What drives the crypto market?
The biggest disconnect between crypto adherents and value investors is the phrase “Intrinsic Value”. IV is essentially predictable future cash flows, which no crypto possesses. If the S&P 500 had dropped 70% from its peak like BTC did, it would today be at 1,433. At that price the S&P 500 holder would be earning a nearly a 5% dividend yield and a total earnings yield of over 13%, either getting returned as dividends/stock buybacks or added to their balance sheet. That’s Intrinsic Value.
In the short run the prices of all investments are driven by investor inflows/outflows, in the long run it corresponds to earnings. But the prices of speculations like crypto can only ever be driven by inflows & outflows because their yield is zero and always will remain zero.
This means two years ago Crypto had massive inflows because of speculation driven by stimulus and low interest rates. The end of stimulus and low interest rates shrank liquidity creating the "crypto winter" where crypto prices have crashed as inflows have reversed. If you find that explanation “speculative”, I offer the following chart as evidence, if not clear proof.
The green area is BTC, the purple line is ARKK, and the black line is the S&P-500. I chose ARKK as probably the best measure of speculative tech investments since the Internet Bubble. Cathie Woods has a fantastic skill for piling investments into business mirages that will never make a profit. Without a profitable business model, stocks also lack any Intrinsic Value, and note how eerily Cathie’s speculative techs match BTC’s price rise and crash during the bubble.
As a speculation with no value to anchor to, crypto prices will be perpetually waiting the next liquidity bubble, and will always crash when liquidity is scarce. Someday liquidity will return and Bitcoin will likely pop again. But no one knows when, or how much, and most importantly, how much farther Bitcoin will fall before then.