0/ The question that is undoubtedly on top of every crypto investor's mind currently is: is the bull cycle over? In my view, this question is somewhat moot because judging by the magnitude of the correction (>40% for total mkt cap), we are already in a bear market.
1/ The reason people are still asking this question is because the correction was so swift and our frame of reference has not adjusted and we are still thinking about how soon we can revert to ATH prices.
2/ In my view, the more relevant questions we should be asking are: 1) if we are in a bear market, how far are we from the bottom? and 2) what does the risk reward tradeoff look like from here?
3/ Reframing the question this way allows us to think about what we should be doing with our exposure going forward instead of hoping we will somehow get back to ATH prices in the near term.
4/ A few things worth noting:
a) during this cycle, we did not get the blow-off top we typically get in a euphoric bull market which means that valuation weren't significantly de-tached from reality.
b) this cycle brought institutional participants into the market and institutions have different definitions of what good returns are ie. they are not batting for 1000% returns but are rather 100% return in a year is heroic by any measure.
c) this means that they are likely to take profits earlier and more frequently but likeless also more likely to step back in when they perceive that the correction is too much.
d) this may explain why we didn't see the blowoff top but it also means that the drop probably won't be as severe as past cycles. So instead of a typical 80+% drop, we may end up with a 50-70% drop.
e) this is how crypto markets become less volatile over time and the returns from the asset class also become less spectacular (but still much higher than most other asset classes).
5/ Using $BTC as a proxy,
50% down vs ATH = $32,440 (-3% from here)
60% down vs ATH = $25,952 (-22% from here)
70% down vs ATH = $19,464 (-42% from here)
6/ Note that $BTC has never dropped below its peak from a previous cycle. A 70% drop in BTC would also mean that the asset class is down 80+%, so low likelihood in my view.
7/ So in terms of quantifying the downside risk from here, my base case would be a further 20-30% down from here, with 40% being a worst case scenario.
8/ In terms of upside, I think a 3-5X return over a 3-4 year timeframe is conservative judging from: 1) returns generated in the latest cycle (20X for BTC); 2) more institutional capital flowing into crypto; 3) implied total mkt cap of $4.5-7.5 T (smaller than mkt cap of gold).
9/ Finally, if somehow this recent correction is but a short term detour within a continuing bull market, then we will likely see the 3-5x return realized in 6-9 months instead of 3-4 years.
10/ Whichever scenario we end up with, I would argue, the risk return is favorable mid-long term unless you are a short term trader who is optimizing for profits on a daily or weekly basis.

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More from @SpartanBlack_1

8 May
0/ I have been thinking a lot about metaverses lately. Part of this is driven by the amount of time my kids spend in them while the other is driven by the number of them being created at the moment. I think metaverses are going to be huge.
1/ When I was growing up I spent a lot of time reading superhero comics. It was a sort of fantasy and a way to “live” in an alternate world. I loved it and spent countless hours a week with comics.
2/ Growing up this journey evolved into spending time on videos games (mostly first shooter and fantasy titles) even while I was working. This was my getaway, a way to relieve myself of the stresses of work. That’s partly what got me through 18 hard core years at GS.
Read 16 tweets
25 Apr
0/ Last week I met up with a Korean friend who works at one the biggest Korean crypto exchange. I have known him a long time and was the one that convinced him to move into crypto. It was good to see him happy and doing well in his role.
1/ This friend used to work with me in GS and ultimately ended up in Nomura doing equity sales. Like many bankers these days, he has been at it for a long time but the job offered no upside anymore nor any security. He was restless and unmotivated.
2/ When I first spoke to him about crypto and the fund I was setting up, he was skeptical. I have him several teach-ins and convinced him to look for opportunities in crypto. Shortly after he was offered a role with a big Korean crypto exchange to focus on institutions.
Read 10 tweets
5 Apr
0/ Tradfi folks love to shitpost in crypto to show how clever they are. There are half-truths here that should be clarified. What Alchemix is going is not entirely new. In Tradfi it is called hypothecation/rehypothecation but there are some differences.
1/ Hypothecation occurs when a borrower promises the right to an asset as a form of collateral in exchange for funds.
2/ Rehypothecation occurs when the lender uses its rights to the collateral to participate in its own transactions, often with the hopes of financial gain. Clients who allow their assets to be rehypothecated are compensated with reduced borrowing costs or a fee rebate.
Read 11 tweets
27 Mar
0/ In the past 2-3 weeks, there has been a visible uptick in the valuation of post seed pre-launch DeFi projects. This is a function of more capital being raised by funds and deployed to fund these early stage projects.
1/ While $40-60M was the range 3 months ago, it is now $100-300M for projects that have some traction and are raising their second funding round. These rounds are getting filled and often oversubscribed.
2/ We have even encountered projects raising their seed round with only a deck and asking for $100M valuation. This is a hard sell ATM unless they have a team of rock stars.
Read 6 tweets
14 Feb
0/ Through the series of hacks that have occurred since last summer, DeFi projects have learned through the experience of others and the sharing of best practices how best to handle a hack.
1/ This starts with a transparent disclosure to the community to make sure the initial facts are laid out and the extent of the damage is made clear. Concurrently the engineering team also patches the bug/vulnerability to stop any further loss of capital.
2/ The team then conducts a detailed analysis to understand the hack and produces a post-mortem which gives them a better idea how the attack was conducted and who the attacker might be.
Read 10 tweets
14 Feb
0/ Been hearing some traders talking about no new money coming into crypto and the current rally is driven purely by leverage.

Yes leverage is going up as it typically does when the market trends higher but if you think there is no fund inflows, you couldn’t be more wrong.
1/ Most of the crypto funds out there (esp fundamental strategies) should be seeing record inflows into their funds and judging from the number of emails, call and enquiries we are getting from interested investors that flow is set to continue in the coming months.
2/ In addition, I am also seeing many new crypto funds startup as it is easier to raise money now than anytime in the past 3 years.
Read 4 tweets

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