Breaking away from cyclicality
The ushering in of a new financial system & how this will upheave all markets
“I leave it to you, friends and neighbors, and especially to the immortal Kilgore Trout: think about the silly ways money gets passed around now, and then think up better ways.”
- Kurt Vonnegut
It is no secret that the traditional financial system is one of immense corruption and greed. Benefitting those in control of both vast wealth and power, the system we have been born into is sustained by stepping on the backs of low and middle class citizens who don’t have the means to break out of the predatory system. This is TradFi, the sovereign individual’s greatest enemy.
For almost a century, it has been ingrained into the minds of Americans that the only way to achieve financial freedom is to slave away for 50 years and build up that sweet 401k, telling them the only way to achieve success in this unfair world is to go into debt and take a mortgage out on that home you can’t afford, to spend money on fancy things and invest in bonds to eventually retire with a comfortable six figures and a nice ten year expiry until old age does you in.
I’d believe that I’m speaking for most of us when I say this is not the way I want to spend my life, slaving away for a corporation and financial system that has done nothing for me or those I care about in life. BTC first gained attention for its innovative design, this coming in the form of a fixed supply resistant to inflation, something that has been on nearly everyone’s minds recently. As time went on, crypto evolved as more entered the space and began diversifying the market with boatloads of ponzis. Ethereum and smart contracts gave birth to a new system, one that allowed for anyone with Solidity knowledge and an idea to create an ICO and bring wealth from thin air - digital alchemy. With this came blatant scams and cash grabs, leading to some of the negative perception crypto still deals with today. ICOs aren’t as common - at least from what I’ve seen - and scams are more advanced and somewhat less abundant.
TradFi is the biggest and longest running scam the world has ever seen, characterized by a skewed system where a select few take the lion’s share of gains while the vast majority take the losses. Just look at the 2008 financial crisis if you want an example. Without going into the weeds, average citizens got screwed over as a result of corporate and institutional greed, leading to the collapse of millions of 401k accounts and housing prices. Just imagine if you were preparing to retire after a difficult forty years of work, only to see your portfolio and home equity collapse right before your eyes.
Those in TradFi hate crypto because they can’t yet control it. No matter how much influence you have, you can’t grab a few buddies in high places and have them print you more BTC. If crypto eventually amounts to nothing more than an exasperated tulip frenzy, the real success was creating a system resistant to outside influence in some regard.
Part of the reason I got into crypto (or speculative investing) in the first place was because I wanted to take my small sum of money and turn it into an even bigger sum of money. This is easier said then done, but I’ve gotten better at it recently and managed to learn way more about ponzinomics than I’d intended to and gain quite the audience on Twitter & Substack. I only wanted to try and test my luck in the markets, but I actually managed to luck out and discover the most important innovation the world will see in the next decade. I even befriended a lot of cool people in the process. Until we have space elevators and the capacity to 3D print medication, crypto and DeFi are my focus.
Over crypto’s short lifespan, we’ve seen boom & bust cycles play out, creating a bias among market participants who’ve stuck around over the past 5-10 years. This is a bias that has led to many still debating bull or bear markets, cycle tops or lows, zero dollar price targets and everything in-between. This is a waste of time. Despite my less than one year experience within the crypto market, I think I can say with certainty that cyclicality within crypto is over.
Done. No more. Eradicated. BTFO, if you will.
What does this mean? It means crypto is unironically entering a supercycle and we’re all gonna get rich. Kind of.
Hopefully the Mayor of Goblin Town’s tweet resonated with you as much as it did with me, essentially summarizing my beliefs in less than a paragraph. Take a look at all the money around you, all the money flowing into crypto through both the private markets and public circus; is this not enough to convince you that our magic internet money has appeal? If we don’t have value (in some eyes) isn’t it enough of a positive that we at least command attention and investment in the space? We have Sequoia, A16Z and other traditionally dominant VC firms diving in headfirst, all while CT keeps their heads in the sand because “the charts look bad.”
