The Bear Market isn't over...yet
We just forgot what good news feels like
Crypto loves a comeback story, and token prices have definitely come back in Q4. But can we really be in a bull market when we’re still 40% or more off previous all-time highs?
Let’s zoom in…
Bull markets in crypto have historically coincided with innovation cycles, and asset prices are a trailing indicator of new utility value created by startups (aka innovation). Here’s what I mean:
…VC’s pump money into a bunch of startups
…Startups build cool shit over the next 2-3 years
…Some cool shit finds product market fit and attracts new users and capital into the market
…Scarcity does its thing and an influx of new users and capital causes rise in asset prices
…Enter next bull market
…Continues until something destroys investor confidence
So with history as our guide, bull markets are a direct result of an increase in utility (or access) attracting new users and capital.
Here it is again as an equation:
So asset prices have gone up recently, isn’t that a trailing indicator of net new innovation attracting new users and capital? No, and my equation can still hold. If I had to diagnose what’s happened over the last two months, it is a combination of…
1. We are climbing out of the massive hole dug by Terra and FTX. We’ve been so beat down by negative press over the last year that one positive news cycle about Bitcoin ETF approvals has everybody calling for the next run. I think we just forgot what good news feels like.
2. A bunch of money that was pulled out of the market during the last cycle was sitting on the sidelines waiting for the bottom. When buzz about ETFs being approved by the SEC started to circulate, that money came off the sidelines in anticipation of the next bull market. This is what I did. Same people, same money, getting us back to a more realistic baseline.
I just don’t see a material amount of new innovation finding PMF…yet.
Now if you squint I think you can start to see the light at the end of the tunnel. Yes there’s the ETF approval expected in January. That is by definition creating more access to Bitcoin, which over time will attract net new capital. I think the bigger impact of the ETF is it maybe for the first time ever frames crypto as a legitimate asset for main street investors, and that’s a tailwind for the entire crypto markets.
There are also some sparks here and there in social finance (friend.tech) and a lot of new innovation at the infra level (Celestia, Eigen, protodanksharding) that should help scaling and rollup adoption. But I think we’re still early on these and will need to see how things develop in the first half of 2024. I’m not seeing the equivalent of DeFi or NFTs just yet.
In the meantime…sit back, relax, and enjoy the staking rewards.
Thanks for reading,
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