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Last month’s issue looked at the investment landscape and how we choose to define the opportunities and the risks it presents. This month’s issue talks about altcoins and strategic considerations, with a brief two-section preface.
Enter the tortoise
I’m more tortoise, less hare.
Steady persistence rather than bursts of frenetic activity. Marathons, not sprints.
Buy low and grow. Sell only when the market demands (and hopefully not at all). Build slowly, safely, and keep going until you reach your goal.
Mark, that’s so dumb. Your sell signal didn’t trigger at all in 2021. Think of all the money you’ve lost!
Yes, I’ve lost a lot of money from selling crypto. I’ve lost far less from buying it.
Maybe those sell signals are too high but I’m keeping them until I can find a better option (I’m trying). With my plan, the buying zone should continue to keep us from getting in over our heads.
In 2021, we sat on our hands from January to mid-May and again from August to December, with a 10-day buying window in September. We paid an average price of $39,400.
If we had dollar-cost averaged, what would our average price have been?
$47,430.
At the end of the year, bitcoin’s price was $46,195. Most traders had lost money, anybody who bought in October and November was down 30% or more, and even dollar-cost averagers were negative for the year.
With my plan, we had a 17% gain with cash to spare. Depending on the timing and amount of each specific purchase, you may have done far better.
Today, if you’ve followed the plan the whole way through, you might be down as much as 35% or up as much as 300%, but you’re probably closer to down 15-20% on your investment. Earlier this year, I changed the buying zone so the comparisons get a little fuzzy.
(With altcoins you may up or down much more.)
NFT come next
Now that NFT prices have collapsed, it’s a good time to look into them. Metaverse got a little over-hyped but there’s a lot of fertile ground there and NFTs have plenty of real-world applications that have nothing to do with jpegs, avatars, and digital real estate.
We’re at the very beginning of the NFT adoption cycle.
Some say verified credentials with decentralized IDs will make NFTs obsolete, but until somebody builds a platform that delivers these features at a global scale in a useful way, NFTs will have to do the trick.
My first step: learn how to do them.
As a start, I minted my first NFT, a Mirror post called Hold this thought. If you’d like to support me, use this button to see the post and collect the NFT.
For full transparency about where your funds go, follow this wallet, the one connected to my Mirror account:
0x9a6600c7B40801dda9A0Fa4E8DE7b1B99FE524a7
I’m not 100% sure what I’ll post there. Probably not anything as cool as UNDRGRND or as fun as Finney, but hopefully something valuable. Can you please leave a comment with some ideas?
I’m also working with Readl and SolType. I’ll reach out to NFTBooks soon and probably a few other platforms. Happy to hear your suggestions for where else I should look.
Is the bottom in?
Don’t be silly. The bottom is $0.
Will bitcoin’s price go that low?
We’ll see. For now, as long as its price stays above $17,600, we’re in a literal bull market, though I’m seriously thinking about banishing the terms “bull” and “bear” from my vocabulary, as they pertain to crypto.
Bitcoin’s price goes up 100-300% in bear markets and drops 30-50% in bull markets. Since November’s all-time high, the market has spent more days going up than down.
In 2021, we had two technical bear markets and two technical bull markets over 12 months. On-chain and technical metrics peaked in January 2021. Altcoin prices peaked in April and May 2021. Bitcoin’s price peaked in November 2021.
None of that makes sense within a “bull/bear” paradigm.
Do bear markets start after institutions and tourists mostly exit (November-December), traders lose their shirts (December-January), buyers disappear (all of 2022), liquidity dries up (April but arguably February), the overall market cap falls 70% from its peak (some altcoins are down 95% or more), and HODLers realize their largest aggregate losses in recorded history?
If it looks like a duck and quacks like a duck, it might be a platypus
For several months, we’ve seen striking similarities between behaviors we saw at previous market bottoms and the behaviors we see today. I reviewed this at length in several updates:
After the UST/LUNA debacle, I presented three scenarios for 2022:
A replay of 2015. Bitcoin’s price never goes lower, the market meanders for a year, and then it goes up forever.
A replay of 2018-2019. The market has one more drop, then goes up forever.
Something in between.
Like so:
So far, our price action has matched most closely to 2018-2019.
On November 20, 2018, we hit bottom on the 1-day trading indicators and entered the “bottom” regions of several on-chain metrics. Then we had a dead-cat bounce and 25 days later, we suffered another drop to the 200-week moving average, roughly 25% lower than the lowest price on the day the indicators bottomed. After that, bitcoin’s price climbed 35% and then started to trend down.