I almost never look at charts when I get into a trade, mostly because it isn’t helpful for my particular strategy. If I know something is going to go up when a small amount of intelligent people I respect are talking about it, I scale in and worry about TA later, like when I need to sell. It was really obvious to me a couple weeks ago that FXS was flying far too under the radar, so I did the obvious: I doubled my position at 22 dollars a token. This wasn’t the result of me pulling out a chart and plotting S/R levels, because I would have never bid had I fallen for this trap. If I’d subscribed to the ways of Technical Analyzooooors I’d have sat on my hands and waited until 17 dollars a token, never seeing the promised land and kicking myself for weeks on end.
Please try your best to avoid falling into traps as crypto continues at breakneck speeds in its path to global dominance and world takeover. I believe that we will never see talks of a bear or bull cycle again as we have experienced in the past, mainly because crypto is trading like an actual traditional asset class. As I’ve discussed in previous articles, there are around five major subsets in crypto, these being NFTs, DeFi, GameFi, L1s and The Metaverse. While there are variations and subsets within these subsets, most tokens fall under these categories.
As time goes on, crypto innovation will give birth to more subsets and even more tokens for us to bid on. I hope to see on-chain derivatives and L2 tokens become bigger markets, as the potential upside within them is massive, in my opinion. I wish I could all-in my networth on Arbitrum and zksync token, but that day has not yet come. As market participants become increasingly intelligent and aware of the current meta, it will be even more important to nail your rotations. Maintaining some form of edge is necessary in any market, this being even more relevant in crypto as each day there comes a new “it” token or protocol.
Ensuring you stay ahead of the herd is the goal, only possible with extensive digging, endless reading and diligent note taking. This has been my life over the course of 2022, and it seems like there is no end in sight. I don’t often trade and fail to take positions in tokens I write about, but I’ve been improving recently. No, this doesn’t mean I am stirring up attention to cash out for measly 5-10% pumps. There’s my message to the SEC in case I am ever investigated for my work.
Sure, crypto has its scams and rugpulls - we aren’t as squeaky clean as we’d like to imagine we are - but at least those in the space acknolwedge it and condemn scams when they don’t directly benefit from them. We all lose money now and then, you can’t just stop hacks from occurring when so much is at stake and you certainly can’t stop predatory individuals from invading the space and attempting to make a quick buck. The issue arises when outsiders attempt to paint crypto as a scam, partially due to ignorance and partially due to fear. It’s human nature to be afraid of what you don’t know, as this comes as a direct threat to your intelligence and way of life. I’m sure when computers were first invented, there was no shortage of outspoken critics calling for the end of technology that was burning down the Amazon Rainforest - crypto is no different.
Criticism can be very, very, very loud, often because it’s filled with painfully ill-formed ideas and generally negative (and wrong!) information that can harm the development of this asset class that has to fight for its right to exist nearly everyday. It’s disappointing we need to defend ourselves on a daily basis, but it’s the little wins that can help solidify our presence and improve mass understanding of our magical internet money.
I can’t tell you the last time I went about my day on Twitter where I didn’t run into an anti-crypto thread, shitty article or trending tweet that sounded off the alarm bells regarding crypto and its (supposedly) infinite laundry list of negatives that would eventually lead to the collapse of both society and the climate. For anyone who’s spent more than five minutes reading about crypto (and I don’t mean charts or Elon Musk tweets) it is painfully obvious how emotionally charged criticism can be and how most of it is irrelevant / incorrect.
While valid criticism is always welcome - at least in my eyes - baseless claims and silly musings on Bitcoin mining energy usage is a waste of time and provides no value for anyone, aside from the kudos 10 people might give you for harping on the “crypto bros.” Almost everything we do in this weird world requires energy, yet we don’t see governments and Twitter accounts with furry PFPs calling for the ban of washing & drying machines. Why is this? Well, before you shout at me and call me names for employing a shitty form of logic, I have to say that Bitcoin and laundry machines are very similar, as they’re both necessary pieces of technology that help the world become more efficient. A laundry machine helps you complete a task faster and Bitcoin helps us break away from the confines of TradFi - two absolutely necessary pieces of technology in my book. If crypto’s biggest crime against humanity is the utilization of less energy expenditure than a laundry machine, you can call me a stone cold criminal with absolutely zero guilt for my actions.
