This is michael saylor, ceo of microstrategy, recommending to put everything you have into bitcoin and to even take on leverage to buy more bitcoin, and he did this interview when the cryptocurrency was trading for 56 000 u.s dollars. Well, i hope he made use of some financial disclaimers because, despite being hyped in expensive super bowl ads and in the matt damon, the fortune favors, the brave commercial that has been viewed by over 18 million viewers on youtube cryptocurrencies around the world are having a very Rough time right now, bitcoin is down 71 from its peak in november last year, and ethereum is even down 82 percent over the course of just 11 months, one of cryptos largest venture capitalist firms, 3ac, is facing insolvency, which could spell disaster for the entire space terror. Usd a stable coin, which is intended not to fluctuate in value imploded last month, losing almost all of its value. The terror lunar coin has fallen from a peak of more than 117 dollars per coin in april 2022 to barely 100 of a cent crypto lender celsius. Paused withdrawals as too many investors tried to cash out simultaneously, causing even more panic across the industry, and on june 14th, coinbase announced that they are going to lay off 18 of their workforce, and many other companies like robinhood and crypto.com have also announced significant layoffs or Higher rank freezes. So, to sum up, as the new york times reports, the crypto world went into a full meltdown this week in a sell off.

That graphically illustrated the risks of the experimental and unregulated digital currencies and in this video im going to explore the idea that, despite many cryptocurrencies being down 50 60 or 70 percent, the probability of another 50 decline. So further price declines may have just increased. And so without further ado lets get started Applause. So the idea that the crypto crash is not over yet and may actually accelerate was first articulated by nasa talib investor and author of the famous book. The black swan who tweeted on june 12th finance 101. Something like bitcoin with purely circular attributes, which includes no yield, becomes less attractive at a lower price in a path dependent way, a fall from grace and another well known. Findwood investor mostly borrowed ideas. He shared a similar view when he tweeted one day later that when a free cash flow generating company is down fifty percent, the probability of another fifty 50 decline likely decreases when a non cash generating asset, such as crypto, is down 50. The probability of another 50 percent decline likely increases. So what do these two brilliant mines actually mean here? Let me explain: taleb used the term yield in his tweet, so lets first of all, quickly explain what the term yield actually stands for. Yield is a return measure for an investment over a set period of time, and it is expressed as an annual percentage based on the current market. Value of that asset essentially yield refers to the earnings for cash flow generated and realized on the investment over that period.

A dividend yield, for example, tells you the percentage of a companys share price that it pays out in dividends each year. So if, for example, a company lets call it called, the company company xyz can be bought for one hundred dollars a share and the company pays an annual dividend of two dollars a share. Well, then, the dividend yield would be two percent two dollars divided by one hundred dollars. More generally speaking, if you adopt the mindset of an actual owner of a business yield, tells investors also how much cash they will earn each year relative to the market value or the initial cost of their investment if, for instance, a business with a market cap of 100. 000 us dollars annually generates 9 000 us dollars in free cash flow. Well, then, you got a free cash flow yield of 9 now cryptocurrencies are so called non productive assets, meaning they do not produce any underlying earnings or cash flow. So, as an investor you dont receive anything and thus any return, an investor wants to return or wants to make must come from someone else buying their shares or their cryptocurrencies at a higher price. This is not the case for productive assets where and please pay attention now, a lower price actually increases the yield and which does in a way creates a floor to the price to which the asset can drop. And again, let me try to illustrate this with an example lets assume you want to buy an ice cream parlor in san francisco and lets use some very simple and rounded numbers.

Well, if the ice cream parlor that you are looking at, generates 1 000 us dollars in profits in free cash flow forever and every single year, and lets also assume that the business is not growing well, what would you be willing to pay for that entire business? Well, if you want to earn a 10 return, the math is actually quite simple. You can pay 10 000 us dollars for the entire company and thats the so called intrinsic value of that business and, of course, the free cash flow yield for this yeah fictional business, generating 1 000 us dollars a year would be 10 now lets suppose that the Ice cream parlor is actually a publicly traded company trading on the new york stock exchange. During the recent stock sell of the market crash, the stocks market capitalization was also impacted and dropped. Fifty percent to five thousand dollars a share, so we are assuming. There is only one share, so what just happened to the yield of that business? But if you can buy the entire business for 5 000 us dollars all of a sudden, the free cash flow yield went to 20 or put differently if we demand a return of 10. The stock and outrage 50 percent below its intrinsic value. So with that said, lets now take another look at the mostly borrowed ideas tweet, when a free cash flow generating company is down 50. The probability of another 50 decline likely decreases as you can see in our example, when the ice cream pilot rates at a free cash flow yield of 20 thats.

The return that uh that investors are going to generate over the long term. Well, then, the 50 price decline just created a floor to the price. A 20 return is incredibly good, and so, if an asset declines in price leading to higher future expected returns, eventually some investors will step in and buy the business and then the price over the long run will revert back to its intrinsic value. So, as the price decreases, the risk decreases as well cryptocurrencies, on the other hand, well, they offer no yield, which explains the second half of that wheat when a non cash generating asset such as crypto, is down 50. The probability of another 50 decline likely increases cryptocurrencies have no intrinsic value. Just ask yourself the following question: what is the most that you would be willing to pay for a cryptocoin if you were stuck with that coin, for the rest of your life? Well, chances. Are you wouldnt want to own it at all, and thus you wouldnt want to pay anything for that asset. The reason why most crypto investors own cryptocoins is because they believe that sometime in the future, someone else is willing to pay more for that coin. Now, based on this, it may make more sense now that paradox, paradoxically belief based assets like cryptocurrencies, become less risky as the price increases and more risky as the price decreases another way of putting it is that bitcoin only has value as long as other people think It has value, and once more and more people start believing that bitcoin has no value like right now.

Maybe so do the chances of a continued sell off go up and again so, in contrast, you publicly traded businesses. There is no floor to the price of belief based assets now to wrap it up here. I will say that personally, im really not much of a crypto guy and all im saying here is that personally, i would never feel comfortable owning a non productive asset. Im not saying that the price of bitcoin will never go up again. Bitcoin actually experienced significant drawdowns before and in fact the current sell off, i think, is only the third or fourth worst price decline over the course of the last decade, and i actually discussed the idea of bitcoin having reached critical mass and being too big to fail.

https://www.youtube.com/watch?v=Srst_Sa6Mtc