Once again, I find myself unable to sit still and do my assignments, so I’ve decided to channel this inability to concentrate on reading my lecture slides into something more worthwhile instead. This article hopes to eloquently explain my game plan for the coming years, as a retail investor.
Preconditions To The Game:
Without a doubt, we are in a period of financial turmoil. People are being laid off, the tech sector is downsizing, liquidity in crypto markets is at a standstill, etc. While I’m not of the opinion that this is going to lead to a huge financial crash / an overthrow of world powers, I can say that things, as they stand, are bleak. I’m not here to tell you my thoughts on the macro-economy, nor on how I think things will play out. For that, there are people much better at that than myself (i.e Arthur Hayes).
The pertinent idea I want to explore is what exactly, will it take for crypto markets to come back. However, this idea of “coming back” implies that there’s something to come back to - so you obviously have to agree with the idea that crypto will see another bull run. In fact, there are a few preconditions to this - you have to agree that:
Crypto will come back
We should not be trying to make money now
We have to be patient
I think the argument for (1) is simple - crypto is an asset that’s available to be bought. And when there’s a market, there will always be speculation - look at GME / AMC / etc. Crypto markets are notoriously volatile not because volatility is built in, but because of the market cap of the assets - the total crypto market cap is less than half of $AAPLs. It’s tiny. As such, I do believe that at some point people will look to buy crypto yet again.
The argument for (2) is harder to make, but the idea is that I (as a retailer) don’t really have much of an edge. I have the empirical evidence to prove it - I made a bet with myself 5 months ago that if I didn’t make money over the next 5 months, I would stop trading / degenning of any kind. I
I lost 3 eth, so I stopped. Now if you think you’re some hot shit, then I highly encourage you to do what I did. See if you can make money in the next X months.
The third precondition is simple, but is perhaps what kills us all. Now is not the time to be risk-on and 24/7 at your screens. Now is the time to get a job, mine some fiat, and just wait. All I can say is that this is the easiest step, yet most of you will fail. All you have to do is NOTHING.
Now on to the next.
Context: What Will It Take To Come Back
To understand the context, we have to explore what exactly created the previous bull run. The Covid-2020 bull-run was an amalgamation of very interesting circumstances, and while there is no one underlying factor that we can point to with certainty, I believe that we can boil it down to:
Investors with the “gamblers” mindset - i.e the world is screwed, bet big and try to make all we can
Millions of people being forced to stay home
Stimulus packages giving people the liquidity they need
People not knowing what crypto was
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Afterwards, what followed was Soros’ general theory of reflexivity - positive feedback loops generated by an UpOnly price combined with the huge influx of people suddenly hearing about cryptocurrencies literally created waves of people that would join the space every week, interested in knowing more and bringing $ with them.
We have to also remember that normies/retailers don’t use CT - their main sources of information are actual crypto YouTubers. All of these circumstances really created a positive feedback loop where millions upon millions of people were suddenly introduced to this term - “cryptocurrencies”, and the world where so much money was being made.
So what do we have today? Well, I think the key difference between then and now is the risk appetite of investors today. People today just don’t have the bandwidth to focus on gambling when their entire livelihoods are at stake - the natural response to that would to be secure some sort of future for you and your families by working a safe job that pays well.
Today, it’s not that people don’t know what crypto is - they do. They just don’t think it’s a good asset to buy, either because “it’s not expensive enough” (see Wall Street chart below, everyone buys near the top), or they lack the propensity to do so.
With that logic in mind, we can answer the question - what will it take to come back? In my eyes, I believe that people need to feel like they can spend money without having to worry about future repercussions. In layman’s terms, easy money circumstances.
But what will that look like? Now take this part with a pinch of salt because I know nothing of the machinations of the macro-economic machine. But my best guess would be that signs of life would start to enter the market when the FED starts quantitative easing, which alludes to inflation going down / below a certain amount.
So now that we know what it takes to make it come back, we can logically deduce that we are in a period of “not back” yet right - and the price attests to this. And thus begins the set-up phase.
Phase 0: Set-up Phase
Context was all about understanding the pieces of the board. I have hopefully convinced you that a bull market will return, and have logically joined together certain pre-conditions that we’ll need to see. Just in case, I’ll re-iterate: We’ll need a liquidity injection that’s facilitated by a risk-on mindset in the markets.
So, what’s this set-up phase? The set-up phase is where we are now, and arguably one of the most important ones in the market.