Tens of millions of Americans are trapped into a financial system built to undermine their humanity and treat them as cogs in a gigantic, rigged and gamified machine - the odds are stacked against your favor from birth. We’ve seen levels of trust in authority within our population begin to dissipate at (probably) record rates, partially due to the rising rates of inflation, two years of a pandemic with oftentimes asinine restrictions and a myriad of financial crises that have occurred over the past few decades which have done a significant job at decaying morale amongst the working class. Crypto has risen from the depths of cypherpunk fantasies to the ranks of global risk asset, hallmarked by an over $2 trillion market cap which has essentially been “up-only” over its relatively short existence.
I hope you’re getting the picture. We’re working on a big ol prison riot.
DeFi exists to help citizens break free from a lack of soveriengty and financial servitude, led by an army of teenage super shadowy coders building out advanced dogcoin AMMs and 200 figure APY Olympus forks.
I wouldn’t want it any other way.
Did I mention how trivial it can be arguing with someone over crypto? Most people don’t understand the current financial system, but why should they? The terms used are often overcomplicated and digestible to a select few that have went through business school or found themselves lucky enough to be situated on the right side of the intellectual curve or whatever you call that. Arhur Hayes is an infinitely better writer than I am, while also being 10x better looking and intelligent, but that won’t stop me from attempting to expand on some of his recent writings in the only way I know how.
Just a few weeks ago the entire timeline was deadset on global economic collapse, imminent recession and three digit ETH. It’s funny how fast sentiment changes. Hayes recently discussed the idea of re-branding the perception of ETH, marketing it as a bond of sorts. While I think this could work, one of the biggest positives for ETH will be the coming merge to PoS which will do wonders surrounding public perception of crypto. Everyone is familiar with the energy consumption of PoW assets, but how many outsiders are familiar with what that even means or the benefits of a PoS transition? TradFi will soon wake up to ETH’s newfound deflationary status combined with the energy consumption narrative.
Maybe the merge won’t do a ton for pumping our bags and maybe the Ethereum merge narrative won’t end up going well for us, but at the very least, I’m optimistic and believe we’ll see a gradual shift in perception towards our fun digital money. As Hayes mentioned, there could even be huge in-flows of instituional capital if ETH can be marketed correctly as a “green” asset. ETFs for the win.
If ETH intends on becoming the true global currency of the internet, a huge stepping point is piggybacking on the climate change awareness wave and attracting positive attention to the space. This could give rise to an actual flippening, something I’ve been considering lately. One of these times ETH leading the charge over BTC won’t lead to a nasty correction, and the king will be dethroned. Little bit of hopium there, but I wouldn’t count it out from occurring.
Consistent innovation + gradual home runs = sustained validation.
If the entire crypto space can take a page out of Ethereum’s playbook and continue to increase the positives that surround the tech, we will win. Just as the internet and computers integrated into almost every facet of business over the past 2 decades, we’ll see this occur with crypto and digital assets. We might be a long way out from NFT sports tickets or every artist migrating from the predatory record label model to NFT albums, but we will see a shift.
Going forward, I find it kind of ridiculous to invest in any project with a long-term vision - this being a timeframe greater than a year - because that’s a really, really long time in crypto. It’s difficult to know what people will be talking about next week, let alone what protocols will be controlling the space with the highest TVLs and innovative products demanding the highest valuations. This isn’t necessarily a bad thing, rather just another hurdle for us to scale.
It’s only logical that a space filled with some of the smartest individuals on the planet would become extremely overcrowded and filled with good ideas, many of these new projects overtaking dinosaurs and gobbling up all the attention.
We’ve heard about the madness of WallStreetBets a billion times, along with the phenomenon of retail investing and the illogical herds that crowded DOGE, TSLA and GME. 99% of these retail investors trying to gamble in equities will lose their shirts, further increasing the already significant number of citizens disenfranchised with the current financial system in place. This could’ve already happened, I haven’t been on WSB in months and as far as I know, pretty much every meme stock has been obliterated and sent to the gulag.
“If they’re not going to make it, then how will we?”
