My Opinion on Crypto

As FTX falls, it’s worth looking at crypto again.

Let’s start with my track record. I was introduced to Bitcoin in 2012 when the price was in the single digits. I was there when Ethereum was introduced. I was there when Dogecoin was introduced. I was there when MTGOX imploded, and now FTX. I have been in crypto for 10 long years and what feels like endless boom/bust cycles. So how do I feel about crypto investing?

First off this isn’t investing advice. This is just how I think about it.

Back in the day, we just had Bitcoin. It was thought of as distributed gold. We had no scaling problems and the future looked bright. Regardless, we had boom and bust cycles.

I noticed that the boom/bust cycles were definitely fueled by a predictable media hype cycle. During the low periods, the media would barely cover crypto. Then we would slowly recover our gains and get a bit of coverage. The more the price increased, the more coverage, causing further increases until it became unsustainable and the bubble popped, leading to a bit of drama followed by relatively quiet media coverage.

The Saturation Theory of Cycles

So I learned a couple of rules of thumb:

• By the time the media is posting bullish things about bitcoin, the hype cycle has already begun and buying becomes dangerous

• When the media stops posting about bitcoin, it’s probably a good time to buy.

• Every time a boom/bust cycle happens, the length of time between cycles decreases.

• Every time a boom/bust cycle happens, the average price increases significantly by the end of the cycle.

• Each subsequent boom/bust cycle creates a less multiple ATH than the last cycle (we would see a trend looking like ATH: 100x, 50x, 10x, 5x, etc… as more cycles happened)

• When we zoom out, the gains from the macro-trends (2 or more cycle) are significantly larger in scale than the losses that seemed so brutal during the down-trends (-10% days etc.).

So it became clear to me that Bitcoin had a certain number of these boom/bust cycles in it until it had saturated society enough that these massive gains would be gone and it would reach relative stability closer to something like a stock.

Applying the Pattern

So where are we today?

In the last bull run (2021), we saw a 6x multiplier (from about 10k at the low of the cycle to 60k at the peak), with the low averaging about 20k during the current down cycle. The last downcycle lasted almost 2 years (2018-2020) It has been only about 1 year so far on this cycle.

If I was a betting man, I would say that crypto is nearing its last boom cycle. I would say that the next boom would be sometime around 2024, and we could see an ATH of 100k finally crashing down to 40k for the long term. I believe after that we will be at a point of saturation where bitcoin boom/bust cycles look like your average stock movements.

What Might End Bitcoin

I feel that the ship is sailing on bitcoin. By that, I mean simply that the pyramid has reached a saturation point. There are a few things that could cause it to unravel.

Government regulation. It’s coming for crypto and it’s coming hard. The original fantasies of a crypto-anarchist distributed money dream are mostly over, except for privacy-oriented altcoins. I can see easily reaching a point where anyone using a privacy coin is subject to prison in the USA or other large countries. Once enough countries decide to regulate the shit out of crypto, one of the biggest draws is over.

Scaling. Bitcoin simply wasn’t meant to scale and as such it really has no long term utility compared to a more scalable coin.

I think there is no reason why we may see Ethereum market cap pass bitcoin. I personally am out of Bitcoin at this point, and entirely into Ethereum. I got annihilated by altcoins on this cycle. Which brings us to….

What About Altcoins?

Altcoins are cool. If we listen to the saturation theory of crypto gains, it’s easy to see how starting a promising altcoin would reset that clock. And I think that is very very true, to an extent. ETH is a great example. The team is ready to scale it, it is a household name, many applications are built on it. I’d say ETH has room to take over and keep the crypto dream running for a little longer. But if we want crypto to continue moving forward we need more coins and more utility.

Once you have a proof-of-stake, scalable coin that you can build dAPPs on, what is left? It’s a good question. Of course you can implement NFTs on Ethereum, so that’s baked in. In order for crypto to continue on its upwards trajectory we really need to make the rubber meet the road with utility. We need actual use cases of the blockchain technology beyond what ETH can do.

I invested in plenty of ETH competitors, and most were savagely destroyed during this downturn. It will be interesting to see if any recover (Solana, Cardano etc.).

The problem I see with these competitors is they really don’t move the needle on the fundamentals of what crypto does. They are not 10x improvements, they are at best 2x improvements.

Conclusion

I conclude that I have yet to see anything beyond Ethereum which looks promising. I think Bitcoin is on its way out and ETH has a few hype cycles left until it saturates. If I were investing in crypto, I would go in on ETH and a few ETH competitors or privacy coins. I would be asking myself what the actual use-case of a coin is in the case that it gets regulated to death by governments, because “distributed private anarchist e-gold” is a thing of the past.

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