Keep in mind that peaks and troughs always happen in life, and in markets. Dwelling on the now isn’t as impactful as planning ahead for future years. Look at the Wall Street Psychology Chart above again - where do you think we are in the traditional markets? If I were being honest, I’d say we’re around the “Denial” Phase, as people try to justify and do their threads on “Why the FED will Pivot in October”.
But for us retailers, we don’t care about that. We want to maximise financial opportunity - and this environment here presents maximum financial opportunity. As Howard Marks from Oaktree Capital says: “ If everyone else is focusing on something that doesn’t matter and ignoring the thing that does, investors can profitably diverge from the pack by blocking out short-term concerns and maintaining a laser focus on long-term capital deployment.”
Today, everyone is focusing on the FED, and how much they raise - and rightly so. But we’ve already accepted that we’re not concerned with this short-term price action, and we’re merely just waiting for the easy money conditions to come. Patience. The conditions now are actually pretty good for buying already - but hold on to your horses!
While I say that, I don’t think you should all-in your firepower now. I do believe that we still have lower to go - if you were to take what Jerome Powell said last FOMC seriously, we’re expecting 2023 to be a bumpy right.
As such, perhaps employing the strategy of dollar-cost averaging would be best in spreading out your financial risk. At least, that’s what I plan to do.
Phase 1: Play The Game
Set-up phase is over, and we’re back to seeing signs of life in the market. Now everything written here on out is purely conjecture, because it takes place in a hypothetical future.
I would say that the entire 2020-21 cycle has increased the general “baseline” of crypto - many, many more people now know of the game, and this has led to more degens. The first-order consequence of this is that there will be lesser “exit liquidity”, and thus an increase in the difficulty of the game as players become more knowledgeable.
Perhaps certain inefficiencies will be covered up - for example, trades that front-run the news. Such is what happens when a market matures. On the other hand, legitimate projects gain in legitimacy - more and more people will have no choice but to recognise crypto as something that’s here to stay, and that idea can bring in more money as crypto starts to become one of those assets that you want in your traditional 60/40 portfolio. Doubtful, but possible.
For me, I’m more interested in thinking how exactly I think the game will unfold this time. 2020 was characterized by DeFi, 2021 with NFTs. Will 2022 see some sort of new technology that can be traded? If you were to believe in the trend, then yes, probably. But it remains unclear to me what this will look like. Maybe it’ll be the tokenization of celebrities (that didn’t do so well the last time). Who knows!
Secondly, what kind of projects will succeed in an era where players are becoming more and more sophisticated? I think the answer is that projects that obsfucate their ponzinomics in ever more complex mechanics will do extremely well. No more “risk-free value (3,3) bank-run” scenarios, now we’re in “risk-free high APY 999% vault leveraged farm” that either don’t tell you how they make money, or are so complicated that you just trust them to do their thing.
Even complicated mechanisms like MEV - FOLD 0.00 has seen a huge increase in price over the past months. I'm not questioning their ability to make revenue - I know close to nothing about the project. But I can't help but notice that it's in such a complex niche of an already complex ecosystem, that I highly doubt the people buying it even know what it is for.
As for the perennial question as to whether “old projects will be as good as they once were”, that is up for debate. I’m of the opinion that even if they regain old highs, they simply do not offer that good of a R/R - why bet on old dogs when newer and improved wolves are sure to come? Lindyness seems to be a concept that’s only applied to BTC/ETH, and when it comes to alts, hot money always flows to the coolest kid on the block.
The irony here is that trying to predict future markets is inefficient. What matters more is instead getting to a level where you’re able to confidently tell yourself that you can navigate the crypto markets without being led astray by a pastor preaching that his coin will top ETH one day. Up your savviness, your sophistication, and your cynicism. Up your knowledge, your skills, and your degen-radar.
I don’t really know how to explain this last point of mine, but the idea is that in getting good at the game you don’t actually need to be rich. Money is the by-product of playing well. Instead, what you need is that cynical mindset coupled with the emotional stability of not being led astray by fear-mongering or hopium-doping. We are retail investors - we have no KPIs to hit, no performance benchmarks to rush for. We do things at our own pace, all ensuring that our own numba go up.
Liquidity flows: this is why I accumulate BTC/ETH first
From Visualize Value
Lastly, the legendary mngr tweet - maybe not 5x a year anymore, but just wait.
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great article man. just make me excited with crypto again and want to write back :) thanks