“Shorting the bottom“ like an idiot

Bitcoin bears, meaning Bitcoin pessimistic people, people who want the price of Bitcoin to go down, are shorting Bitcoin like maniacs right now. I would say like idiots. Okay, so this is a common phenomenon in latestage bare markets. A bare market is when the market is pessimistic, the price is down, you know, people are bummed out, all that sort of stuff. So a very common phenomenon that happens in latestage bare markets is that people who have been trying to time the bottom which you should never do because it's impossible to time the top or bottom of any asset will flip from bullish meaning betting the price is going to go up to bearish meaning the betting the price is going to go down which creates a really interesting phenomenon on how people lose money. So here's what happens. The price of Bitcoin is going up. It's going up. it's going up. It peaks at most recently 126,000 even though it was only 126,000 like 5 minutes. It was really but it got into the 120,000s, you know, let's call it the low 120,000s for at least, you know, a multi-day period of time. All right. So, but technically the the peak tippy top, even though nobody actually bought it or really sold it at that price uh for more than like 5 seconds was 126,000. Okay. So, it peaks at 126,000. price dips and people are like, "Ooh, this is a temporary dip. I'll buy it with leverage." So, they buy it with, you know, 20 to1 leverage, which means if the price goes down 5% more, they lose all of their collateral. So, they use like 20 to1 leverage to buy the price at 115 and they lose all their money when the price drops to, you know, 107 or whatever. Um, so then they use a bunch more leverage, 20 to1, to bet that it's not going to go another 5% down. And of course, it does go another 5% down and they lose all of their collateral again. So what do they do? They're like, "Well, dang it. It can't possibly go below 95." So they leverage up 20 to1 and bet on 95. Of course, they get liquidated at 90. So they do it again at 85 and get liquidated at 80. They do it again at, you know, 70. Finally, at 60,000, they're like, you know, they go they're they're they completely rework their thesis. They're like, "Look, I've been trying to bet with leverage, which you should not do. I've been trying to bet with leverage all the way down that this was the bottom and I've been wrong all along." So, they rethink their entire thesis and they go find some Bitcoin influencer, uh, some online post that says, "You should have been shorting Bitcoin this whole time, all the way down from 126,000." And of course, these online influencers claim that that's exactly what they've been doing the whole time. And that's how they made a ton of money, which of course is mostly just bogus and totally made up. And they're like, "Oh, I should have known all this time. I should have been betting that Bitcoin was going to go down all this time instead of up all this time." And so, right near the bottom, right in that bottom range in latestage bare markets, all of you can see it. You can see it shows show up on something called funding rates. Because anytime you're using leverage to long an asset, meaning bet it will go up, or to short an asset, which means betting it's going to go down. If there's an imbalance between the longs and the shorts, then the longs or the shorts has to pay the other side for the privilege of being long or short. It's called funding rates. But anyway, the funding rates are significantly negative right now. Meaning there are significantly more people betting that Bitcoin will go down as compared to betting that Bitcoin will go up. Again, this is a common thing you see in latestage Bitcoin bare markets because all of these people who blew up their portfolio uh their portfolio and lost money blow it up, blow it up, blow it up, blow it up, blow it up. They switch bearish, meaning pessimistic, at just the wrong time, which is right near the bottom. So, right near the bottom, they switch bearish and decide they're going to short the thing the rest of the way down. Now, because human psychology in investing typically leads people to do the opposite of what makes productive economic sense, they tend to do that right near the bottom, which means one way or a signal. It's not a completely reliable signal, otherwise you could use it for that purpose. But a relatively reliable signal that you are near a Bitcoin bottom or that you have already had the Bitcoin bottom is that funding rates switch negative. People switch uh become extremely bearish and they assume that the bounce from $60,000 up to 77,000 or 79,000 was a dead cat bounce. One last gasp. you know, they come with all up with all these hypotheses and then they're going to short it from that price all the way ba all the way back down. And then of course what usually happens is the asset because you you know play stupid games, win stupid prizes, uh their reward for blowing up their portfolio all the