GM frens,

I swear it wasn't me, but bitcoin started tanking pretty much the moment my newsletter went out last week.

Over the past few days, the largest cryptocurrency by market cap has plunged 15%. It just started to recover yesterday.

So what the hell happened?

Let's take a look!

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

What are the reasons for the drawdown?

1. Remember that on March 13th, bitcoin had reached a price of around USD73,000, which was a new all-time high. So the first reason for the drawdown is people selling to take profits. So far, so normal.

2. On March 14th, the US Producer Price Index was released. It showed that wholesale prices accelerated at a faster-than-expected pace in February. The report served as a reminder that inflation remains a troubling issue for the US and many other economies. Against this backdrop, even more people decided to take advantage of the recent all-time high and sold.

3. When people sell and price corrections occur, they tend to trigger cascading liquidations. Cascading liquidations are a chain reaction of forced asset sales triggered when traders who use leverage (aka debt) to bet on price make bad bets and fail to meet margin requirements. They are then liquidated (aka forced to sell their position). Cascading liquidations have an amplifying effect on a price correction.

Should I be concerned?

The bottom line is that there's not much to worry about. Here's why:

1. Corrections are healthy. They flush out excess leverage and help reset the market. Simply put, they are a debt detox. Once detoxed, the market can move forward with greater strength.

2. Even in bull markets, corrections are normal. Bull markets never run in a straight line. In the 2017 bull market, we saw 13 drawdowns of at least 12%. In the bull market of 2021, we saw 13 drawdowns of at least 10%. So in a historical context, a 15% drawdown is pretty standard.

Why did the price rebound in the middle of the week?

On Wednesday, the US central bank (the Fed) announced that it would keep interest rates on hold. That part was expected. But the bank also signaled that it still plans several interest rate cuts before the end of the year. That was the part investors were waiting for.

Remember:

1. When interest rates go down, more money flows into so-called risk assets like stocks and crypto. So low interest rates are good for crypto.

2. Markets are forward-looking: Investors are positioning themselves now to benefit when rate cuts occur.

3. As the central bank of the world's largest economy, the Fed's words and actions will be mirrored in many other economies.

What should I do during a price correction?

If you believe in bitcoin's value proposition, a price correction shouldn't make you doubt it. Here are a few things you can do during a pullback: (Not financial advice.)

1. Do nothing. As Warren Buffett's late wingman Charlie Munger famously said: "The big money is not in the buying and the selling, but in the waiting."

2. Buy the dip: If you believe in bitcoin's value proposition, a price correction is the equivalent of a Boxing Day sale. So if you have any gunpowder left, consider buying the dip.

3. Zoom out: In the long run, all the daily, weekly, and monthly market jitters are just noise. Zoom out and focus on the long-term trend, illustrated below by bitcoin's price history since 2009 on a logarithmic scale. As I noted last week, I call this trend: Hard money is eating the world.

I hope this newsletter helps you navigate through this drawdown. See you next week.

Before you go, please help me get better!

Feel free to drop me an email or dm me on Instagram, LinkedIn, or Twitter with any feedback or topics you'd like to see covered in this newsletter!

Thank you!