Institutions for the Digital Age.
MusashiThe Internet of NFTs
To anyone paying attention, it appears we’re at an interesting moment in the history of the Web. On the back of ~60 years of Moore’s Law, the Web is now astonishingly responsive and high-resolution, and where >5 billion people (and growing!) are increasingly spending their lives. As remarkable as the Web is, though, it has — for reasons social, economic and technological — become concentrated in the hands of a very small handful of actors whose interests are proving highly misaligned with our...
MusashiWhy I Got Into Crypto
Spending my days, as has become habit, thinking about such esoteric notions as tokens and token designs, blockchains and blockchain communities, digital ownership and digital wealth, and the nature of the web -- its uses and misuses -- as a whole, I find myself asking, How’d this happen? How is it, I mean, that I’ve become so fixated, indeed positively obsessed, with such arcane concepts as these? Though I’ve always had an interest in the history of computing, I’m far from a computer scientis...
MusashiThe Philosophy of Verifiability
When you abstract away the details, Bitcoin is an incredibly simple construct. It’s a piece of software that defines the existence of some 21 million fungible units -- i.e. bitcoins -- and the rules by which they ought to be distributed and exchanged. The software serves as a ledger, a record of who owns what and how many BTC. None of this, however, is what makes Bitcoin interesting let alone revolutionary. What makes it both of those things is that it’s a piece of software that is managed by...
MusashiThe Internet of NFTs
To anyone paying attention, it appears we’re at an interesting moment in the history of the Web. On the back of ~60 years of Moore’s Law, the Web is now astonishingly responsive and high-resolution, and where >5 billion people (and growing!) are increasingly spending their lives. As remarkable as the Web is, though, it has — for reasons social, economic and technological — become concentrated in the hands of a very small handful of actors whose interests are proving highly misaligned with our...
MusashiWhy I Got Into Crypto
Spending my days, as has become habit, thinking about such esoteric notions as tokens and token designs, blockchains and blockchain communities, digital ownership and digital wealth, and the nature of the web -- its uses and misuses -- as a whole, I find myself asking, How’d this happen? How is it, I mean, that I’ve become so fixated, indeed positively obsessed, with such arcane concepts as these? Though I’ve always had an interest in the history of computing, I’m far from a computer scientis...
MusashiThe Philosophy of Verifiability
When you abstract away the details, Bitcoin is an incredibly simple construct. It’s a piece of software that defines the existence of some 21 million fungible units -- i.e. bitcoins -- and the rules by which they ought to be distributed and exchanged. The software serves as a ledger, a record of who owns what and how many BTC. None of this, however, is what makes Bitcoin interesting let alone revolutionary. What makes it both of those things is that it’s a piece of software that is managed by...
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Institutions for the Digital Age.
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As expressions of our collective psychology, markets are by nature cyclical. Prices go up and down as we swing between fear and greed, from bullish to bearish. Nowhere are these swings more extreme than in crypto, where everything is supercharged by the hive-mind dynamics of the Internet and the financial rocket fuel that is leverage. Compounding this volatility is the fact that crypto is inherently (and sometimes existentially) uncertain, as a speculative and emerging asset class. When things turn bearish, not only do market participants question the relative or absolute value of a given asset, they begin to question whether it ought to be worth anything at all. When things are really on, there’s nothing like a crypto bull market. Conversely, when the vibe shifts and the music stops, there’s nothing more terrifying.
The extreme cyclicality of crypto is something that all new entrants ought to understand, for the difference between investing at the right and wrong stage of the cycle isn’t just a matter of optimising returns, but often life and death (financially speaking). If you’re investing early in a bull market, given the high correlation between assets, the market can be extremely forgiving. Often even if you’ve bought veritable dogshit, so long as the risk appetite is there, and the majors are pumping, you’ll likely do just fine (and sometimes considerably better than just fine). On the other hand, if the market’s done, and the bull market’s over, no matter how incredible your coin, how magical the tech, you’re almost certainly destined for pain -- and lots of it.
Given all this, one of the most common introspections of the crypto community is the question, “Where are we at in the cycle?”. If prices have shot up substantially and then retraced 20-30%, folks will then begin to ask, “Have we topped?”. As in, “Is the cycle over?”. Unfortunately, just as there’s no magic ball for ascertaining the day-to-day fluctuations of prices, there’s no magic ball for divining where precisely you are in a cycle. That said, there are signs.
While there’s some debate around what exactly constitutes a “bull” or “bear” market, in both cases, it’s like the comment of former Associate Justice of the Supreme Court, Potter Stewart, when asked to define “hardcore pornography”: You know it when you see it. For example, if the prices of the major cryptoassets are consistently ripping, up multiples on the year, it’s fairly safe to say you’re in a bull market. If, however, prices have been steadily (or precipitously) falling for many months on end, you can reasonably call that a bear market.
As expressions of our collective psychology, markets are by nature cyclical. Prices go up and down as we swing between fear and greed, from bullish to bearish. Nowhere are these swings more extreme than in crypto, where everything is supercharged by the hive-mind dynamics of the Internet and the financial rocket fuel that is leverage. Compounding this volatility is the fact that crypto is inherently (and sometimes existentially) uncertain, as a speculative and emerging asset class. When things turn bearish, not only do market participants question the relative or absolute value of a given asset, they begin to question whether it ought to be worth anything at all. When things are really on, there’s nothing like a crypto bull market. Conversely, when the vibe shifts and the music stops, there’s nothing more terrifying.
