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I have had to unexpectedly fly to Dublin, so apologies if I have missed any fireworks today.
I don’t normally bother mentioning bitcoin and the wider crypto world. My sense remains that it is a fantasy asset class only made possible in the context of what might go down in history as the biggest financial markets bubble since the 17th century Tulip Mania. For tulip, read bitcoin.
Since Trump's election victory in November 2024, Bitcoin initially surged on hopes of pro-crypto policies, peaking near $109,000 in January 2025. But optimism faded, coincidentally along with Trump’s political support. It drifted lower and plunged below $65,000 after briefly testing $70,000 support. This drop wiped out over $2.5 billion in leveraged positions in one day.
Investor Michael Burry (of Big Short fame) warned this could trigger a dangerous feedback loop. He identified $70,000 as a critical threshold: below it, heavily leveraged corporate holders like MicroStrategy (now "Strategy Inc.") face mounting paper losses, and in turn this is already forcing bitcoin sales to raise cash. At $50,000, the risk deepens—crypto mining companies could go bankrupt as electricity costs exceed revenue, dumping more coins onto a weak market.
What to watch. If Bitcoin stays below $70,000, contagion could spread beyond crypto. Strategy's stock has already tumbled 22% on Bitcoin's weakness, and leveraged ETFs in Strategy are down 60% in the last week. More distress might force asset sales that pressure broader markets. Some commodity markets (like silver futures) have already shown signs of synchronized liquidations with bitcoin—a new contagion. Geared silver ETFs are down 80% over the last week.
The next few days matter most. A quick rebound above $70,000 could stabilize sentiment. But if selling accelerates down through $60,000, the cascade Burry warned about—forced sales triggering more forced sales—could gain momentum, pulling down not just crypto but risk assets more broadly. For retail investors: this isn't just a bitcoin correction—it's a stress test of how deeply leverage is now woven into the financial system at large.
Amongst all fund sectors, UK Small Companies was amongst the best in the first month of the year, up 5.5%, with the best of them up 18%. The underlying index also beat all global smallers, but for China and Asia Pacific, as well as UK large and mid caps. The stirring we noted previously has persisted, yet it is early days.
Let me interrupt the gloom with some good news.
Looking at the chart for the FTSE Small Cap ex IT, the peak was back in 2021. Hang on! The peak was just a few days ago, but almost no one noticed, what with excitement around the metals and Trump’s insanity. That is good, because it tells us that this uptrend has some way to go, probably. It is similar to gold stirring in 2024 – no one was interested.
If the uptrend persists, and applying some textbook ratios from the trough in Autumn 2022, a decent target is 8300, about 25% above todays 6600 on this index.
To get to this level the interest in UK smallers needs to broaden out. Few investors realise the breadth of opportunities - nearly 1,500 companies with market caps under £1 billion, which is more than 80% of UK listed companies.
While media commentary is backward-looking, and still jabbering about Brexit a decade on, the management of these small companies do not have that luxury. They have been cutting costs, investing in new technology, restructuring debt, and, in many cases, substantially reducing debt. They are in excellent shape as businesses, encouraged by activist institutional investors.
Investors aren’t on board with these changes and the opportunities, not yet. The investment cycle is now turning in their favour. US growth stocks, centred on tech and AI, are overvalued, overcapitalised, and overbought, which are classic end of cycle features. As this cycle rolls over, the Value cycle turns up, and investors begin to turn to what is cheap and under-appreciated. Trump helps this rotation, as the Anything But America (ABA) theme encourages money to look for new homes.
The UK has the added advantages of horrible sentiment and even lower interest rates ahead. Amongst small caps, many are on single digit PE ratios, share prices are some way below net asset value, and they pay dividends of 5% and greater.
Bizarrely, if the small cap index does spike higher it might be because Donald Trump’s pursuit of the “2026 Boom” is taking shape. It won’t be dull, and do take care.
Pulling all of this together, the immediate potential in various markets, not just UK smallers, does assume no catastrophic collapse, triggered by crypto or otherwise in the meantime.
This is my guess work.
· Crypto will go down through $60,000. The S&P 500 will fall to the area of support around 6,400 (see this note, 21st November).
· The risk of contagion spooks the central banks, and the US Federal Reserve will step in to provide liquidity.
· Bitcoin stabilises, the S&P 500 turns around and heads towards a new (final?) peak, and the favoured global markets beyond the US breath a sigh of relief, and continue to outperform the US.
· Gold and metals may not yet begin a sustained recovery to new peaks as the dollar is strengthening.
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