Thread by @mrjasonchoi

Thinking out loud:

What the next crypto bear market might look like.

A short thread 👇

1/ Last cycle (2017 ICO boom) was characterized by vaporware and retail money that left as quickly as it came.

It took a year of false recovery and lower lows to dry up all the remaining capital.

2/ Within the year, $BTC lost over 80% of its value.

Unlike the short corrections we're conditioned for this entire bull run, it trended down for a year then stayed in the lows for 4 months.

For alts, most that were down 90%+ went down *another* 90%, many never recovered.

3/ Many who were around are conditioned to think we'll have a spectacular asset-class wide blow off, followed by years of down chop.

I can't claim that this time will be different - cycles/bear markets will always happen, but I do think the next bear will *look* different.

4/ There are wider macro developments and a whole conversation around QE that I don't think I'm qualified to opine on.

But a few endogenous factors in crypto are *very* different this time:

1. Amount of capital
2. Type of participant
2. Progress of crypto

5/ The sheer amount of capital raised for crypto is astounding.

While the general crypto market cap is up 4x since last peak, I think the capital seeking to be deployed is at the very least 10-20x, probably more.

6/ This is in part due to the type of participants that are coming in - not just degens on Binance slinging shitcoins based on YouTube videos anymore.

Billion dollar VC funds, trad asset managers, corporate balance sheets are all pouring $ into this space hand over fist.

7/ If you thought 2017 was excessive - 2021 YTD funding dwarved 2017 by magnitudes.

8/ This is in part because the opportunity has dramatically increased.

As opposed to vaporware L1s, there's almost $300B in real money deposited across DeFi protocols today (vs...$0 in 2017).

9/ By May 2018, crypto community has spent ~$23M in buying CryptoKitties, a digital cat released as this ...esoteric little thing called an NFT.

Today, a SINGLE guild in a NFT/P2E game controls over $800M in holdings. (@YieldGuild)

10/ So ok, it's no longer just vaporware.

There's hundreds of billions at stake today, and much wider mainstream acceptance and adoption.

So up only, forever?

11/ With valuations bid to where they are now, there will be a point when even the most Tiger-esque of investors realize the risk/reward is not worth it.

Bids disappear, valuations begin to reset - that's my basis for how the "bear market" will begin.

12/ Last time, when bids disappeared, confidence also disappeared.

Since the entire reality of crypto was based on price alone (with not many immediately usable products being built), this led to a reflexive spiral that doomed the market for years.

13/ However, with so much dedicated capital prepared to deploy and clear sector focus emerging...

I think what we'll see this time round is less down magnitude in $BTC, but also significant de-correlation between cryptos.

14/ While your NFTs were pumping, this is already happening!

Instead of crypto moving as a monolithic asset class, with the entire asset class moving into winter and bull simultaneously, sophisticated capital and quantifiable traction has led to massive decorrelation.

15/ As one example - in the same time that P2E entered into bubble territory, DeFi has been in a year-long bear market.

Returns measured against ETH:

$AXS +4242%
$YGG +192%
$ILV +896%

$SUSHi -80%
$SNX -90%
$CREAM -98%

16/ Re: sector agnostic bear market, the two-month long -50% selloff in $BTC back in May might have more in common with the next crypto bear market than the last 1 year long -80% grind.

https://twitter.com/mrjasonchoi/status/1406662124558901250?s=20

17/ In short, I think we see:

a. Market wide + sector-agnostic bear phases that are somewhat quickly recovered as $ realizes there's nowhere else to go

but

b. Brutal multiple months resets in some sectors as capital flows to other sectors

p.s./ Some friends who are much more experienced in markets outside of crypto than me seem to agree with (a) based on current climate around tapering/ rates, will leave for more well-versed voices to comment

Anyhow, not a thesis, just trying to Cunningham's Law.

Wagmi!