This is a good question, so let me try and answer it as best as I can. There is still a majority of the population that thinks crypto is only Bitcoin, dog coins, forest burning NFTs and XRP. This is good for us, believe it or not. We can focus on establishing a broader base of exit liquidity in the future, but until then, we should instead prioritize preparing our bags and ensuring the space is built out before sending everyone with a pulse into the current crypto markets.
0 to 1
I was born in 2002 so I didn’t know what a computer was until probably 2009 or whatever, but I’ve read a decent amount on how the early days of tech adoption went. The internet had a lot of haters, mainly because new things violate your sense of self and can make you feel like an idiot. Just as many of us feel imposter syndrome due to our lack of Solidity knowledge or inability to grasp the complexities of L2 scaling solutions, many fell into a trap and believed that the internet was a scam.
Just as there were (and still are) scams in regards to web2 and the internet, there are scams within crypto and web3, partially fueling the flames of hatred and negativity within the masses. The institutions and corporations who don’t yet get it or possess any ownership over crypto assets will only continue to use their powers to FUD the life out of this space, which is a good thing - it shows we are up to something bigger than us.
These days, almost everyone has a computer, cell phone and internet access wherever they go. Twenty years ago this would have been a pipe dream, just as we hold pipe dreams of everyone owning crypto and storing it in browser extensions on their PCs. What’s one more digital integration for our lives? Everyone already has a bank account app on their phones, this being accompanied with a set of pixels representing their assets and savings. Most people my age don’t even use cash.
Anyways, it didn’t take long for mass adoption to occur once more established players entered the tech space, leading to a pretty nice up-only phase for tech stocks and the current dominance we see from a handful of tech monopolies. If crypto has come this far in such a short amount of time, I see no reason to believe we ever go to zero. More will enter the space and hopefully gain an interest in everything we’ve accomplished so far, further increasing the valuations of internet coins. Many often debate what protocols will become the next Google, Facebook or Microsoft on-chain, this being an incredibly tough question to answer. I don’t even know what coins I’ll be holding next week, how can I know what we should be dollar cost averaging into over the next five years?
The above tweet helps make sense of what I’ve been trying to write about recently. It may seem far fetched or out of reach, but I firmly believe DeFi has taken the role of beach ball held underwater for too long. We all know that comparing TVL/mkt cap ratios can be a waste of time, but maybe this will catch on amongst TradFi analysts looking to gain higher beta crypto exposure in the near future. To add to this idea, we’ve seen DeFi giants like Alchemix and Aave continue their pace of innovation, with the release of v2 and v3 between them, respectively. This isn’t even acknowledging the adoption Uni v3 has seen in its transition from passive liquidity provision to a more active method, an even bigger shift for crypto that a decent majority aren’t discussing.
DeFi bluechips like Uniswap, Curve, Yearn and Aave will only continue to grow their TVLs, hopefully dragging token prices up in the process. I’m not super focused on investing in this right now, but I do plan to try and build a long-term portfolio that I’ll try to avoid touching, fully content with it drawing down 50% over the course of 2022 and beyond.
It’s fun to play around with BSC shitcoins and things like that, but the real money will come once DeFi (and crypto as a whole) has integrated into the current TradFi system on a much deeper and more significant level. As much as I hate to say it, the writing is on the wall; it’s inevitable that institutions will enter our fun “little” game and chip apart at the good pieces to apply it to their even more fun financial games. Maybe by that point we’ll all be 10,000x richer, but it’s important to understand some of the possible implications of mass adoption.
Navigating the circles of hell
The current market is extremely PvP, highlighted by narrative hunting and extreme rotation, an environment that isn’t beneficial for those not plugged into CT for twelve hours a day. If you’re like me, you are more than likely burnt out but sticking around for the money and relationships you’ve built. As more HFT firms and Alamedas pop into the scene, it’s only going to get worse for those of us who aren’t blessed with 150 IQs. This is why I believe it’s so important to focus on building up your knowledge base now before it becomes too late. Like I said, there is still a vast majority of the population who has never even heard of Uniswap, let alone something like Synapse or Rainbow Bridge.
This doesn’t mean you should alienate everyone in your life to focus on money, as the most important things in life can’t be bought and money won’t matter when you have no friends or notable social experiences. However, it can’t hurt to focus more of your time on learning about crypto. After all, I know a pretty good Substack that can help you with that.