The extreme cyclicality of crypto is something that all new entrants ought to understand, for the difference between investing at the right and wrong stage of the cycle isn’t just a matter of optimising returns, but often life and death (financially speaking). If you’re investing early in a bull market, given the high correlation between assets, the market can be extremely forgiving. Often even if you’ve bought veritable dogshit, so long as the risk appetite is there, and the majors are pumping, you’ll likely do just fine (and sometimes considerably better than just fine). On the other hand, if the market’s done, and the bull market’s over, no matter how incredible your coin, how magical the tech, you’re almost certainly destined for pain -- and lots of it.
Given all this, one of the most common introspections of the crypto community is the question, “Where are we at in the cycle?”. If prices have shot up substantially and then retraced 20-30%, folks will then begin to ask, “Have we topped?”. As in, “Is the cycle over?”. Unfortunately, just as there’s no magic ball for ascertaining the day-to-day fluctuations of prices, there’s no magic ball for divining where precisely you are in a cycle. That said, there are signs.
While there’s some debate around what exactly constitutes a “bull” or “bear” market, in both cases, it’s like the comment of former Associate Justice of the Supreme Court, Potter Stewart, when asked to define “hardcore pornography”: You know it when you see it. For example, if the prices of the major cryptoassets are consistently ripping, up multiples on the year, it’s fairly safe to say you’re in a bull market. If, however, prices have been steadily (or precipitously) falling for many months on end, you can reasonably call that a bear market.
However, identifying what kind of regime you’re in is the easy part. The hard part is knowing where you’re at in the respective regime, how long the status quo will continue. If prices are up exponentially from where they were at a year ago, you can conclude you’re in a bull market, but what if you’re at the very end of said bull market, unknowingly staring into the face of a catastrophic bear? Similarly, even if prices are down 75% from their bull market highs, how do you know whether prices won’t continue to decline another 50%?
The short answer is: you don’t. Nonetheless, one can make a somewhat informed bet by looking at the past. As an asset class, crypto has been through a handful of market cycles that largely rhyme in their temporal character. Historically, a full market cycle consists of roughly two years of bull market action followed by roughly 18-24 months of bear. While the data is limited, with a sample size of 3-4, the consensus bet is that the next cycle/s will look somewhat similar in nature. Of course, the future could and often does look very different from the past, however, as a base case, this 4 year cycle structure serves as a reasonable guide to how things might go.
The next thing you can look at to inform where you’re at in the cycle (and this has become more popular recently) is by looking at where you’re at in the global liquidity cycle. Liquidity is basically just a proxy for how much money is roaming the world. And as more money enters the global financial system, crypto is highly responsive to the upside. As monetary conditions tighten, crypto sees the life sucked out of it (and fast). For this reason, crypto has been referred to as “the world’s liquidity sponge”.
Another, far more subjective, sniff test for where you’re at in the cycle is to simply observe how manic things are. If coins have been Up_Only for months on end, with majors smashing through all time highs, and monkey pictures selling for millions, you’re almost certainly closer to the end than the beginning. However, the trouble with using measures of euphoria as a signal in crypto is that things can stay far crazier for far longer than any reasonable mind would expect. In any case, even if euphoria doesn’t mark a global cycle top, it often does mark a “local top”, and is a fairly reliable signal for taking at least some chips off the table.
Whatever your preferred heuristic for ascertaining where you’re at in a cycle, it’s important to acknowledge that, unless your some kind of omniscient deity, the chances of you successfully picking the “pico top” are slim-to-none. Instead, when things get “toppy” you want to start progressively scaling out, especially given how returns are highly compressed in crypto, with disproportionate gains being had right at the very end, just as dawn turns to dusk.
However, identifying what kind of regime you’re in is the easy part. The hard part is knowing where you’re at in the respective regime, how long the status quo will continue. If prices are up exponentially from where they were at a year ago, you can conclude you’re in a bull market, but what if you’re at the very end of said bull market, unknowingly staring into the face of a catastrophic bear? Similarly, even if prices are down 75% from their bull market highs, how do you know whether prices won’t continue to decline another 50%?
The short answer is: you don’t. Nonetheless, one can make a somewhat informed bet by looking at the past. As an asset class, crypto has been through a handful of market cycles that largely rhyme in their temporal character. Historically, a full market cycle consists of roughly two years of bull market action followed by roughly 18-24 months of bear. While the data is limited, with a sample size of 3-4, the consensus bet is that the next cycle/s will look somewhat similar in nature. Of course, the future could and often does look very different from the past, however, as a base case, this 4 year cycle structure serves as a reasonable guide to how things might go.
The next thing you can look at to inform where you’re at in the cycle (and this has become more popular recently) is by looking at where you’re at in the global liquidity cycle. Liquidity is basically just a proxy for how much money is roaming the world. And as more money enters the global financial system, crypto is highly responsive to the upside. As monetary conditions tighten, crypto sees the life sucked out of it (and fast). For this reason, crypto has been referred to as “the world’s liquidity sponge”.
Another, far more subjective, sniff test for where you’re at in the cycle is to simply observe how manic things are. If coins have been Up_Only for months on end, with majors smashing through all time highs, and monkey pictures selling for millions, you’re almost certainly closer to the end than the beginning. However, the trouble with using measures of euphoria as a signal in crypto is that things can stay far crazier for far longer than any reasonable mind would expect. In any case, even if euphoria doesn’t mark a global cycle top, it often does mark a “local top”, and is a fairly reliable signal for taking at least some chips off the table.
Whatever your preferred heuristic for ascertaining where you’re at in a cycle, it’s important to acknowledge that, unless your some kind of omniscient deity, the chances of you successfully picking the “pico top” are slim-to-none. Instead, when things get “toppy” you want to start progressively scaling out, especially given how returns are highly compressed in crypto, with disproportionate gains being had right at the very end, just as dawn turns to dusk.
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