New entrants to the space often ask the same question.
“Am I late?”
The answer may surprise you. It’s simple, yet complex. You’re not early, but at the same time, you are not too early either. And that’s a good thing. You’re in the right place at the perfect time.
Simply put, you are in the Goldilocks Zone.
- The market structure is changing.
- You are not too late to invest, nor too early.
- Crypto adoption is accelerating exponentially.
For investors, being early is generally a good thing. Being too early is a problem. New markets need time to grow and adapt to the real world. When new technology emerges, investors tend to overestimate its short term and even mid-term potential. They throw money at every product they can. Most of which will go to zero.
The internet is a great example. The result of the hype was the infamous Dotcom bubble.
Are we repeating the same thing with crypto?
In a fascinating tweet, Tascha Che presents a thesis comparing the similarities between the internet in 2000, and crypto in 2022. Her thesis is that history may be about to rhyme.
In 2000, only 6% of the world population was online.
Today, only 6% are using crypto.
Likewise, both have enjoyed a multi-year bull run. And interestingly, the Dotcom era faced multiple Federal rates hikes.
Tascha also draws a comparison with the 2000 NASDAQ collapse, which triggered an 80% drawdown over 2 years. It took a further 15 years for the market to fully recover to previous levels.
A blessing in disguise, Tascha says, weeding out opportunists.
This is very true.
As we already touched on, new tech attracts tremendous hype, and bubbles form. Projects merely need to set forward a thesis (and maybe write a few lines of code) before presenting it to angel investors who throw their capital at them.
It’s easy for any project to get investment funds, but come the big bear market, an inability to deliver on their promise can see them burn straight through their cash (with no meaningful end result).
It sorts the real builders from the opportunists.
The builders will keep on pushing through, and the next bull run will be driven by adoption and not big dreams.
With all these similarities playing out, Tascha believes that a multi-year bear market could be right around the corner.
We disagree. And here’s why.
Why this is crypto’s Goldilocks Zone
The carnage of 2018 (and the ensuing crypto winter) was far more representative of the Dotcom bubble. Why? We didn’t even have working smart contracts – just the promise of them! Hence investors aped into every blockchain-based project they could, most of which are no longer with us. May they R.I.P (REKT In Peace).
This fractal sums it up beautifully.
Are tech cycles accelerating? Today, we’re witnessing what Wells Fargo just described as an inflection point in crypto hyper-adoption.
The current cycle is being driven by this narrative. When you think of the Play to Earn (P2E) games and the Total Value Locked (TVL) within DeFi protocols, it’s clear that we have actual use-cases delivering, right now, today. And the scale of adoption is unprecedented. As renowned crypto investor and macro economist Raoul Pal would say, it’s the fastest adopted technology in human history. Faster than the internet, because it’s being built on the internet. This is what Tascha’s thesis fails to take into account. Everything is happening at a faster and faster rate, and that includes the cycles themselves.
Only yesterday, KMPG Canada announced they’d put Bitcoin and Ether on its balance sheet. Others will follow. The risk profile is changing. The participants are changing too.
Yes, there will be drawdowns. But a 3 month or 6 month bear cycle seems far more realistic than a multi-year long (or 15 year!) bear market. The nature of adoption cycles means we may see mini-cycles within a larger framework.
Crypto is no longer a single economy. Is it really the case that the DeFi market would be affected by the same things as the NFT and GameFi market?
Chris Burniske produced an excellent Twitter thread outlining his thoughts on how crypto might play out this decade. It’s well worth your time.
We believe the ‘rockiness’ of the crypto markets will be typified by shorter mini-cycles, playing out on smaller time-frames, and likely across specific sectors.
He’s right. This is what happened in 2017, when even the promise of smart-contract blockchain technology sent investors into a frenzy.
And it’s exactly what we saw recently, in 2021, when GameFi and Play-to-Earn games like Axie Infinity soared, making many investors rich while achieving excessive valuations. It’s similar to what we saw with the 2020 DeFi summer, which left many having to endure a year-long DeFi winter, patiently waiting for the sun to shine again.
Sometimes an unstable market is like a forest that gets burnt down, and as a result, makes the ground fertile allowing new innovation to come in for a fresh start. But it’s not always the case that the entire forest burns down all at once, but instead, it does in patches. The DeFi patch, the NFT patch, the P2E patch.
We may see bubbles within the wider market form, but not the asset class as a whole.
But this also means the market will be harder to play. If the classic 4-year cycle, with predictable blow off tops and extended multi-year bear markets is no longer a working blueprint, traders and investors will have to adapt. With more participants in the space, and institutions entering as we speak, the game just got real.
But a harder difficulty means a more rewarding feeling of satisfaction and, hopefully, greater results.
Admittedly, there are extreme conditions that could bring on a bear market, like a global market collapse or a world disaster. But when it comes to post-hype, bubble bursting bear markets, we may have very well already seen ours.
This is a watershed moment for crypto, and could be the Goldilocks Zone for investors.
If our thesis is correct, and we are indeed faced with a faster-moving market, then now may very well be the best time to buy into the market.
You have less risk because you are not too early.
You have huge rewards to reap because you are not late.
We are in the Goldilocks zone.
If you have conviction in the crypto market, and you truly believe that it will change the world, you have no reason to worry at all. The future looks bright.