On May 12, 2022, we hit bottom on the 1-day trading indicators and entered the “bottom” regions of several on-chain metrics. Then we had a dead-cat bounce and 28 days later, we suffered another drop to the 200-week moving average, roughly 25% lower than the lowest price on the day the indicators bottomed. After that, bitcoin’s price climbed 35% and then started to trend down.
Not so fast . . .
That’s a nice coincidence and it might sound good because that means the worst is over and it’s only up from here. Disbelief rally, not relief rally.
Let’s hope that’s not what’s going on.
From May to June, diamond hands and true believers lost tens of billions of dollars from lending platforms and everything related to LUNA/3AC.
I lost almost 3% of my portfolio to LUNA/UST. If I had waited two more weeks to take Celsius off of my recommended crypto savings platforms, it would’ve been worse.
Those diamond hands—people like us—served as the floor for the market from January to May. Like us, they planned to keep their money invested. They committed to the market financially and psychologically.
You can’t lose $60-80 billion in dedicated, committed, long-term capital and expect to get it back in a few months.
If the market goes up too fast too soon, too many new buyers will get too excited. They’ll sell.
You might, too. When you’re back to even or maybe up 50% it’s hard to resist the temptation to sell everything or take profits—especially when you’ve sat through a big drop and told yourself “I’m not going to make the same mistake again.”
To get the sustained growth and massive appreciation you want to get out of crypto, you need people with conviction and intent, who want crypto more than they want their government’s money and will tolerate volatility.
Fed to the rescue?
Some people think the US central bank will stop raising interest rates and pump the markets again.
I’ll believe it when I see it.
The chairman of the Federal Reserve said they will keep raising rates as long as necessary to bring down inflation. Inflation barely dropped last month. It’ll take a lot more than that to change the Fed’s plans.
If that means the rest of the world needs to suffer, that’s a price they’re willing to pay. They want you to have less money and make less money. The goal: crush the prices of assets, goods, and wages to preserve the integrity of the US monetary system.
As long as the real economy doesn’t fall into a tailspin, rates will continue to go up.
People think crypto will suffer as a result.
I’m betting people will suffer as a result. Crypto will bring some relief—an alternative to falling stock prices, rising rents, higher interest rates, and general hardship.
That’s the overarching thesis for crypto since I came into the industry and my motivation to write Consensusland. The traditional financial system no longer gives people the lifestyle and opportunities they want.
Crypto might.
Not today, Mark
I know.
Drama about the Merge. Regulatory crackdowns. Cranky tech. Bear flag developing on the weekly trading chart. Mt. Gox settlement dumping roughly 140,000 bitcoins onto the market. Scant evidence of new buyers. We still don’t know what other exchanges and platforms will fail as the market shakes off the fallout from the collapse of 3AC and lending platforms.
Some people advise you to wait until it’s clean and the macroeconomic situation improves.
You could be waiting forever. We’re still waiting for the stock market to show signs of life but pension funds keep putting money into it.
Agriculture and real estate are loaded with people facilitating sanctions evasion, embezzlement, money laundering, drug deals, and human trafficking. Yet, people still buy food and houses.
Some expect the stock, food, and housing markets will collapse.
What if that doesn’t happen? Or if it happens in 2-5 years, at higher prices?
For a brief digression about the practical difficulty of predicting the housing market, read this bonus content.
I don’t have enough space to put it here and anyway, this newsletter is about cryptocurrency, not the US housing market.
I’m not frothing at the mouth to buy more stocks, food, or real estate, but modern economies are too complex for sweeping generalizations. We know we’re in for a bumpy ride, but we don’t know how bad it will be. Markets adjust. Humans adapt.
You can wait until all the shoes fall, but you might be waiting forever.
Embrace uncertainty.
The altcoin parabola you didn’t hear about
What’s the most uncertain part of crypto?
Altcoins.
More like ALT-SCAMS, Mark! No liquidity. Dead. Crypto winter.
Perhaps you missed the shift in momentum from bitcoin to altcoins?
Look at this chart, which is slightly modified from the version I share with subscribers on the paid plan.
This chart compares bitcoin’s market cap against all non-ETH altcoins so you can see what portion of the market each asset captures. It strips out USDC, USDT, and Ethereum to better reflect the true dynamics of altcoins vs. bitcoin.
When the line goes down, altcoins are losing to bitcoin. When the line goes up, altcoins are winning.
For 18 months, bitcoin’s dominance crushed altcoins in an accelerating, parabolic black arc—a long, powerful trend marked in black in the image above.
What happened at the end of June?
Look at the grey circle. Altcoins broke the parabola. They shifted the trend.
