Russia’s invasion of Ukraine was (and remains) a catastrophe.
It also presented an incredible buying opportunity.
That might sound like a tasteless opinion. But it’s a simple fact. Bad news and good buying opportunities aren’t mutually exclusive: historically, they tend to be one and the same.
The emergence of Covid-19 was a global catastrophe. It also created the conditions for an unforgettable bull run across equities and crypto alike. Anyone with the stomach to buy at the point of ultimate fear made life-changing returns.
Any war is a catastrophe. And yet, as this chart only proves, the moment of invasion typically coincides with peak fear in the market, after which upwards momentum can resume.
With the Russian occupation now underway, the markets now have some clarity.
The scenes yesterday were terrifying, and the markets were not immune to the fear. But now they can absorb it. And the stage may be set: macro conditions could see Bitcoin primed and ready to lead a market-wide recovery and enter full-on, full-blown, bull market territory.
This is a thesis. Nothing is guaranteed. But should it play out, we could be about to witness a massive, unprecedented reversal across global markets.
- The worst is over
- Markets will start to recover
- We have a formula for a full bull super cycle
Why these are the perfect conditions for a bull market
First off, a disclaimer… unlikely as they are at this point, several potential ‘black swan’ events could scupper everything.
- China invades Taiwan, triggering WW3.
- Russia invades a NATO country in a bid to revive the USSR, triggering WW3.
- A China real-estate meltdown triggers a contagion event and brings down global markets.
Failing those doomsday scenarios, we could have a perfect cocktail on the cards.
A super bull scenario.
How the markets responded, and what that tells us
News of the invasion saw equity markets sell-off across the board.
But by the close of play, the peak panic was over.
Markets hate uncertainty. The threat of an invasion in Ukraine is no longer an unknown quantity. It’s happened.
The US’s response is no longer an unknown quantity either. There will be no US military support on Ukraine, only a raft of comprehensive sanctions that have been clearly defined. Crucially, it won’t include removing Russia from the global SWIFT payment network.
With this clarity, investor sentiment shifted.
Bitcoin bounced (with serious volume).
The S&P 500 bounced.
So did the NASDAQ.
And Gold, which had been rallying amidst the uncertainty, began to reverse to the downside.
Situations like yesterday are extremely rare events in the markets.
Yesterday, we had the NASDAQ down 3% in the futures, only to close 3% up.
Similarly, the S&P 500 futures opened down more than 2%, then rallied to close by over 1%.
This has happened 3 times before. After the Dotcom crash. The housing crash. And yesterday.
The fact that the market went from maximum negativity to flip positive so quickly shows an impressive and sudden investor sentiment U-turn.
Risk-on is back on.
Inflation is NOT transitory
High inflation (and seemingly inevitable, fast, and highly aggressive rate hikes from the Federal Reserve) have suppressed markets since October 2021.
Now, the situation has changed.
The biggest catalyst for yesterday’s market-wide bounce was the fact that as long as Russia is in Ukraine, the Fed cannot introduce aggressive rate hikes.
As long oil prices are in excess of $100 a barrel (check out yesterday’s article), the Fed cannot introduce aggressive rate hikes.
As long as there is the threat of further conflict in Europe, the Fed cannot introduce aggressive rate hikes. Its hands are tied.
Rate hikes of 50 basis points by March are off the table.
Rate hikes of 100 basis points by July are off the table.
As many as 9 rate hikes across the year? Off the table.
With a limited toolkit, the best the Fed can do is stop Quantitative Easing (QE), start tightening, and limit any rate hikes to 25 basis points. At least for as long as the Russia/Ukraine conflict continues.
And that means the following:
- Rampant inflation will continue unabated.
- All assets will be repriced.
- The stock markets will go through the roof.
- Bitcoin (and crypto) will go through the roof.
The Fed cannot act as it had intended, inflation will have to be allowed to continue. Hawkish monetary policy, which has been scaring the markets, would be highly irresponsible. One thing the Fed isn’t is entirely stupid.
It’s the ultimate cocktail of a high-inflation/low-interest environment.
With risk-on back on and the worst of the panic behind us, Bitcoin could be set to lead the charge.
The Russian invasion is a disaster for global stability, and not least for the country and people of Ukraine. And yet for now at least, the ensuing instability may force the markets to new highs.
As Willy Woo pointed out, Bitcoin could be defining itself as a new kind of asset class: a risk-on safe haven.
As it stands, the technicals and fundamentals are aligning. The conditions for a supercycle are stronger than ever:
Risk-on tech stocks have bounced.
Bitcoin did the same, and with serious volume.
Peak panic is over. Investors have the clarity they crave. The Fed can’t fight inflation. And assets across the board are ripe to reprice massively to the upside.