Will Crypto Markets Melt-Up? | Nasdaq

By Frank Corva

It seems all but inevitable that we’re headed into a recession — or maybe worse.

But the big question is: Will markets “melt up” before crashing? In other words, will we have one last major rally in markets — all markets, including crypto — before everything falls apart?

What is a melt-up?

A melt-up occurs when investors buy assets based on greed or fear of missing out (FOMO) instead of for fundamental reasons.

In a melt-up, the prices of assets — particularly risk-on assets (e.g., tech stocks and crypto) —  skyrocket before crashing into oblivion.

Buying into a melt-up is the polar opposite of how someone like Warren Buffet — someone who buys equities based on the fundamental value of the company they represent — invests.

Who’s talking about a melt-up?

One of the biggest proponents of the melt-up thesis is David Hunter, a self-proclaimed “contrarian macro strategist” with half a century of experience on Wall Street.

On Twitter, Hunter has been posting about a pullback before a parabolic melt-up for the better part of the last year.

Thus far, the “pullback” portion of his thesis has proven true. Hunter’s followers are waiting with bated breath to see if the price spike portion of the thesis will hold water. 

Also, it isn’t just the contrarian type on Twitter making such calls.

In April 2022, CNN Business published an article entitled “Beware the ‘melt-up:’ Analysts say stocks may soar before the collapse.”

The author of the article, Nicole Goodkind, describes the melt-up as an “explosive pre-crash rally.” Goodkind claims that investors are waking up to the sobering reality we’ve been in a bull market for quite some time now and that some are preparing themselves for one last hurrah before the music stops.

Will crypto markets take part in a melt-up?

The prices of major crypto assets like Bitcoin (BTC) and Ethereum (ETH) have fluctuated mostly in tandem with risk-on asset ETFs like QQQ, which tracks the Nasdaq. 

So, if the QQQ begins to skyrocket, you’ll likely see crypto markets take off for a brief trip to the moon — before not only plummeting back to Earth, but probably crashing through the first few layers of the Earth’s crust and remaining deeply embedded there for some time thereafter.

BTC and ETH are institutional-grade assets at this point. And when they take off, most of the approximately 18,000 other crypto assets out there tend to follow.

How should you position yourself for a melt-up?

If you believe in the melt-up thesis, then you might want to purchase some Bitcoin during this pullback.

But if you don’t want to deal with the stress of paying close attention to the market — waiting in anticipation of a melt-up to sell your BTC — then you may want to play it more safely and wait for what seems to be an impending crash or recession to play out.

Either way, if you’re looking to get into crypto markets, you may get your opportunity to buy Bitcoin for less than $10k/BTC if things collapse the way that Hunter and other purveyors of the melt-up thesis think they might.

If sub-$10k BTC sounds enticing to you, it’s best to set up an account on a crypto exchange now so that you’re prepared to buy when the time is right. And don’t forget to plan to keep your crypto safe once you buy it!

Will a melt-up definitely happen?

NO. The melt-up thesis is just one of many market theses being tossed around right now.

If the Fed pivots and becomes more dovish in its approach, markets may rally and induce a melt-up. This isn’t a given, though. 

If you’re looking to gain exposure to BTC or other crypto assets, dollar-cost averaging has proven time and time again to be the most effective way to do so.

You could buy some BTC now and quickly sell if prices suddenly go through the roof — capitalizing on the melt-up to some degree — but also keep your options open by holding some cash on the side in the case that prices of risk-on assets like BTC just continue to grind lower as we endure a recession.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.