection plate being passed around Wall Street like church on Sunday.
The $135 share price, as well as the size of the offering, puts more pressure on Wall Street to find buyers for the IPO.
The scope of the offering also goes well beyond the typical pool of institutional IPO investors, so Wall Street bankers are trying to find new ones. No other IPO in history has raised more than $30 billion.
If total crypto market cap falls below $1 Trillion, I wonder if we’ll start to see more active listings on the housing market? Maybe using crypto as collateral for loans used to buy more crypto wasn’t such a good idea after all.
Bitcoin is heading for zero or below zero. Holders of this asset will have to pay a commission to get out of their positions to harvest their capitol loss.
Bitcoin and crypto generally still have the ironclad use case of crime. I’m disgusted to see it infiltrating our banking system. Make that horrified.
Dot com bubble #2 just started bursting.
The oil choke off is going to cause a recession with inflation in most industrialized countries. US will begin aggressive QT within months, as a substitute for rate hikes. Listen to KevWar’s testimony about shrinking the balance sheet.
The remaining question is whether real estate loses more than it already has.
Short TLT
Long OILK
The bond market will take out the RE market. The 10 year will move up to 5% in the next few weeks. No one will be able to finance the purchase of a home. The only buyers will be Private Equity firms like Blackstone. First time home buyers will be SOL (S%it out of luck).
Thanks for clarifying SOL
Wanna take a crack at FUBR?
🤣
Lower house prices will be great for first time buyers, the economy, the country.
Profits and portfolio growth requires strategic allocation and periodic rebalancing. Most investors know this prosaic wisdom but it amazes me how many self directed investors repeatedly ignore same to their lament. I maintain a 1-3 percent allocation to crypto and another 3-5 percent to gold among my broad allocation. I also keep ten percent in cash earning a net real rate of 0+. Use that to prop ip the portfolio on 10+ percent drops. Also use some put options to control volatility. With a 10 year time horizon, I sleep well and ignore the occational drops. Crypto isn’t going away. It is a highly volatile asset class with no NAV. That has no bearing on optimism in periods of speculation where the profits are made. Its a new world!
A quick search says that the totsl global cryptocurrency market is $2.16 Trillion. Meme coins add an extra $35 to $60 Billion. Bitcoin was released in 2009. Imagine that – $2.16 Trillion of conjured-up assets that didn’t exist 20 years ago.
🪄 🎩 🐇 Brilliant. 👏