Since then, altcoin dominance has grown.
Why?
I don’t know, but I’d guess it’s because almost everybody who wanted to sell their altcoins has already sold.
Meanwhile, we still see plenty of bitcoins in the hands of people who plan to sell or have to sell, e.g., miners, bankrupt lenders, and recipients of the Mt. Gox settlement. That should tamp down on bitcoin’s market share, at least in the short term.
$500 billion worth of scams
That dominance chart looks at altcoins vs. bitcoin, not the overall market and larger trends.
You may look at the $500 billion altcoin market cap—or even the $300 billion market cap of altcoins that are not Ethereum—and think it’s too high.
$500 billion for money that nobody uses? Scams and Ponzi schemes? Platforms that can’t function at scale (and in some cases, at all)?
That bubble has a lot more popping to do.
Or does it?
Most altcoins are dead already. That includes most of the top 50. They just don’t know it yet.
If people sell $200 billion in dead altcoins to buy $200 billion in good altcoins, does that count as “the bubble popped?” The total market cap remains the same but lots of altcoins go to zero.
Market cap is simply the product you get when you multiply the number of coins by their prices. It’s fair to question whether this matters for altcoins.
For example, if 99% of a project’s tokens are held by people who died, don’t care, lost their keys, or gave up on the project, that means 99% of the tokens are off the market, possibly forever. They’re more like unissued shares of stock, which do not get counted when calculating the market caps of publicly-traded companies.
Yet they’re included in the market cap of altcoins. It’s a massive distortion.
It’s down 90%, it can go down another 90%
No kidding.
Did you know altcoins can go down 90% after going up 90%, too?
Every altcoin can drop 90% at any time. Most will drop 100% over time. Some will go up 1,000% or more.
So what? For any altcoin that fails, you’re going to lose 100% anyway, no matter what the price is when you buy it. For any altcoin that succeeds and is designed to capture value from its success, you’re going to come out way ahead.
You get a better deal after the 90% drop.
This is a speculative market. Price tells you nothing about the merits of the project or its token, only how much hype it’s getting on the day you check.
Experimental technology, all of it
Yes. That’s the point. It’s experimental. When you get in before the kinks get worked out and the technology goes mainstream, you benefit from the growth along the way.
Does that pose extra risks?
Yes.
ETH 2.0 might fail. So might bitcoin’s Lightning Network. Smart contract hacks, bad wallets, protocol failures, and faulty codes plague the space.
Luna had arguably the best-designed wallet, lots of interesting applications, functional smart contracts that passed their audits, and platforms that actually worked.
The problem?
Everything depended on its stablecoin, UST. Once UST failed, the project was useless.
Such are the risks you take with experimental technology. It’s not just user fit, good design, solid tokenomics, strong community, and savvy marketing.
So much has to come together in just the right way but nobody yet knows exactly what configuration to put it in so that it all works. To some extent, luck plays a role.
As a result, it’s ok to grade on a curve.
Nobody knows what matters yet
We’re all figuring this stuff out as we go along. Welcome to the Age of Monetary Exploration.
As a feature for people on the paid plan, I publish occasional reports on smaller altcoins you probably haven’t heard of yet.
They’re all legit and some are now well-known, but their books are not written yet.
Take Theta, for example. It’s too big for my altcoin reports but it’s a great project with actual users and developers. A lot of people like it, as do I. It’s exactly the kind of project that can dominate Web3.0.
Or is it?
Will Web3.0 platforms run on their own cryptocurrencies instead of Theta? Might they exist as protocols and smart contracts built on Ethereum or some other layer one?
Maybe developers will build apps that draw content from global, distributed storage platforms like 0chain and Arweave? Content creators will store their content locally and use smart contracts and NFTs to monetize, share, and license their creations and rights to their assets.
If that happens, Web 3.0 tokens will serve no purpose (no pun intended). You’ll have self-custodial storage and programs that manage how you share and monetize your data—perhaps delivered on a routing platform like Syntropy, beyond the reach of internet service providers.
“Web 3.0” but not in the form you’re thinking about now.
Nobody knows. With time and technology, the market will find the answers for us.
Don’t wait for the bull market
Some say friends don’t let friends buy altcoins during bear markets. Others say save cash for new projects that will come along in the next few years.
Bear markets are awesome. You can find lots of interesting projects at low prices. You get to interact with earnest teams and communities that care about the projects. Why else would they stick around?
If you wait for confirmation that the bottom’s in, consider the money you lose from waiting.
For example, if you bought altcoins in 2019, a true crypto winter, you peaked at a 3,000% gain. If you waited until December 2020, you peaked at an 800% gain.