way down is they switch bearish and short it. And then if you're shorting something when it's down, your portfolio blows up all the way up. Because if you're using 20 to one leverage to short something, that means if the price moves 5% the opposite direction for what you expected, you lose all of your collateral. So all of these people, let's say they started with $10,000 and they did 20 to leverage, uh, you know, 20 to1 leverage on 2,000 and lost it, and then they lost another 2,000, and then they lost another 2,000. Now they're hanging on to their very last $2,000, and they're like, I got to earn it all back. I gotta I gotta win back all of the money I started by going 20 to one. But because I've lost 20 to1 so many times in a row, this time I'm doing 20 to one short, I'm going to bet that the price will not go up 5%, but instead will keep going down. Well, guess what? When these idiots do that, which again happens in late stage bare markets, what inevitably happens is the price then reverses and climbs back up and they lose all of their money back on the way up. So that finally by the time Bitcoin is setting new all-time highs, they have literally lost all of their money. And people are like, "Oh, you're super into Bitcoin, right?" You know, and these morons that are trying to day trade it are like, "Uh, well, yeah, you know, yeah, yeah, sort of." They're like, "Well, hey, Bitcoin's setting new all-time highs. You should be super happy. You should be super rich right now." And they're like, "Well, you know, sort of. That didn't work out." And the reason it didn't work out is they blew their portfolio up all the way down. And then they finished blowing it up and lost all of the rest of their money all the way back up, betting it would go down some more. So they were betting it would go up all the way down and then they were betting it was going to go down all the way up and they blew up their portfolio. Anyway, you can see that right now in funding rates which are ridiculously negative, meaning the shorts are paying significant premiums to the longs for the privilege of being short. And uh again it's all complicated but uh James Czech my favorite Bitcoin analyst is the one who regularly points out this phenomenon of just you know the the gray matter between your ears you're called your brain when it comes to investing typically leads if you're trying to do some sort of day trading or buy high you know buy low sell high which again does not work don't do it cannot be done reliably you will lose money etc etc etc. your brain when you're trying to do stupid stuff like day trading or buying low, selling high, selling high, buying low. If your brain is trying to do that, it's almost always going to tell you to do the wrong thing. It's going to tell you to buy when things are euphoric and feeling good. It's going to tell you to sell when things are bad and feel and down. Well, Bitcoin's down right now. It's down from 126,000 down at 77,500. So again, the brain, the gray matter is telling people, you should have been short all this time. you can short it the rest of the way down, which of course means it's going to reverse and go back up and blow up all their portfolio. So, James Czech regularly points this out on Twitter and in his, you know, twice a week newsletter where he's like, "Wow, you know, this does not guarantee we are at the end of the current Bitcoin bare market." But these are exactly the sorts of things people do when you are right near the end of a Bitcoin bare market is funding rates flip negative. Everybody starts betting that this, you know, the the the rally that we're in is a disbelief rally that it's not real. The price is going to reverse and keep going back lower. People start betting accordingly. And again, they bet with leverage. And what happens with leverage is if the price goes the opposite direction of what you anticipate, you are forced to cover your position. Which means if you are short Bitcoin, betting it's going to go down and it goes up instead, you are forced to buy the Bitcoin to make your position whole or to meet a margin call. Uh I'm oversimplifying here for the sake of explanation, but the short take is you know you got to if you're buying Bitcoin with leverage, you're buying Bitcoin which makes it go up. If you are shorting Bitcoin and it starts to go up, you get what's called a short squeeze. A short squeeze is when people who betted it was going to go down are on the losing end and they have to go buy that Bitcoin at a higher price to cover their position, which again squeezes them and forces the price even higher. Uh so we've been getting some of that lately, too. So again, don't day trade Bitcoin. Don't try to time the market. Don't try to buy it at certain levels and sell it at other levels. Don't do anything stupid. Buy Bitcoin as much as you can and hold on to it for as long as conceivably possible. And if you're buying right now when it's cheap, anything under 80,000 is cheap.