A framework for analyzing the current market

Quite a few people on Twitter asked me how they should manage their finances, especially their crypto portfolio, in this nerve-wracking market.

The short answer is that I never know what the market will do with more than 60% confidence, but I will share a framework to analyze this market.

To understand this framework, let’s first walk back in time.

In January, when S&P500 was trading at 3300, it was very clear that global markets will get destroyed by COVID-19. Not only because I spent a lot of time on WeChat and saw what was happening in China, but also because the global economy was already weak before that. Leading indicators such as PMI, yield curve inversions, and CEO confidence have rarely failed in the past.

But at that point in time, I did not know what was going to happen to crypto, because the latter was still by-and-large uncorrelated with the rest of the market. Only a month later I realized that this was about to change. Bitcoin was trading near $9000 at this point.