Given the same risk and volatility, would you rather wager the same amount of money for a bigger gain or a smaller gain?
Once the bull market comes, you’ll make the same wager for a smaller gain.
On top of that, everything will get much harder, more expensive, and more stressful—especially if you wait for altseason. Watch this video from February 2021 for more of my thoughts about that.
(NOTE it’s 18-months old, talks about a service I no longer provide, and refers to a different time and market conditions. The message is about altseason, not me.)
Eighteen months ago, in the middle of altseason, I published that video for subscribers of my altcoin research service. Around the time I posted the video, I closed that service and switched admission to invite-only.
Some people thought it was a marketing ploy to create false urgency, but I genuinely felt too many subscribers only cared about flipping altcoins, which is not what I’m about. Switching to invite-only let me screen subscribers.
To be honest, I never felt like I was giving people what they wanted. Probably because I wasn't.
My service aimed to find great projects before they get big and stick with them for as long as the investment thesis remains valid (even if that means riding them to $0). Most subscribers wanted to make as much money as quickly as possible with as little work as necessary.
Not a good “product-market fit.”
Combined, my picks beat the overall market and Ethereum. Most of them lagged the market but the winners more than made up for the laggards.
I’m proud of the work but question the value of research and analysis during bull markets. Everything goes up for basically no reason, just speculative enthusiasm that masks the merits of many projects, as well as the risks.
Bear markets expose those risks and let good projects showcase their merits. Friends make sure friends buy altcoins during bear markets.
Don’t wait for new altcoins
Some people think you should set aside money for new altcoins, not the altcoins that already exist. They’re overpriced, no hype, old technology, and will never go back to their all-time highs.
I have no doubt that some of the best projects haven’t even been conceived yet or only just got started. If you have any to suggest or want to see what others have found, check out my discussion thread on altcoins.
Does that mean old altcoins are bad?
No. In fact, a few years of trial-and-error, community-building, and investment can do wonders for any project. New altcoins might not have that, but the “old” altcoins do.
(At least, any that haven’t died yet.)
Look back at the 2021, 2020, and 2017 altseasons. You can do this with the historical data on CoinMarketCap.
Do you have any evidence new projects performed any better or worse than the old ones? Why would you think they have any better chance of succeeding in the future?
“New” does not mean “better.” Sometimes, it means worse. No altcoin has beaten bitcoin’s performance from peak to peak, only from bottom to top.
“Boomer” coins can still boom.
No risk it, no biscuit
Does it seem reckless to do altcoins when the crypto market’s hanging on the edge of a knife and the traditional financial system seems on the verge of catastrophe?
Not to me. Every asset—including cash—is always considered capital at risk.
Altcoins are far more volatile but not necessarily riskier at these prices. Your downside is capped at 100% while your upside is limitless.
And unlike stocks and bonds, you can use altcoins (if you want).
Meanwhile, for tokens that offer staking rewards, you get free crypto while you wait for the market to recover. That’s free crypto for projects you already plan to buy into.
Why risk that upside just to avoid a 100% loss? Why sacrifice an eternity of growth for a chance to get “one last dip” that may never come?
No need to wait, no time to rush
As we work through the regulation/litigation phase of crypto’s development, you can expect people will not care that much for altcoins. Some may avoid the space altogether. Regulatory risks for people in the US, market risks for people in other countries.
Don’t worry. If all goes well, we’ll have plenty of time to accumulate tokens and participate in the projects they’re connected with. Let the regulators work out the regulations and give the market time to rebuild its foundation.
Your favorite stock will probably never return 500% in five years. Some altcoins will, and they’ll do far better over time. Let their prices rise and wait for the next crash to give you another chance to buy, maybe even at today’s prices.
Altcoins show a shift in momentum against bitcoin. Some of their tokens have dropped 99% or more. Many of the best projects have actual development, experience, and genuine community growth—something that altcoins never had before.
At the same time, bitcoin’s price is in the buying zone of my plan.
As long as it’s in that buying zone, feel free to buy altcoins, too. Take advantage of this moment. Buy low and grow. Bitcoin’s in a 13-year uptrend with massive tailwinds. Altcoins will come along for the ride.
We put our money on the line for a chance to grow our stakes in the financial networks of the future. Isn’t it fitting that we suffer whatever consequences come our way? Can’t we accept some loss in exchange for a much larger gain, over time?
Such is the nature of opportunity in this market. It takes courage, patience, and persistence.
Be courageous, patient, and persistent.
Relax and enjoy the ride!
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