History doesn’t always repeat itself, but it tends to rhyme. Until it doesn’t. Sometimes, it makes a clean break from the past.
The market structure is changing. Previous crypto cycles have followed a similar trend, which is why they’ve provided our best guess as to how this year would play out. But as we draw closer to the end of Q4, it appears that historical comparison is no longer enough. With PlanB’s floor model breaking for the first time last month (and looking set for a second misfire in December), it’s increasingly clear that we’re entering a new era of market cycles.
As Ran often says, successful investors need a thesis. Crucially, they need to be nimble. Flexible. When the narrative changes, they have to be able to adjust their thesis accordingly or risk getting left behind. Just ask Peter Schiff!
It’s time to start thinking like a technologist, not a speculator
- We may never see a blow-off top (or multi-year-bear cycle).
- The dominant narrative will be tech-driven, not speculative.
Those who’ve lived through previous cycles tend to think in pretty binary terms – raging bull markets and cold, miserable bear markets. But times are changing. As the asset class matures, and the technology underpinning it gains network effect, we have to ask the question – are blow-off tops and brutal bear markets a thing of the past?
Multicoin Capital co-founder Kyle Samani laid out his thesis in a recent Twitter thread; he believes that a shifting pattern emerging in crypto could see things play out very differently moving forward. There may be ‘no bear market at all’. Or ‘half a bear market’. It’s simply a matter of perspective.
Kyle defines two predominant investment cohorts:
- Money crypto (spend their time thinking about inflation and loose monetary policy)
- Tech crypto (care about building)
And while ‘money crypto camp drove the narrative between 2011 and 2017, tech crypto is dominating the zeitgeist today.
With that said, let’s consider where the (most) money will likely flow in the coming years. Because as Kyle points out, chances are high that’s going to mean productive assets:
Does that mean smart-money won’t continue to add exposure to Bitcoin? Of course not. It just means that everyone and their dog will be looking to invest in tech crypto.
We’re already seeing this playing out. A clear example is the ETH/BTC pairing, as it continues to break through key levels. And in terms of data on-chain, the signs point firmly in the same direction.
Why will this affect the market structure?
The narrative is changing. We’re seeing a natural evolution from a speculative to a technology-driven market. And guess what? Tech investors aren’t focussed on the wider macro environment. They don’t care. They’ll continue to invest irrespective of whether interest rates are going up or down.
Kyle’s tweet chimes perfectly with what Ran has always encouraged the Banter community to do: invest in projects and protocols that will change the world, sit on your hands, and let them do their thing. Just look at Amazon over the years. Apple. Uber. The worst thing early investors could have done was to sell with every correction.
This all points to a new possibility, a new opportunity. We may never see a sustained, multi-year bear market ever again. Yes, we’ll have corrections on the way. That’s essential to prevent the market becoming overheated. But just look at the stock market. It hasn’t had a sustained bear market for ages. Save a few healthy retracements, it has moved exclusively in the same direction – up and right! As recently as Friday, after a seriously eventful couple of weeks, the stock market has made a swift recovery, with the S&P 500 printing an all-time-high on the daily close.
So much for Omicron. So much for Q1 tapering. And so much for Evergrande!
The crypto market has always depended on a healthy stock market. But it now seems plausible that we’re going to move away from the four-year cycle (typified by blow-off tops and multi-year bears) and follow its lead more closely. Until stocks go into a full-blown bear, the crypto market looks set to continue a slower, steadier grind of sustained growth, with short-term downtrends and (hopefully!) no freezing crypto winters.
Now’s the time to wear a different hat, to adopt a tech-driven thesis, not a speculative one. Invest in protocols that will change the world, sit back, and enjoy the ride. Patience pays, so zoom out, expand your time horizon, and follow the smart money. Remember, retail investors follow price action. Slightly more sophisticated investors look at metrics like transactions, active addresses, or total value locked (TVL). The truly sophisticated investors take a step back and ask: where is the smart money flowing? Because when smart money pours in, it eventually drives all the other metrics. By following venture capital, you’re effectively front-running the slightly-more-sophisticated investor.