Chung, who runs a fledgling cryptocurrency hedge fund, believes that rising inflation and falling corporate profits will hurt the stock market, which will pull Ethereum down with it.
I believe that there is a massive short opportunity for $ETH at ~$1200 over the next 2 months.
We still have not seen real capitulation yet and July / August are lining up to be potentially the worst months.
Here is how I am thinking about things 🧵
— Daniel Cheung (@HighCoinviction) June 29, 2022
“The real surrender hasn’t even started yet, July and August will be even worse,” Chung tweeted.
According to him, in the next couple of months, Ethereum will be seen as an opportunity to short the Nasdaq using leverage. As a more aggressive way to express your views on macroeconomics/inflation/total company earnings and other indicators.
Growing correlation with the stock market
This year, ETH has already fallen in price by 70%. According to CoinGeckoat the time of publication, ETH / USD is trading at $ 1,065. Over the past day, the cryptocurrency has risen in price by 1.8%.
Chung notes that the dynamics of the cryptocurrency markets are closely related to stocks, especially technology companies listed on the Nasdaq. According to him, this status quo will continue until the end of August due to the lack of purely cryptocurrency catalysts.
He predicts that a decline in corporate profits during a recession and a drop in the price-to-earnings ratio will lead to a collapse in the stock market by another 20% from current levels.
Shares are already down 30% from their last peak. Investors are gradually adjusting their earnings expectations, returning to reality after several successful years.
Chung believes that the long-awaited merger of Ethereum networks will not happen before Q4, and this event does not currently have a significant impact on the ETH price.
“Most likely, in the coming months, investors and analysts will be revising earnings forecasts; few expected such conditions in the market. Stocks will decline and pull cryptocurrencies with them. More crashes ahead, -40% for ETH.”
If Chung’s predictions come true, ETH will drop to $500.
Sale of Ethereum
Chung also added that at current levels, shares of companies do not look undervalued.
“When profits fall, the price/earnings ratio can be anything. We can’t say for sure that stocks are cheap until there’s been a full reset of profits. Otherwise, you will simply drive yourself into a trap,” he explained.
Chung’s hedge fund, Pangea Fund Management, launched a few months ago after an $85M funding round. Since then, the fund has maintained a buy-only strategy, but it is confident that ETH has huge untapped bearish potential at current levels.
The expert believes that food and energy prices will rise in July and August, accelerating inflation and forming a perfect storm that will lead to a real capitulation of the cryptocurrency industry.
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