How will TradFi further complicate our world? Well, token prices will go up - this is inevitable. In the future, we won’t see as many home runs as we’d like as crypto transitions from risk asset class to a system more akin to the tech sector within equity markets. It was @ThetaTendies who first put me on to this type of thinking, sharing a while back that BTC & ETH trade more like the NDX & SPY than they did in the past. This is exactly what we’ve seen play out. Many believed crypto was fading into another bloody bear market after BTC failed to break past ATHs and faltered in a double top scenario. This has not been the case, with the opposite being true.
While price action in majors has been less than ideal, we’ve been engaging in an extremely drawn out “alt szn” which has done wonders for many of our portfolios. Twitter influenzas - like myself - often discuss the concept of narratives and rotation, but this has largely overshadowed the real scenario playing out before our eyes. Just as traditional markets experience broader sector rotations where capital rotates into various sectors like industrials, technology, energy or financials, crypto has been transitioning into a system like this. Many might call this an obvious claim, but is it really that obvious? I’m being kind of facetious when I claim we’re entering into a supercycle, because the reality is we’re just seeing crypto mature.
It’s also becoming increasingly “nEgAtIvE eV” to look at BTC dominance as a leading indicator for market health, as smart contracts continue to eat the world and drag protocols up to infinity. Bitcoin is still king, but there will come a day $100,000 BTC won’t be the highest market cap in the space. Plan accordingly.
Just as you can benefit from sector rotations in equity markets, you can do the same in crypto, albeit in a much more condensed manner. I call this theory “extremely condensed sector rotation.” You might be long bridging protocols one week, just to cash out the next and roll into alt L1s or the newest DFK clone. Crypto is extremely reflexive, partially due to the smaller size of our market and also due to the collective IQ of market participants. We might have behemoths and giga brains like Trabucco or GCR taking our lunch money, but for every one of them we also have 100 other participants who are still long SHIB or DOGE hoping for an Elon pump. CT is comprised of a much more intelligent population, but we have our fair share of left curvers who aren’t winning trades.
If you really want to be successful, you have to go with the flow and long the best new tech, no matter how attached you are to your bags. I’ve been a victim of this before, convinced that my bags are the next best thing, only to find that nobody is talking about them anymore. If you want to learn more about the concept of rotations and narratives, here’s a link to a recent article of mine where I discuss it in a little more detail than I did here.
I’ve talked about how I believe crypto will integrate with traditional markets sometime in the future, in addition to my belief that innovations like synthetic assets and on-chain derivatives will only further complicate the financial system in beautiful ways. There are protocols working on building out this vision, but that’s a topic for another day. We haven’t even scratched the surface of what’s possible in crypto, but I become increasingly bullish with each passing day of knowledge accumulation and interacting with geniuses on CT. Don’t let short-term FUD and macro fears keep you from securing financial freedom - try to pace yourself and keep a level head as the market continue to rage on for twenty four hours a day.
I hope that this article didn’t come off as a rambling mess. My intent was to establish some of my thoughts on crypto and its incredibly obvious growth and maturity it’s been undergoing recently. If I can give any bit of advice, it’s to avoid listening to others (most of the time) and try to come up with your own methodology. I’ve had to seriously re-evaluate my process of sizing positions, capital allocation timing and general research process.
This past month in crypto has felt like an eternity, even more than it usually does. I don’t think you’ll do well in these coming months if you try to DCA and employ TradFi valuation methods on current protocols. If GME and AMC taught us anything, it’s that fundamentals don’t matter when collective autism combines with ponzinomics and new technology. Stay diligent and keep your head in the game, anon.
* If you’ve enjoyed this in any way at all, donations to my degenerate fund would mean a lot: 0x7Db280BA0fd96619D55Cd18270435A41e25948a4. I’d also like to give a shoutout to @Crypto_McKenna and @MLGavaudan for taking the time to proofread and give me some pointers. Follow me on Twitter @knowerofmarkets if you want to stay posted on CT happenings and other random nonsense that comes into my brain. Peace! *