The Breakdown - 2017 PTSD and the Dip That Ate Alt Season

Episode Date: April 24, 2021

On this edition of “The Weekly Recap,” NLW looks at the twin dips that shaped the week. He argues that one upshot is the dips may have taken the wind out of the sales of some very 2017-esque froth that threatened the entire industry.  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, April 24th, and that means it's time for the weekly recap. This week was the story of two dips. The first actually happened last weekend. Saturday night, late. East Coast time to be exact. Between 1115 and 1135, the price of Bitcoin fell 12.3%. From about 58,500 to 51,300. I did a whole show about this on Monday. Basically, Twitter raced to give it a narrative explanation. They pointed to a rumor tweet from FX hedgers that the Treasury Department was going after a number

of firms for money laundering with crypto. That tweet came about 30 minutes before, so there was, I suppose, some evidence to the causality. They also pointed to a significant decrease in hash rate after a slew of Chinese miners went offline. They even pointed to Turkey, where there is an upcoming ban on using cryptos as currencies, while trading, holding, and investing are still allowed. My counterpoint on that Monday show was that really this crash had more to do with market structure and specifically leverage than any of these high-falut and macro narratives. Here's how Nidig put it in the analysis they put out about a day later. Quote, we believe the root cause of the sell-off had to do with investor positioning rather than fundamental news. Simply put, traders were over-leveraged

and positioned long, resulting in forced liquidations. Now, some like Alameda's Sam Trebucco, did point to Coinbase's IPO underperforming as a reason that the market might have started to sell, but the violence of the move undoubtedly had to do with leverage and liquidations. Fast forward to the end the week Thursday night. The market starts selling off again in a pretty vicious way, and again, we try to frame it in big macro-narrative terms. This time, it was all about Biden's capital gains tax plan. Here's CoinDesk's headline. Bitcoin leads price sell-off across crypto markets as Biden tax plan bites. With the subtitle, Bitcoin falls as Biden's plan to raise capital gains tax hurts risk appetite. In this conceit, the market has been trading super risk on because of agro liquidity from the

Fed, but now it's seeing the reality of the Biden administration and has started to worry. I'm a little skeptical of this, not because it's unsound, but I think Bitcoin functions as a macro asset on a medium to long scale. It's obviously undeniable that the macro narrative of the potential for inflation and unlimited money printing are the things that are driving people into Bitcoin's waiting arms. However, I also don't think in the short term it fully responds to news the way that stocks do. That's said, inevitably, the more overlap. we have between regular stock market participants and crypto market participants, I suppose there will necessarily be some of that shift where Bitcoin becomes more responsive in the same way the stock market is.

Maybe a more reasonable version of the macro narrative came from the CEO of Delta Exchange, who said, cryptocurrency was already on the defensive, having breached the long-held 50-day SMA support earlier this week. The tax news invited more profit-taking. Interestingly, the dynamics of these two sell-offs seem different. Here's how Alex Kruger put it. Crashes characterized by extreme liquidations in a highly levered market, e.g. April 17th, bounce fast due to the mechanics of stop losses. Crashes characterized by heavy spot selling not in a highly levered market, e.g. April 22nd, don't bounce as hard, making by the dip much more challenging. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly

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The first has to do with froth. Things have been getting overheated and not in the good way. I did a whole show earlier this week about the return of some very, very 2017-2018 dynamics. In that show, I looked at Doge. While I think Doge has some pretty unique aspects to its story, it is still quite unhealthy to see 600% gains in a month and something like 10,000% gains on a year on a project that is more or less just a meme. It suggests some pretty serious wonkiness going on. As an aside, I'm in a Magic the Gathering classic collector's group on Facebook,

and someone was asking why a card that another person in the group was trying to sell was so expensive. In response to that, someone posted, In a world where fake money, inspired by a dog meme is worth $55 billion, I guess anything is possible. But still, Doge wasn't really the thing giving me pause. Instead, it was stuff that I was starting to see pop up on TikTok. First, an argument for XRP totally divorced from reality, that somehow the SEC lawsuit means that Ripple was the chosen heir to the U.S. dollar.

That would have been one thing if it was just crazy crackpots, but the price of XRP was going up significantly at the same time. Same too with a whole slew of other 2017-2018 vintage coins. Worse, however, was Safe Moon. This is a coin whose main value proposition was a holder game where it charged a 10% fee to anyone who sold it and redistributed half of that to other holders. TikTok was completely ablaze with content about Safe Moon and why it was going to Moon. It was all videos of people talking about how, if it only went to one cent per token, you could turn $30,000 into $200,000. The problem,

of course, is that there are one quadrillion Safe Moon tokens, so that if it did become one cent, that would make the market cap roughly $10 trillion, or 5x the entire size of the current crypto market. This is the type of logic that is addictive and dangerous. Still, safe moon pumped like 100% in a day and then crashed again and is sort of just kept falling. As I said, this is the good news section. And the point I want to make here is that these types of random pump coins being all over TikTok and that shit actually working is not a sign of a healthy market.

It is a sign of exactly the opposite, in fact, where there is no relationship between risk and reward on even the most tenuous level. That's the thing that ultimately tore the ICO boom to shreds. A huge amount of nothing pumped through the shit coin waterfall. Each step on the waterfall got people who were closer to the issuers a little richer, and so it was perpetuated. But that sort of thing can only go on so long. You can tell out there right now that the 2017-2018-2018 PTSD is real. That wasn't just a normal market cycle. It was peak insanity and, that took years of recovery to right side. Anyone who lived through that really, really doesn't want to go through it again. There is this notion currently of a Bitcoin super cycle. The idea is that if in the past

the crypto market cycle has followed a four-year function where the decrease in supply of the halving initially creates a boost in price as more people try to get in, and then that peters off for a while until the whole thing starts again. That's the regular Bitcoin cycle. That's the historic Bitcoin cycle. The idea of a super cycle is that because of all of these institutions that have come in, we potentially have a new set of forces which keep a more perpetual, ongoing demand that isn't strictly focused around the four-year halving cycle. I can think of nothing that could do more to screw up any truth there is in this super cycle concept than running a repeat of 2017, where tons and tons of retail investors get involved

in these terrible projects, and that becomes the thing that the Bitcoin industry is to outsiders, to regulators, to traditional institutions, etc. Right now, it looks like this dip has wiped the momentum off of just about everything. Maybe. Maybe it gives us a chance to regroup and avoid this 2017 replay that I'm dreading. Maybe. Before we wrap, however, one more piece of good news for those of you who are crying over your Bitcoin pile. I'll remind you that in 2017, when it came to Bitcoin, there were some serious moves down on the way up. 32% down in January, 31% down in March, 40% down around July and August, 35.7% down around October,

and then 28.7% down in November before that big March to 20K. The point is this. Bull markets aren't strictly linear. And despite the name of the Crypto Cobain and Ledger Status show, there is no such thing as up only. As we've discussed today, here's hoping that that might be in this case a good thing. For now, guys, I appreciate you listening. I hope you're having a great weekend. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history.

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