TheoTrade Co-Founder Don Kaufman shares his crypto markets update on CoinDesk TV as BTC drops to $43,000. Don discusses the correlation between bitcoin and the S&P 500, Nasdaq. Don also discusses why he believes right now is the “calm before the storm” for crypto volatility.
***transcript below***
Christine Lee:
All right, join us now to discuss the crypto markets is Don Kaufman co-founder of TheoTrade, a trading educator platform. All right, thank you for joining us, Don. So we see that Bitcoin defy slightly under pressure ETH however, is rising ever so slightly training pretty flat. So I wonder what are some of the underlying market movements that are causing these price fluctuations?
Don Kaufman:
All right. So, I come from a background of, obviously, of finance and really the equity and index markets. And one of the things that, as I've transitioned over into the crypto markets, I still, I can't help but look at the correlation coefficient between like NASDAQ, a couple of the NASDAQ stocks and specifically crypto, and even more to identify Bitcoin. And Bitcoin is obviously, what I track, it's what I trade, the most of. And I have tendency to also look extensively at, not only historical volatility, but just, if you will past price action in the marketplace of Bitcoin, but implied volatility, which is kind of forward looking. And both of them right now, whether you're looking at price action in Bitcoin, it is dead. I mean, this is actually one of the lowest amounts of price action we've seen inside of these coins in a considerable period of time. It's been about a year since we've actually seen historical volatility drop to this ranking. Ironically, most of the internet stocks and so forth, they're rock of IV and yet, again, some of the crypto markets have actually quieted down a little bit.
Christine Lee:
Why do you think that is?
Don Kaufman:
It's interesting. So the rally that has ensued in the broader stock market in the last couple of weeks, crypto played into that. Now you can actually see maybe some of that rally is starting to fade. But again, one of the things that's pretty shocking to me right now is again, how quiet it has remained in Bitcoin. Now, I make no two ways about this, I am still an utter bear in the markets in the near term. It doesn't necessarily mean like long term bearish in crypto, just in the near term. And really what's driving a lot of that, it's not so much anything negative about crypto, it's much more about what we're seeing in the S&P 500.
Don Kaufman:
It's more of what we're seeing in the NASDAQ and that is, Hey, listen, there's some serious headwinds, and as long as I've been in this business, they always tell you don't fight the fed. I don't want the fight, the fed, okay. But I'm going to tell you right now, I don't look at crypto as being, what it was a year ago, where people are going to dive into crypto. Crypto is going to be the new gold. Some of that price action is dissipated and the correlation between Bitcoin and the S&P 500, or again, specifically the NASDAQ, it's really, it's picked up. And you can see, even like a day like today, where NASDAQ is fading and it's pulling Bitcoin with it. But listen, I think this is the calm before the storm. We're at the crossroads right now, volatility has died down, but I think you have to get ready for some much more substantial price action coming to crypto here in the very near future.
Christine Lee:
It's interesting you say that because right now I'm in Miami, there's a Bitcoin conference going on, and there's a lot of enthusiasm. A lot of excitement, there have been announcements by various autonomous regions from Portugal to Honduras that want to expand Bitcoin adoption. There was an announcement from Strike's, Jack Mallers Strike expanding payments through Shopify. But we haven't seen this jolt in the market. So it's interesting that despite this positive sentiment in the community, it is, as you say, kind of dead. But, I wonder what is your strategy in navigating this period of lack of volatility or I don't know what you would call, but this tight trading range, are you just completely out of Bitcoin or are you in accumulation phase?
Don Kaufman:
So, I'm always looking for opportunity. The opportunity right now is, I'm waiting for volatility to really start to pick up and I'll trade... I'm again, very heavy into the options, marketplace, anything that is surrounding, anything derivative of crypto is predominantly what I look at and what I trade. And that implied volatility is low. So I'm a net buyer, gets a little bit extreme. Nevertheless, that's specifically what I'm looking for in terms of being opportunistic. I recognize that the crypto world is extraordinarily bullish, it's hot. Like, listen, I live in St. Croix in the US Virgin islands, and this is an island, and that is filled with crypto traders. This is filled with traders in general, as is Puerto Rico. Nevertheless, one of the points that I continue to drive home to those that are just, quote-unquote, crypto traders.
Don Kaufman:
This business, the correlation coefficient, it's everywhere. And you have to start to think of the entire financial system. It's not like crypto off on its own anymore, it's part of the system. And I know that, there's a lot of people probably listening to this that are in crypto. They're like, they would know I'm not ready.
Christine Lee:
They want us... No, they don't want to hear that.
Don Kaufman:
Yeah. They don't want to hear about it.
Christine Lee:
It's decoupling, it's supposed to decouple from the traditional market. So it has nothing to do with it.
Don Kaufman:
I spent 15 years in the brokerage world, I was in the professional trading world before that. I can tell you right now, I've seen a lot of traders transition. I still stay on the fringe, I actually trade in equity markets to trade over in the crypto markets, what hot, what's in. And I'm telling you right now, the arbitrage is actually now going between, if you will, crypto, it's actually, those that'll trade and hold some of the coins in cold storage. But they're actually arbitrage now, between crypto, between the NASDAQ, between stocks. And the second, that traders like me get into that and start building algorithms to actually fire off. And sequentially, arbitrage crypto into something like the NASDAQ, it makes it part of the system. And that's where you start getting systematic and systemic risk and that's the kind of stuff where, as a trader though, I like it. It's tied in now. And that's where those little seams [inaudible] up, and that's where the arbitrage is.