Over 100 subscribers
Duncan
Despite a few weeks of downturn and sideways crawl, the bull run continues. Drawbacks like this always occur in rapidly accelerating markets. Check this chart to see what I mean:
BTC has an annualized return of 139% over the past 11 years. Notice that the pendulum swings dramatically between returns and losses. Years that are positive often produce +100% gains, while in a downturn the value can lose more than 70% of its ATH. While it is the “best performing asset” of the last 11 years, it is also the most volatile. Handling emotions amidst the volatility is the key to participating properly.
While growth over the past month has been choppy, 2024 continues to show signs for significantly more crypto upside.
How I see 2024 playing out…
Memes will continue to outperform (and also rug) for the next 6+ months.
Airdrops on zk-chains, associated Defi protocols, and LRTs will begin drawing more attention and liquidity in Q2/Q3.
Promising AI x Crypto protocols and products will come online in Q3/Q4, drawing even more attention and liquidity.
The ETH ETF will be approved in some form by Q4.
Liquidity won in meme markets will quietly move to more fundamental-based tech (Defi, LRTs, AI x Crypto) in the later half of the year.
The biggest question and uncertainty for this cycle revolves around whether retail enters the market in the same way they did in 2021-2022. A few studies suggest current popular interest is far from that of previous years. Time will tell.
At the moment, the narrative is largely driven by a sense of financial nihilism pushing people into the hope for 10,000% gains in the memecoin market.
Financial nihilism, a term I learned recently, refers to the general population losing faith in institutions, the American Dream, the belief that upward mobility is possible, and thus results in a populist vs elitist viewpoint that encourages collective gambling. This might look like sports gambling but includes events like WallStreetBets pushing the Gamestop short squeeze in 2021.
Travis Kling digs deep on this idea in this article from early March. As an anecdote, here’s a (great) Twitter thread of his that includes the recent rise in gambling.
So, if the market activity comes from memecoins and betting on 10,000% or bust opportunities… is crypto valuable?
I find myself frequenting this conversation with various friends and strangers. “Crypto is just a scam.” In 2022 millions of people lost billions of dollars in some of the largest financial house of cards in history. Reasonably, that put a sour taste that continues to this day, and I would be blind not to agree that the space facilitates many ponzi schemes and con artists. That said, I don’t think it’s ALL a scam. I’d even argue that some of these memecoins are building fundamental value into their networks (see $DEGEN). Vitalik also recently made an argument for flipping the degen-tendencies into a more socially conscious system (albeit this was posted on April 1st).
There are plenty of weeds to be unearthed within cryptoanarchic philosophy and fundamental network productivity that I wont get into here. The most important answer to “is crypto valuable” is understanding the currency in cryptocurrency. The market determines whether they want to assign value to these decentralized networks. Only time will tell whether those networks do something, or simply sell vaporware.
When considering investing in the crypto space, I think a more important question revolves around persistence and adoption:
“Will this technology continue to exist?”
If you agree with the Lindy Effect, the probability for “Yes” increases every day. Taking the thought a step further:
“If the technology exists, will it continue to build market share?”
If the concept of financial nihilism hits a nerve, and that does seem to be the basis for this growth currently, market adoption does feel inevitable. In addition to this sentiment, let’s use Internet adoption and credit card adoption as proxies for crypto adoption:
The “first” credit card was created in 1950 and the payment method took two decades to reach more than 50% of the US population.
The public Internet was first online in 1983 and took a decade to penetrate 14% of the US population.
Bitcoin was created in 2009 and fifteen years later penetrates between 25% and 40% of the US population.
At a high level, crypto adoption seems on track for the length of time. Assuming this is true, I see the protocols with fundamental value (Defi, LRTs, AI*…) outperform memecoin mania on a mid to long term time horizon. I know I am missing out on some 10x returns not participating more heavily in the microcap memecoin economy, but I prefer to focus on risk mitigated 3x – 5x returns within protocols showing fundamental value.
Ironically, this seems to be the contrarian play at the moment.
* While I say this, I also agree with Travis that these technologies will not come with surefire execution in this cycle… especially the new wave of Crypto x AI protocols. I do think they will carry over some heavy narrative value as the cycle matures.
PS: I just moved here from Substack. If you want to learn more, check Paradigms Driving Crypto Cycles and my Following Up articles.
391